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Rating Politics - Sovereign Credit Ratings and Democratic Choice in Prosperous Developed Countries (Hardcover)
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Rating Politics - Sovereign Credit Ratings and Democratic Choice in Prosperous Developed Countries (Hardcover)
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How do countries' political and policy choices affect the credit
ratings they receive? Sovereign ratings influence countries' cost
of funding, and observers have long worried that rating agencies -
these unelected, unappointed, unaccountable, for-profit
organizations - can interfere with democratic sovereignty if they
assign lower ratings to certain political and policy choices. The
questions of whether, how, and why ratings react to policy and
politics, however, remain unexplored. Rating Politics opens the
black box of sovereign ratings to uncover the logic that drives
rating responses to political and policy factors. Relying on
statistical analysis of rating scores, interviews with sovereign
rating analysts, and a close reading of the official communications
of rating agencies about their decisions, Zsófia Barta and Alison
Johnston show that ratings penalize center-left governments and
many (though not all) policies associated with the center-left
agenda. The motivation for such penalties is not rooted in
assumptions about how those political and policy features affect
growth and debt servicing capacity. Instead, ratings are lower in
the presence of those features because they are expected to make a
country more vulnerable to market panics whenever the economy is
hit by unforeseen shocks, as they signal insufficient willingness
and/or ability to engage in determined austerity for the sake of
reassuring markets. Since market panics and the resulting "sudden
stops" of funding lead to humiliating collapses of ratings, rating
agencies attempt to insure themselves against "rating failures" by
pre-emptively assigning lower ratings to countries with the "wrong"
political and policy mix.
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