A report in our local paper caught my eye yesterday. The 'Ratings Agency' Moody's, based in New York, is apparently threatening Germany with a Rating Downgrade. The reason is interesting. Apparently Moody's don't like the amount of Government Treasury Bills the Germans have underwritten for the Spanish.
OK, we all know that Greece is likely to default on its borrowing, Italy is still on the brink and so are Portugal and Ireland. Spain is taking the pain, but is reducing its debts, and the German's are merely underwriting what the European Central Bank and the European Finance Ministers have agreed between them to pick up. The fact is that the German economy is strong, and their borrowing is among the lowest in Europe, so what is Moody's playing at?
You could be excused if you thought it was a deliberate ploy to start a run against the currency the German economy uses - the €uro. Why would they wish to do this? Why make such an announcement? After all, it is well known that the ECB has worked with the various member states Finance ministers to find a way to spread the debt and make sure the currency is stabilised. Who benefits by weakening it or undermining this attempt?
I would suspect that the intent is to further weaken the currency which was showing a small recovery. Again, one needs to ask why? Who benefits from this? One beneficiary would be the US $. Persuade enough investors that the €uro is a high risk investment and they have to shift their money to one of two alternatives, the Dollar or the British Pound. Both currencies have problems in the economies that support them - and both stand to benefit by weakening the €uro.
One of the other tricks which intrigues me with these ratings, is that as a country's rating is lowered, the interest charge against their borrowing increases, and not by small amounts either. Again, who benefits - why the lenders of course. And who controls the Rating Agencies?
Well, for the moment I benefit as well. My pension is paid in GB£, and at present I get more €uros for my £ - but, pretty soon I suspect, that other beneficiary of people playing with currency values will kick in - and we'll find prices being forced up by inflation. That, more than anything else, is what worries the Germans.
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