Written by Mark Jones
LONDON (Reuters) – Scope, Europe’s first ECB-approved credit rating agency, has pledged to put more emphasis on improving the eurozone’s ability to weather the crisis, despite concerns about Italy and France, and said it would be more concerned about the Dutch election. It warned that the outcome could jeopardize the much-needed trilateral partnership. Grades.
Berlin-based Scope could play a key role in future financial market crises as the European Central Bank joins a soon-to-be group of five countries to determine the value of government bond collateral.
It is also the first time domestic players have been challenged by policymakers since the height of the region’s debt crisis 15 years ago, when mass rating downgrades by U.S. government agencies such as S&P and Moody’s were publicly blamed for causing the chaos. His ambitions will also come true.
Because of its European roots, Scope inherently values the eurozone fortifying itself, which is why it was the first institution to restore investment grade ratings to Greece, a product of the financial crisis. states that it is part of the
Asked how Scope’s ratings compare to other firms such as S&P, Moody’s, Fitch and DBRS Morningstar, Dennis Shen, Scope’s top sovereign analyst, said: One of its distinguishing features is its emphasis on multiple improvements in Europe’s institutional system. It is on the ECB list.
In his first in-depth interview since gaining ECB approval earlier this month, Shen gave an example of how coronavirus-related support measures would last beyond the pandemic, telling Reuters: “We take this type of system strengthening very seriously.”
The eurozone has pledged to “do whatever it takes” and issued joint bonds for the first time during the pandemic, but its debt burden remains staggering.
Italy, France, Spain, Portugal and Greece all have debt-to-GDP ratios well above 100%, but Cyprus is currently the only country where a smaller proportion of its tax revenue goes towards debt servicing than before. is a member of the euro area.
Shen said Scope had a “stable” outlook for Italy, but “risks still remain given the weak growth and fiscal outlook.”
The country is also one of the countries that could become subject to the European Union’s Excess Deficit Procedure (EDP) in the coming years, and the ECB will have to deal with the crisis if markets turn to Rome again. The use of Telecommunications Protection Measures (TPI) would be technically prohibited.
“Italy would be vulnerable if we find ourselves in the opposite scenario where yields rise again and the market is unsure whether its bonds will be subject to ECB intervention,” Shen said.
next crisis
The ECB uses the highest available rating from its approving authority to determine the collateral value of a bond when a commercial bank borrows from it.
The three-tier system assigns bonds rated AAA to A- about 5% more than those rated BBB+ to BBB-, but bonds with lower ratings are exempt unless the ECB bends the rules.
During the eurozone crisis, Canada-based DBRS provided a lifeline to Italy by maintaining its rating at A- for a much longer period of time than S&P, Moody’s and Fitch, with Italian government bonds at a maximum at a critical time. The collateral value was maintained.
Scope, which has fewer than a dozen sovereign analysts, also recently upgraded Portugal to A-minus, effectively saying that setting France’s rating outlook to negative could result in France’s AA rating being downgraded. I warned you.
“The Ministry of Finance is taking steps, which are having a certain (favorable) impact on the trajectory of the debt, especially if this is accompanied by strong growth,” Shen said, adding that France’s debt is expected to reach the national total by 2028. We still expect it to reach 112% of GDP.
This may not bode well for a future crisis, where borrowing levels could rise again and the current inflationary environment is expected to contribute to debt decline.
The victory of far-right party Geert Wilders in last week’s Dutch general election could also have an impact on ratings, Shen said.
“Governance risks are a long-term challenge for one of the world’s remaining AAA-rated sovereigns… but the rating is not in immediate jeopardy.”
(Reporting by Mark Jones; Editing by Kirsten Donovan)
