Many leaders in Europe think it's time to crack down. Not on unnecessary spending or government corruption, mind you, but on credit rating agencies. One EU proposal, for instance, would temporarily ban credit ratings on most sovereign debt.
Things are especially tense in France. On Nov. 10, Standard & Poor's "set off a firestorm" when it suggested France would lose its Aaa rating, as you learn in EWI's Dec. 2011 European Financial Forecast. Europe's Internal Markets Commissioner declared that agencies should be "accountable for their mistakes."
Here's the only problem: The market downgraded France months ago. In the new European Financial Forecast, Editor Brian Whitmer explains that credit rating agencies simply "[endorse] the judgments that stock markets render far sooner."
Read what Whitmer tells his readers (emphasis added):
"The three panel chart ... shows how the credit markets have already taken away France's Aaa borrowing privileges. French credit-default swaps, for instance, (left panel) have tripled since the CAC 40's February 2011 peak. Bond yields have climbed, too, sending 10-year spreads between French and German debt to all-time highs (middle panel). The last panel shows a potentially important addition to the usual medley: the price of the European Financial Stability Facility's 2¾ note maturing in 2016.... After rising throughout 2011, the 2¾ note peaked two months ago and briefly dropped back below par last month. Bear in mind, this is the facility that Europe uses to borrow on behalf of countries that can no longer borrow."
In other words, credit rating agencies don't determine the safety of financial institutions -- the market does. An EU crackdown wouldn't change the market's underlying reality.
What is that underlying reality? The latest European Financial Forecast shows you how agencies missed warning signs in Spain, Portugal and Greece. Are they missing them in core Europe now, too?
Get the real story on Europe. The new European Financial Forecast gives you timely, independent analysis -- along with specific forecasts and detailed charts for major European bourses. It's a critical perspective for anyone with a stake in Europe's future. Preview the latest issue below.
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Inside the December 2011 European Financial Forecast ...
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European Stocks: A Buy of a Lifetime ...
or Time to Jump Ship?
Every recent stock rally in Europe ignites the hope that the worst of the debt crisis is finally over. Yet every mini-crash that follows mocks those hopes once again ... and again.
We watched ups and downs like these in 2007-2009, when the pan-European Eurostoxx 50 index witnessed at least five double-digit, multi-week rallies. Each time, however, the Eurostoxx rolled over to the downside again.
But one day -- someday? -- Europe will rebound for real. How do you know when that moment is here? KEEP READING>>