Rating Politics: Sovereign Credit Ratings and Democratic Choice in Prosperous Developed Countries

Rating Politics reveals that sovereign ratings penalize center-left governments and policies, driven by market fears of economic shocks and the need for austerity.

Format: Hardback
Length: 224 pages
Publication date: 27 April 2023
Publisher: Oxford University Press

Sovereign ratings significantly impact countries' cost of funding, raising concerns about the potential interference of rating agencies in democratic sovereignty. These unelected, unappointed, unaccountable, for-profit organizations have the power to assign lower ratings to certain political and policy choices, which can have far-reaching consequences. While the questions of whether, how, and why ratings react to policy and politics remain largely unexplored, Rating Politics aims to uncover the underlying logic that drives rating responses to political and policy factors.

Through a comprehensive analysis of rating scores, interviews with sovereign rating analysts, and a close reading of rating agencies' official communications, Zsófia Barta and Alison Johnston reveal that ratings penalize center-left governments and many policies associated with the center-left agenda. The motivation for these penalties is not rooted in assumptions about how these political and policy features affect growth and debt servicing capacity. Instead, ratings are lower in the presence of these features because they are expected to make a country more vulnerable to market panics, particularly during unforeseen economic shocks.

Market panics and the resulting sudden stops of funding lead to humiliating collapses of ratings, prompting rating agencies to take preventive measures. They pre-emptively assign lower ratings to countries with the wrong political and policy mix, aiming to safeguard themselves against rating failures. This approach highlights the power dynamics at play in the sovereign rating system and the importance of understanding the factors that influence rating decisions.

In conclusion, Rating Politics provides valuable insights into the complex relationship between countries' political and policy choices and their credit ratings. By shedding light on the mechanisms that drive rating responses, the book contributes to our understanding of the political and economic implications of sovereign ratings. It underscores the need for greater transparency and accountability in the rating industry, as well as the importance of promoting democratic governance and policy choices that prioritize long-term stability and growth.

Weight: 496g
Dimension: 163 x 242 x 21 (mm)
ISBN-13: 9780198878179