The European Parliament voted today to approve new credit rating agency rules. The package includes a number of measures to reduce reliance on credit ratings, address conflicts of interest, and make it easier to sue credit rating agencies. Another rule relates specifically to sovereign debt ratings. According to a European Parliament news release, credit rating agencies will only be permitted to publish unsolicited sovereign ratings "at least two but no more than three times a year, on dates published by the rating agency at the end of the previous year." In other contexts, unsolicited ratings are encouraged as a way to improve the information available to investors.
Sovereign fear seems to be driving this move. Seeking to manage credit ratings in this way looks like an effort to cultivate the belief that the risk associated with sovereign debt is unrelated to how sovereigns behave. Governments have created their own difficulties by mandating reliance on credit ratings and, through an elaborate inspection regime for credit rating agencies, implicitly signing off on the quality of credit ratings. Government endorsement of credit rating agencies should be ended, and credit rating agencies, along with everyone else, should be able to offer freely their opinions about the likelihood of a sovereign debt default.