How Do Credit Rating Agencies Rate? An Implementation Perspective on the Assessment of Austerity Programs during the European Debt Crisis

Abstract

During the recent European debt crisis, credit rating agencies (CRAs) and the ratings they were producing became a frequent bone of contention. We analyze which factors are considered by CRAs when they judge a state's credibility in implementing an announced austerity program. The results of a fuzzy-set Qualitative Comparative Analysis of credit ratings show that implementation-related factors had a comparatively minor impact while the level of economic competitiveness of the evaluated country displayed high explanatory power. The findings highlight the desolate implications for less competitive countries that emanate from credit ratings and their influence on refinancing costs. While competitive states are deemed better able to generate future growth and therefore get positive evaluations, less competitive states cannot prevent (further) downgrades in the short- or middle-term by announcing austerity programs. Related Articles: Hazakis, Konstantinos J. 2015. “The Political Economy of Economic Adjustment Programs in the Eurozone: A Detailed Policy Analysis.” Politics & Policy 43 (6): 822-854. http://onlinelibrary.wiley.com/doi/10.1111/polp.12141/abstract. Exadaktylos, Theofanis, and Nikolaos Zahariadis. 2014. “Quid pro Quo: Political Trust and Policy Implementation in Greece during the Age of Austerity.” Politics & Policy 42 (1): 160-183. http://onlinelibrary.wiley.com/doi/10.1111/polp.12058/abstract. Luckhurst, Jonathan. 2012. “The G20 and ad hoc Embedded Liberalism: Economic Governance amid Crisis and Dissensus.” Politics & Policy 40 (5): 740-782. http://onlinelibrary.wiley.com/doi/10.1111/j.1747-1346.2012.00387.x/abstract. Related Media: European Central Bank. 2016. “Eurosystem Publishes More Detailed Criteria for Accepting Rating Agencies.” ECB Economic Bulletin Issue 1/2016—Box 3. http://www.ecb.europa.eu/pub/pdf/other/eb201601_focus03.en.pdf. Standard and Poor's. 2016. “Ratings Criteria.” http://www.standardandpoors.com/en_US/web/guest/ratings/ratings-criteria/-/articles/criteria/governments/filter/sovereigns.