Do we depend too much upon credit rating agencies?

The ongoing argument between the Irish authorities and the S&P credit rating company threatens the medium to long-term position of credit rating companies around the world. The Irish authorities took the rather usual step of arguing about the basis upon which the Irish sovereign debt credit rating was reduced which appears to be a very different stance to that taken by the IMF and the European Union.

While many people would argue that the IMF and the European Union have a potential conflict of interest, as they will both be expected to back up failing economies with cold hard cash, this is not always the case. However, it has to be said that the likes of Moody's and S&P do have a significant impact upon not only the cost of future sovereign debt, and servicing existing debt, but also companies on stock markets around the world.

Even though every argument has two sides, with the credit rating agencies often taking a different view to the underlying companies or governments, we need to find some kind of mid-ground unless this uneasy relationship between governments, companies and the credit rating agencies could be in trouble.