Public credit rating agencies discriminate against the UK and in favour of EU/Eurozone member states
Public credit rating agencies have not been even-handed in their treatment of the UK compared to EU member states, given the large shadow debts and contingent liabilities that weigh on the latter.
This is explained in the newly-released book 'The shadow liabilities of EU Member States, and the threat they pose to global financial stability', written by Bob Lyddon and published by The Bruges Group.
The labyrinth of EU supranational entities, such as the EU itself, the European Stability Mechanism and the European Investment Bank, has permitted a build-up of debts and guarantees that track back onto the member states but which do not figure in 'General government gross debt' - the numerator in the equation Debt-to-Gross Domestic Product that is a prime driver of a country's credit rating.
The debts amount to around €6.4 trillion and the contingent liabilities to around €3.8 trillion. The credit ratings (in the 1
'a less predictable, stable, and effective policy framework';
'risks of a marked deterioration of external financing conditions';
'risk to economic prospects, fiscal and external performance, and the role of sterling as a reserve currency'.
Little of this has materialized but S&P has not even partially reversed its downgrade, for example by raising the UK's rating to AA+. S&P has not reacted either to the deterioration in the financial status of EU member states, nor to the addition of the debt to be issued for the Coronavirus Recovery Fund. This is inequitable when measured against the treatment of a country like the UK which harbours no supranationals for whose debts it is responsible.
There is a clear basis for doubt as to whether S&P's treatment, and that of the other agencies, of the UK has been even-handed compared to its treatment of EU member states. The UK government should be taking this issue up with the credit rating agencies.