20 January 2012. The rating agency of Standard & Poor's downgraded nine eurozone countries from AAA to AA+ including France, Austria, Italy and Spain in January 2012. As recently as 16 January The European Financial Stability Facility's (EFSF) was downgraded to AA+ making it harder for the bailout fund to borrow at a low rate.
Who Watches the Ratings Agencies?
While some have said that ratings agencies like Standard & Poor's are late to the reality of the situation, others have questioned whether they themselves have a political agenda. In December of 2011 Professor Dr Manfred Gaertner of HSG spoke with BBC's Today about the role of rating agencies.
"Ratings agencies these days are a major threat to the global economy," said Prof Dr Gaertner. He went on to note that before the December 2011 eurozone summit Standard & Poor's said they wanted to put pressure on the leaders by threatening downgrades.
"This to me is actually an outrage, because it reveals that they have a political agenda, and this is not what their business should be," said Prof Dr Gaertner. "I think it slaps in the face the people who defended Moody's and company by likening them to innocent weathermen which they are obviously not." Prof Dr Gaertner went on to say that there should be legal procedures put in place that would allow a country to sue a ratings agency for damages caused by an inappropriate downgrade, thereby creating some accountability.
Protectionism still abounds
Jeremy Warner of The Telegraph on 6th January 2012 critiqued a discussion on BBC Two where it was agreed that the ongoing economic crisis hasn't lead to a great deal of protectionism. Mr. Warner acknowledged that this seemed to be the consensus among many. However, he said it may not be the truth. As his evidence he cited the Global Trade Alert by Prof Dr Simon Evenett which said that the it appears "the protectionist threat to the world trading system is probably as significant as it was in the first half of 2009."
"In our last report," wrote Prof Dr Evenett, "concerns were raised that a deteriorating macroeconomic climate would lead to greater protectionism. This fear has come to pass." He went on to write that reports on protectionism in 2011 were as bad as reports over the same period in 2009 and that many of the protectionism measures were taken by large trading nations and therefore have the a wide speared effect. "Recent protectionism cannot be dismissed as a large number of small pinpricks," said Prof Dr Evenett.
Switzerland & Free Trade Agreements
The prospect of Switzerland being able to move protectionism policies in large trading economies looks dim as well according to Matthew Allen of swissinfo.ch. Allen writes that while Switzerland has worked out a number of individual free trade agreements, it may be "too lightweight to overcome such hurdles as human rights issues, intellectual property disputes, opaque governance structures and protectionism." Allen asked Prof Dr Simon Evenett, if it was possible for Switzerland to negotiate better terms on its own without joining forces with more powerful economies.
“Switzerland is negotiating with very big trading partners who will feel no compulsion to make substantial concessions to Swiss interests,” said Prof Dr Evenett, “I can’t imagine India or China giving Switzerland a particularly innovative deal. It might look good on paper, but I can hardly see them creating many jobs in Switzerland.”
Photo: Photocase / Jala