Rating Politics: Sovereign Credit Ratings and Democratic Choice in Prosperous Developed Countries – A Summary of the Argument
-
Zsófia Barta
Abstract
This article summarizes the core argument of ‘Rating Politics: Sovereign Credit Ratings and Democratic Choice in Prosperous Developed Countries’, co-authored by Zsófia Barta and Alison Johnston and published by Oxford University Press. The book shows that credit rating agencies have become central actors in global governance by dint of their propensity to assign penalties and rewards to the political and policy choices of sovereign governments. It explores the logic according to which those penalties and rewards are meted out, and argues that these rewards and penalties not only constitute a violation of democratic sovereignty, but potentially undermine long-term economic growth and social and political stability, thereby also weakening countries’ long-term debt-servicing capacity.
Acknowledgements
The authors would like to thank the editors of Convivium for organizing this special issue for ‘Rating Politics’, thereby encouraging a deeper debate about the increasing power of insufficiently-known financial market actors and their motivations for interfering with democratic choice, and all the colleagues who contributed to the symposium.
References
Afonso, A. 2003. “Understanding the Determinants of Sovereign Debt Ratings: Evidence for the Two Leading Agencies.” Journal of Economics and Finance 27 (1): 56–74.10.1007/BF02751590Search in Google Scholar
Afonso, A., M. G. Arghyrou, and A. Kontonikas. 2015. The Determinants of Sovereign Yield Spreads in EMU. ECB Working Paper No. 1781. Frankfurt: European Central Bank.10.2139/ssrn.2611958Search in Google Scholar
Afonso, A., P. Gomes, and P. Rother. 2007. “What ‘Hides’ Behind Sovereign Debt Ratings?”, European Central Bank Working Paper Series No711. Frankfurt: European Central Bank.10.2139/ssrn.954705Search in Google Scholar
Archer, C. C., G. Biglaiser, and Jr, K. DeRouen. 2007. “Sovereign Bonds and the “Democratic Advantage”: Does Regime Type Affect Credit Rating Agency Ratings in the Developing World?” International Organization 341–65. https://doi.org/10.1017/s0020818307070129.Search in Google Scholar
Barta, Z., and A. Johnston. 2021. “Entitlements in the Crosshairs: How Sovereign Credit Rat- Ings Judge the Welfare State in Advanced Market Economies.” Review of International Political Economy 28 (5): 1169–95. https://doi.org/10.1080/09692290.2020.1756895.Search in Google Scholar
Becker, B., and T. Milbourn. 2010. How did Increased Competition Affect Credit Ratings. NBER Working Paper 16404. Cambridge, MA: National Bureau of Economic Research.10.3386/w16404Search in Google Scholar
Bhatia, A. V. 2002. Sovereign Credit Ratings Methodology: An Evaluation. IMF Working Paper 02/170. Washington. DC: The International Monetary Fund.10.5089/9781451858433.001Search in Google Scholar
Biglaiser, G., B. Hicks, and C. Huggins. 2008. “Sovereign Bond Ratings and the Democratic Advantage: Portfolio Investment in the Developing World.” Comparative Political Studies 41 (8): 1092–116. https://doi.org/10.1177/0010414007308021.Search in Google Scholar
Brooks, R., R. W. Faff, D. Hillier, and J. Hillier. 2004. “The National Market Impact of Sovereign Rating Changes.” Journal of Banking & Finance 28 (1): 233–50. https://doi.org/10.1016/s0378-4266(02)00406-5.Search in Google Scholar
Bruner, C. M., and R. Abdelal. 2005. “To Judge Leviathan: Sovereign Credit Ratings, National Law, and the World Economy.” Journal of Public Policy 191–217. https://doi.org/10.1017/s0143814x05000292.Search in Google Scholar
Cantor, R., and F. Packer. 1996. “Determinants and Impact of Sovereign Credit Ratings.” Economic Policy Review 2 (2). https://doi.org/10.1111/j.1468-036x.1996.tb00040.x.Search in Google Scholar
Cantor, R., O. Ap Gwilym, and S. H. Thomas. 2007. “The Use of Credit Ratings in Investment Management in the US and Europe.” The Journal of Fixed Income 17 (2): 13–26. https://doi.org/10.3905/jfi.2007.695282.Search in Google Scholar
Carruthers, B. G., and E. Lockwood. 2019. “Beyond Conditionality.” In The Oxford Handbook of Institutions of International Economic Governance and Market Regulation. Oxford: Oxford University Press.10.1093/oxfordhb/9780190900571.013.5Search in Google Scholar
Cornaggia, J., and K. J. Cornaggia. 2013. “Estimating the Costs of Issuer-Paid Credit Ratings.” The Review of Financial Studies 26 (9): 2229–69. https://doi.org/10.1093/rfs/hht041.Search in Google Scholar
Datz, G. 2004. “Reframing Development and Accountability: The Influence of Sovereign Credit Ratings on Policy Making in Developing Countries.” Third World Quarterly 25 (2): 303–18. https://doi.org/10.1080/0143659042000174824a.Search in Google Scholar
Ferri, G., L. G. Liu, and J. E. Stiglitz. 1999. “The Procyclical Role of Rating Agencies: Evidence from the East Asian Crisis.” Economic Notes 28 (3): 335–55. https://doi.org/10.1111/1468-0300.00016.Search in Google Scholar
Gaillard, N. J., and M. Waibel. 2018. “The Icarus Syndrome: How Credit Rating Agencies Lost Their Quasi-Immunity.” SMU L. Rev. 71: 1077.Search in Google Scholar
Gärtner, M., B. Griesbach, and F. Jung. 2011. “PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies.” International Advances in Economic Research 17 (3): 288–99. https://doi.org/10.1007/s11294-011-9302-7.Search in Google Scholar
Griesbach, B, M Gärtner, and F. Jung. 2011. “PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies.” International Advances in Economic Research 17: 288–99.10.1007/s11294-011-9302-7Search in Google Scholar
Haque, N., N. C. Mark, and D. J. Mathieson. 1998. The Relative Importance of Political and Economic Variables in Creditworthiness Ratings. IMF Working Paper 98/46.10.5089/9781451846522.001Search in Google Scholar
International Monetary Fund. 2010. “The Uses and Abuses of Sovereign Credit Ratings.”In Global Financial Stability Report, October 2010: Sovereigns, Funding, and Systemic Liquidity.Search in Google Scholar
Kaminsky, G., and S. Schmukler. 1999. “What Triggers Market Jitters; A Chronicle of the Asian Crisis.” Journal of International Money and Finance 18: 537–60. https://doi.org/10.1016/s0261-5606(99)00015-7.Search in Google Scholar
Kerwer, D. 2002. “Rating Agencies Setting a Standard for Global Financial Markets.” Economic Sociology: European Electronic Newsletter 3 (3): 40–5.Search in Google Scholar
Kerwer, D. 2005. “Holding Global Regulators Accountable: The Case of Credit Rating Agencies.” Governance 18 (3): 453–75. https://doi.org/10.1111/j.1468-0491.2005.00284.x.Search in Google Scholar
Levich, R. M., G. Majnoni, and C. M. Reinhart. 2002. “Introduction: Ratings, Rating Agencies and the Global Financial System: Summary and Policy Implications.” In Ratings, Rating Agencies and the Global Financial System, 1–15. Boston: Springer.10.1007/978-1-4615-0999-8_1Search in Google Scholar
Mennillo, G., and T. J. Sinclair. 2019. “A Hard Nut to Crack: Regulatory Failure Shows How Rating Really Works.” Competition & Change 23 (3): 266–86. https://doi.org/10.1177/1024529419833870.Search in Google Scholar
Mosley, L. 2000. “Room to Move: International Financial Markets and National Welfare States.” International Organization: 737–73. https://doi.org/10.1162/002081800551352.Search in Google Scholar
Mosley, L. 2003. Global Capital and National Governments. Cambridge: Cambridge University Press.Search in Google Scholar
Mügge, D. 2011. “From Pragmatism to Dogmatism: European Union Governance, Policy Paradigms and Financial Meltdown.” New Political Economy 16 (2): 185–206. https://doi.org/10.1080/13563461003789753.Search in Google Scholar
Murphy, B. 1999. “Credit Ratings and Emerging Economies: Building Confidence in the Process of Globalization.” In Report of a Conference Sponsored by the Friedrich Ebert Foundation, Fall 1999. New York: Friedrich Ebert Foundation.Search in Google Scholar
Ostry, J. D., A. R. Gosh, and R. Espinoza. 2015. When Should Public Debt Be Reduced? IMF Staff Discussion Note SDN/15/10. Washington, DC: The International Monetary Fund.10.5089/9781498379205.006Search in Google Scholar
Partnoy, F. 1999. “The Siskel and Ebert of Financial Markets: Two Thumbs Down for the Credit Rating Agencies.” Wash. Ulq 77: 619.10.2139/ssrn.167412Search in Google Scholar
Partnoy, F. 2006. “How and Why Credit Rating Agencies Are Not like Other Gatekeepers.” In Financial Gatekeepers: Can They Protect Investors? edited by Y. Fuchita, and R. E. Litan. San Diego: Brookings Institution Press and the Nomura Institute of Capital Markets Research.Search in Google Scholar
Partnoy, F. 2009. “Rethinking Regulation of Credit Rating Agencies: An Institutional Investor Perspective.” Washington, DC: Council of Institutional Investors.Search in Google Scholar
Paudyn, B. 2013. Credit Rating Agencies and the Sovereign Debt. Hampshire: Palgrave MacMillan.Search in Google Scholar
Paudyn, B. 2015. “The Struggle to Perform the Political Economy of Creditworthiness: European Union Governance of Credit Ratings through Risk.” Journal of Cultural Economy 8 (6): 655–72. https://doi.org/10.1080/17530350.2015.1062792.Search in Google Scholar
Rhee, R. J. 2013. “On Duopoly and Compensation Games in the Credit Rating Industry.” Nw. UL Rev. 108: 85.Search in Google Scholar
Rodrik, D. 1997. “Has Globalization Gone Too Far?” Challenge 41 (2): 81–94.10.1080/05775132.1998.11472025Search in Google Scholar
Rodrik, D. 2000. “How Far Will International Economic Integration Go?” The Journal of Economic Perspectives 14 (1): 177–86. https://doi.org/10.1257/jep.14.1.177.Search in Google Scholar
Rodrik, D. 2011. The Globalization Paradox: Why Global Markets, States, and Democracy Can’t Coexist. Oxford: Oxford University Press.Search in Google Scholar
Sassen, S. 1996. Losing Control? Sovereignty in the Age of Globalization. New York: Columbia University Press.Search in Google Scholar
Sinclair, T. J. 2005. The New Masters of Capital: American Bond Rating Agencies and the Politics of Creditworthiness. Ithaca: Cornell University Press.Search in Google Scholar
Soudis, D. 2015. “Credit Rating Agencies and the IPE: Not as Influential as Thought?” Review of International Political Economy 22 (4): 813–37. https://doi.org/10.1080/09692290.2014.957234.Search in Google Scholar
Strange, S. 1996. The Retreat of the State: The Diffusion of Power in the World Economy. Cambridge: Cambridge University Press.10.1017/CBO9780511559143Search in Google Scholar
Streeck, W. 2014. Buying Time: The Delayed Crisis of Democratic Capitalism. London: Verso Books.Search in Google Scholar
Sy, A. N. 2002. “Emerging Market Bond Spreads and Sovereign Credit Ratings: Reconciling Market Views with Economic Fundamentals.” Emerging Markets Review 3 (4): 380–408. https://doi.org/10.1016/s1566-0141(02)00043-2.Search in Google Scholar
Sy, A. N. R. 2009. “The Systemic Regulation of Credit Rating Agencies and Rated Markets.” IMF Working Papers 1–36. https://doi.org/10.5089/9781451872767.001.Search in Google Scholar
Vernazza, D. R., and E. F. Nielsen. 2015. “The Damaging Bias of Sovereign Ratings.” Economic Notes: Review of Banking, Finance and Monetary Economics 44 (2): 361–408. https://doi.org/10.1111/ecno.12037.Search in Google Scholar
White, L. J. 2002. “The Credit Rating Industry: An Industrial Organization Analysis.” In Ratings, Rating Agencies and the Global Financial System, 41–63. Boston: Springer.10.1007/978-1-4615-0999-8_3Search in Google Scholar
© 2024 CONVIVIUM, association loi de 1901
