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Functioning of Rating Agencies: Lessons to be learned

Functioning of Rating Agencies: Lessons to be learned

Standard and Poor’s (S&P) and Moody’s decision to put Germany and 14 other euro area countries, as well as several big banks on a credit watch status with negative implications, onset a lively debate in December 2011. With a probability of 50 percent there will be influential downgrades within the next 90 days. S&P argued “that systemic stresses in the euro zone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the euro zone as a whole”. What is wrong with this assessment?