The Ratings Scam

The U.S. rating agency Standard and Poor’s has become a something of a joke in Austria. What? They downgraded us? While still awarding a AAA to the United Kingdom?

Since the London riots, every Austrian knows that unemployment in the U.K. is high – in fact 8.6%, whereas here it still hovers around 4%, the lowest in the EU.  Our public debt, while too high at 70% of GDP, is far below the eurozone average of 86% and far below the U.K. at 148%, both figures counting financial interventions.  All in all, it’s just not funny!

The reasons given were: 1) inflexible government institutions, and 2) exposure to the failing Hungarian economy. Could be they simply don’t seem to know what they’re talking about.

Take flexibility: Austria has many shock absorbers that kick in in hard times  – reductions in overtime, further training, and shorter working hours instead of layoffs, steadying consumption until the economy picks up. Then there’s the social partnership – still alive and well – that brings government, business, labour and academia to the table to work out policy that takes all interests into account. It’s not a formal government body, but it works.

And while Hungary is reeling, it’s only a small part of the picture; the rest of the CEE is holding its own, in part through the “Vienna Initiative” of Western and Eastern European bank managers, the IMF and the EBRD, who lobbied the private sector to stay involved in the CEE, preventing panic selling.

All in all, Austria seems to be doing fine. Economist Marcus Scheiblecker of the Austrian Institute for Economic Research (WIFO) expects the Austrian economy to post a very respectable growth rate of 3% for 2011, as Germany is Austria’s largest trading partner and the weak economies of Europe play only a small role.

Fortunately Austrians aren’t paying much attention. In a survey by, published 19 Jan., 78% of Austrians doubt the competence of the ratings agencies, citing their failure to recognise the build-up to the 2008 financial crisis.

They may be on to something. The stock markets barely quivered in response to the news. As Jeffrey Kleintop, chief market strategist at LPL Financial told The New York Times, “downgrades by rating agencies are really a lagging indicator. The analysts are reacting to the same news and information that the rest of the market has already seen.”

Adjustments have already been made – as we have made ours about Standard & Poor’s.


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