S&P Makes Waves with Ratings Moves on EU, Mexico

Undeterred by apparent attempts of late by the European Union to control the message coming out of the three largest credit ratings agencies, Standard & Poor’s boldly cut the EU’s “AAA” credit rating late last week. Meanwhile, an emerging economy appears to be catching the agency's eye in a good way.

Citing ongoing, well-publicized concerns about European sovereign debt levels, the EU was cut to a rating of “AA+.” S&P, which was the only of the ratings agencies to cut the U.S. rating in recent years over debt and government gridlock, in previous months and years cut ratings and/or outlooks for a number of member nations in the EU. It comes on the heels of a European report that claimed massive deficiencies in how S&P, along with Moody’s Investors Service and Fitch Ratings, generates its ratings – the report is seen by many as setting the stage for the EU to fine and/or sue each of the three agencies. The EU also attempted to censor the agencies, essentially, by passing fast-tracked legislation about a year ago attempting to set up time frames for when the agencies could release information on sovereign ratings. It also opened the door for investors to sue them if ratings information caused them significant financial losses.

S&P did, however, uphold the sterling “AAA” rating for Britain, which is not on the euro as a currency even as it is member of the EU. Its government’s debt reduction efforts have impressed S&P analysts.

Also impressing S&P analysts is the direction of Mexico. As such, its sovereign long-term foreign currency rating was raised by one level to “BBB+.” Mexico’s latest rise is tied almost solely to the recent change there in energy policy in which private investment will be allowed within the oil/gas sector for the first time since the late 1930’s. As such, S&P sees massive new potential for Mexican growth levels that had already been rising impressively in years before this monumental policy announcement. Mexico had previously been building credibility because it was able to insulate its economic plight during the global downturn more so than most other emerging and traditional power nations.

-Brian Shappell, CBA, CICP, NACM staff writer

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