From the TUC

Eurozone credit downgrades a response to austerity

17 Jan 2012, by in Economics

While Eurozone credit downgrades are currently high up the news agenda, there’s been less reporting of the reasoning behind their issue. The Standard and Poors’ press releases aren’t easily publicly accessible, but  Stephanie Flanders has a good summary here, pointing out that: 

A major ratings agency has now joined the side of those who say fiscal austerity, as the central plank of the response to the eurozone crisis, is doing more harm than good

She concludes that not one recent downgrade has been due to the ratings agency thinking the government in question was not sufficiently committed to deficit reduction, with fears of external contagion and poor future economic growth forming the basis for their decisions. 

This analysis leads Standard and Poors to conclude that:

a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues

The austerity debate will continue – but the number calling for a priority to be placed on jobs and growth is growing.


One Response to Eurozone credit downgrades a response to austerity

  1. Ratings agencies outsource blame | ToUChstone blog: A public policy blog from the TUC
    Jan 20th 2012, 9:29 am

    […] influential, given that they only tell us what everyone is already thinking (although their recent admission that growth is more important than fiscal austerity suggests they can also buck trends too). But […]