WELCOME ONBOARD

The rollercoaster that is the Eurozone looks set to pick up speed again as Moody's downgrades Portugal to 'junk' status.

Like some wheezing old carney ride on Coney Island, it drags itself up to the summit, only to risk diving once again into fears of default and contagion.

Now having one agency downgrade, is not in itself dangers - although the markets are positioning themselves accordingly this morning.

And Moody's said there was better political stability and will in Portugal than in Greece.

However, somewhere down the line those in control in the Eurozone really will have to ask what the payoff is between a political will to keep the Euro going and the financial costs that this is bringing on members?

RATING EUROPE

So moves have begun to create a rating agency in Europe to balance against the US top three - Fitch, S&P and Moody's.

As I wrote in the last Financial Risks Today, there has been a lot of anger against these agencies but at the end of the day, I honestly believe that if you just go on what an agency says and you fail to do your own due dililgence then, ultimately, it is your own fault.

Yes, there are issues over conflict of interest but does anyone honestly know a better way of payment?

Bizarrely, it can be claimed that the introduction of Fitch created the competitive environment that resulted in the agencies possibly giving kinder ratings than they should have.

Yet competition is the answer?

Yes, the agencies made errors, which the fully accept, but will the creation of a European agency help and will it be truly independent?

I hope so and to answer my own question - competition is healthy, as long as it keeps the competitors honest.

GREECE SLIDES

I make no apologies for coming back to this topic - the periphery Eurozone countries are going to be in the news quite a bit over the coming months.

The interesting thing to note about Moody's latest downgrade is that there is an evens-chance of a default on Greece's sovereign debt.

Although Moody's says that it doesn't think that Greek debt restructuring is inevitable, it is curious that of all the Caa1- rated insitutions, within a five-year period, 50% have defaulted. 

Many in the media have concentrated on the fact that Greece is now at the bottom of the league table with a worse credit rating than Montenegro, but is this the first time that the odds have significantly foreshortened for the worst from a ratings agency?

A LOAD OF BANKERS...

had an interesting breakfast this morning - although I suspect not as interesting as certain footballers had - after Moody's announced it may downgrade their credit status after a review.

The downgrades are to do with the UK government and regulators shutting the public purse and saying, basically, you fail it is up to you, your bondholders, and your sector to sort it out.

This is not to do with how credit-worthy, that is "are you good for your loan?", banks are, and so far it appears that the FTSE thinks banks are, good for their debt with shares only falling a tad as news came out of the possible downgrades.

Which makes you think: So how powerful are rating agencies?

OK, in the next Financial Risks Today, you will see that even rating agencies admit that they made mistakes but the opprobrium they have had appears to miss the point that investors should be making decisions holistically rather than solely on a ratings note.

In addition, politicians should reign their necks in a bit. It is their policies that are leading to sovereign debt downgrades, it is their policies that are preventing any sign of recovery for indebted Eurozone countries and it is their policies that could see the entire Euro project fail.

It is because of their policies that rating agencies see fit to downgrade their countries.