Ratings agencies running the show in Europe and US

This post appeared in The Guardian Business Blog on July 20th 2011 and has been reposted here with permission.

The three main credit ratings agencies—Moody’s, Fitch and Standard & Poor’s—are heavily influencing fiscal policy in the eurozone and the United States. Objectively, this is madness. That is what finance ministries and departments are for. Still, the credit ratings agencies are not to be blamed for the debt crises in the euro area or the US.

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Who will blink first, Schäuble or Trichet?

Germany and the European Central Bank (ECB) are at a stalemate over what to do about Greek government debt. Germany demands significant private sector involvement in returning Greece to debt sustainability, while the ECB has gone nuclear and said that any restructuring or reprofiling of Greek debt will force the central bank to reject Greek government debt as collateral for its lending facilities. Who will blink first?

I think Germany will end up backing down.

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