Bartholomew Paudyn

The Struggle to Perform the Political Economy of Creditworthiness

Analysing the European Unions regulatory response in the wake of the credit and sovereign debt crises, this paper argues how its adoption of risk management as the core strategy for governing the credit ratings space may undermine European efforts to rebalance the growing asymmetry between private expertise and public democracy. While centralised oversight, enhanced transparency and restorative, technical intervention seem like sound regulatory initiatives, I problematise the methodologies, models and assumptions of sovereign ratings to show how the new ratings framework may actually impede the ability of the technocratic European Securities and Markets Authority (ESMA) to redress the most egregious deficiencies of ratings. Drawing on the performativity of market relations, the paper argues how ESMAs supervisory conflicts undermine the EUs capacity to perform an alternative political economy of limits. Neither is it democratically sanctioned to interfere in the analytical substance of ratings nor should it distort the social facticity of creditworthiness by relying primarily on quantitative risk analysis, ESMA will be forced to either repoliticise the ratings process or promote the status quo, which diminishes fiscal sovereignty.

The uncertain (re)politicisation of fiscal relations in Europe: a shift in EMU's modes of governance

Europes numerous fiscal crises – 2003 Stability and Growth Pact (SGP) crisis, its subsequent 2005 reforms, and the recent sovereign debt woes – draw attention to a shift in the management of EMU; namely the inclusion of more uncertainty-based governance. Understood as modalities of government, risk, and uncertainty make the production of this fiscal-monetary space intelligible as a recognised form of knowledge and object of government. Whereas the Pact was devised as the anchor for EMU, it has come to symbolise its weakness. This article argues that the result is an antagonistic relationship between the programmatic and operational dimensions of fiscal governance; otherwise seen as a dialectic between the two competing domains of expertise/law and politics. Starting with the 2005 SGP reforms, and exacerbated by the credit crisis, uncertainty has been mobilised to justify alternative forms of managing fiscal conduct linked to new strategies of calculation and issues of responsibility. Bound to variegated notions of ‘fiscal normality’, I contend that the 2005 reforms signal the (re)politicisation of the budgetary framework and the reconfiguration of the politics of limits. Rather than marginalising informal judgment, the government through uncertainty places a greater emphasis on creative entrepreneurialism in fostering compliance in ways risk does not.

Conclusion: Problematizing the Ratings Space

The pursuit of security and profit has become inextricably intertwined with the constant quest for control. Unless we are able to calculate and plot an indeterminate future, then we cannot actively manipulate and master Fortuna to avoid succumbing to the forces of fate. In order to transform all the uncertainties with which we are confronted to our advantage, such an ambition has become equated with the mitigation of risk. So strong is this appetite for control that it has elevated the discourse of risk to a hegemonic status in the organization of virtually every dimension of existence (Power 2004). In fact, risk management has even come to connote the fulfillment of moral responsibility (Baker 2000; de Goede 2005; Ewald 1991). As the ubiquity of risk discourse penetrates an ever expanding myriad of spaces, risk calculus becomes prized and promoted; thereby reaffirming the (Keynesian) view that ‘individuals, organizations, and societies have no choice but to organize in the face of uncertainty, to act “as if” they know the risks they face’ (Power 2007: 203). This sentiment echoes Ian Hacking’s (1990) observation that the (supposed) taming of uncertainty as a calculable risk has been pivotal in making the world appear ‘less capricious’ by granting a greater semblance of control over what would otherwise be considered chaotic and potentially dangerous.

Epistocracy versus Democracy

The previous chapters progressively introduced several of the core themes which underpin this problematic and the book: authoritative knowledge, risk/uncertainty and performativity. Acquainted with this knowledge, and equipped with the necessary analytical tools to problematize credit ratings, we are in a better position to understand how the problem of sovereign creditworthiness, and thus the ratings space, is constituted through its (calculative) assessment and articulation. Consequently, the misrepresentation of uncertainty as risk reinforces the depoliticizing effects of ratings as a ‘qualculative’, socio-technical device of control and governmentality; whereby informal (read political) judgment in fiscal governance is marginalized and censured in favor of normalizing mathematical/risk models. Rather than ontologically predetermined, however, it is through the discursive practice of rating risk — and all the speculative investment activities which it enables — that a neoliberal politics of limits materializes. Timothy Mitchell (1998: 92) reminds us that: The invention of the economy required a great work of imagination on the part of economists and econometricians, to find methods of representing every relationship constituting a nation’s economic life and giving each one a value. At the same time the invention also required a process of exclusion. To fix a self-contained sphere like the economy requires not only methods of counting everything within it, but also, and perhaps more importantly, some method of excluding what does not belong. No whole or totality can be represented without somehow fixing its exterior. To create the economy meant also to create the non-economy.

The Rise of Risk and Uncertainty

Rarely does a day go by without some kind of a declaration confirming the ‘heightened uncertainty’ that comes with living in an ‘(new) era of uncertainty’. Bordering on the apocalyptic, such prophesies are often disseminated by a sensationalist media with a vested interest in increasing the circulation of its news. But just as we are plagued by all these unknowns lurking in the shadows of the future, so are we instructed to take back control over our destinies and manage all the risks confronting our finances, health, security, relationships, in fact, virtually every area of our lives; or what Michael Power (2004) labels as the ‘risk management of everything’. For this purpose, expertise promises to assist with governing the future to make it safe, secure and prosperous. Experts who master the appropriate methods to plot risk’s propensity to inflict harm are rewarded with some measure of credibility and authority.

Introduction: Credit Rating Crisis

As the financial crisis morphed into the sovereign debt debacle, and escalating contagion undermined the integrity of Economic and Monetary Union (EMU), plus the global economic recovery, international attention became fixated on what constitutes as the ‘real’ risk of sovereign debt default. While the immediate catastrophe may have been averted, for the moment, the legacy of the crisis still lingers on. Public finances remain strained as governments struggle to retain the investment grades necessary to finance their governmental operations at a reasonable cost. At the heart of the crisis, credit rating agencies (CRAs) have been lambasted for their ‘irresponsible’ behavior and the speculative activity that it fuels which, in the words of the former Greek Prime Minister, George Papandreou, has inflicted ‘psychological terror’ on the poor people of Europe (quoted in The Economist, 22 July 2010). To varying degrees, these ‘masters of risk’ — Moody’s Investors Service (Moody’s), Standard & Poor’s (S&P) and Fitch Ratings (Fitch) — dominate the ratings space and have been implicated in virtually every severe financial and fiscal crisis in recent memory.