Credit rating agencies and the sovereign debt crisis: Performing the politics of creditworthiness through risk and uncertainty

ABSTRACT

As member states struggle to retain the investment grades necessary to allow them to finance their governmental operations at a reasonable cost, credit rating agencies (CRAs) have been blamed for exacerbating a procyclical bias which only makes this task more difficult. How CRAs contribute to the constitution of the politics of limits underpinning the European sovereign debt crisis is at the core of this article. As a socio-technical device of control, sovereign ratings are an ‘illocutionary' statement about budgetary health, which promotes an artificial fiscal normality. Subsequently, these austere politics of creditworthiness have ‘perlocutionary' effects, which seek to censure political discretion through normalizing risk techniques aligned with the self-systemic, and thereby self-regulating, logic of Anglo-American versions of capitalism. The ensuing antagonistic relationship between the programmatic/expertise and operational/politics dimensions of fiscal governance leaves Europe vulnerable to crisis and the renegotiation of how the ‘political' is established in the economy. New regulatory technical standards (RTS) can exacerbated the performative effects on CRAs, investors and member states.

KEYWORDS:

• Credit rating agencies
• European Union
• risk and uncertainty
• sovereign debt crisis
• financial governance
• performativity

ACKNOWLEDGEMENTS

A substantial portion of this article was written while the author was a Visiting Fellow at the University of Warwick's Centre for the Study of Globalisation and Regionalisation during the summer of 2011. Special thanks to Tim Sinclair for his insightful comments and stimulating exchanges. The author also acknowledges the help of Matthew Watson, PAIS, Randall Germain, Rob Walker and three anonymous reviewers in the development of this piece and previous drafts. Thanks to Amy Verdun for her guidance.

Notes

1. Ratings are signals which inform market actors of the suitability standards of an issuer. Investment policies and mandates of portfolio and asset managers demand that they only invest in investment grade bonds. Ratings also certify which securities can serve as part of regulatory capital requirements.