how rating agencies distribute good and bad points

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The Paris offices of financial rating agencies could be somewhat deserted in the coming weeks. “The teleworking rules have been a blessing for us”, says the manager (who requires to remain anonymous) of one of them with a smile. He still shudders at the memory of the day when, during the eurozone sovereign debt crisis (2010-2015), angry demonstrators invaded the offices of the agency of a European country. Today he monitors discussions on social networks “like milk on the fire”fearing the risks “calls for revolt” coming from the extreme left or the extreme right. “From now on, we can go dematerialized overnight, if necessary…”

With the recent slippage of the French public deficit, rising to 5.5% of gross domestic product (GDP) in 2023, instead of 4.9% initially forecast, the rating agencies are making a comeback in the public debate. After 2012, in the midst of the euro zone crisis, they all removed France from the famous “AAA” – the highest level of a rating on which a country’s borrowing rates depend. Then nothing for almost a decade. In April 2023, Fitch, one of the three main rating agencies with Moody’s and Standard & Poor’s (S&P Global Ratings), was the first to return to the charge: sanctioning the slow drift in public accounts, it downgraded the French rating from AA to AA – that is, from the third to the fourth best level.

Further declines could occur in the coming weeks. Friday April 26, Fitch and Moody’s (the latter currently assigns an Aa2 to France, the third best rating in its classification system) must make their decision known. They will be followed on May 31 by S&P (which currently gives a rating of AA, also its third best rating, accompanied by a “negative outlook”).

Avoid the effects of panic

But by virtue of what have these three American financial giants assumed the right to distribute their good or bad points? “Who rang our bell? These are the investors, responds Yann Le Pallec, director of credit ratings at Standard & Poor’s. We are here to provide them with information. They are the ones who then decide where to invest their money. »

During the financial crisis of 2008, then that of sovereign debts, rating agencies were accused of all evils. In 2008, by awarding the best ratings to risky credits, the famous American subprimes, they contributed to the blindness of the markets. Then they were accused of accelerating the panic, each downgrade of the rating scaring away investors, which had the consequence of worsening the situation.

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