Pigs or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies

Procyclicality and Path Dependence of Sovereign Credit Ratings: The Example of Europe

“…Contrary to that, in two regressions the interaction variable between the GIPS countries and the business cycle is positive significant, which means that the GIPS countries have a decreased chance of downgrades in bad times and an increased chance of downgrades in boom times. The GIPS variable itself is insignificant in every regression, which is different from Gärtner et al (); however, Gärtner only looks at levels of ratings. The R‐squares are on a similar level as the ones explaining the rating level.…”

“…Furthermore, there is a GIPS variable which indicates whether a country is part of the European troubled economies, that is, it is equal to 1 in case of Spain, Ireland, Portugal, and Italy. Gärtner et al () finds a significant relationship between ratings and these countries. For the dependent variable, the respective ratings are Long Term: Issuer Rating (Foreign) from Moody's, Issuer Credit Rating Foreign Long Term by Standard and Poor's, and Long Term Issuer Default Rating by Fitch.…”

“…One could therefore expect that also only stock variables to be significant. However, there is a considerable amount of literature for example Afonso () or Gärtner et al () who find stock as well as flow variables to be significant in their regressions. Therefore, both types of variables are used as regressors.…”

Did EMU membership cause the “Dutch disease” in the PIGS nations?

“…A third, less stringent voice can be heard, deriding the role played by global credit rating agencies, seen in the article by Gartner, Griesbach, and Jung (2011). Darvas, Pisani-Ferry, and Sapir (2011) writes that the Greek public debt problem is the most severe, so much so that a primary budget surplus of 8.4% of GDP would be needed to reduce the debt-GDP ratio to 60%.…”

Behavioral Finance and Capital Markets

“…G ä rtner, Griesbach, and Jung (2011) provide empirical evidence for agencies' overreaction. Regressing historical evaluations against fundamentals, they demonstrate that previous practices of the agencies and the later situation in some of the peripherial countries did not justify such heavy downgrades.…”