Don Quijote and EU's fight against credit raters

Amusingly enough EU seems to have been caugh with its trousers down by the credit raters, who have in the past weeks downgraded a couple of more EU members into the junk bond category. And as appears to already be typical for the eurocrats, the approach now is to focus on the annoying smoke by attacking the credit raters instead of addressing the real problem, namely that of the horrible state of competitiveness and finances of its member states.

As part of the latest news today, a couple of EU commissars have been making interesting statements. Firstly there is supposedly a cartel of the top three credit raters, according to Viviane Redding. Well, judging by the past few years, the level of competence demonstrated by the raters in regards to e.g. evaluating the credit worthiness of subprime mortgage CDOs and the whole shebang, one would assume that entry barriers for a new rater wouldn't be very high. That is assuming that a new entrant could provide more credible ratings. I'm not an expert, but I fail to see how a cartel would actually work here. Perhaps I'm mistaken, but in any event I do agree that maybe more competition would be better, but rushing out and calling cartel without credible proof seems somewhat weird.

Secondly the fact that raters will change ratings has apparently caught another commissar by surprise. Well, you know, assessing the situation and changing ratings accordingly is precisely what raters do, as surprising as it might be. And even more surprising undoubtedly is that if raters don't see improvements in the actions and the expected outcomes of the actions, ratings will drop. Perhaps raters could talk with the parties that are being rated about different things, but ultimately I understood that the whole point of having third parties perform ratings was that investors who want more information on which to act could get a somewhat reliable, unbiased and objective assessment of the situation. Interestingly enough, however, it appears that historically the raters, e.g. in the subprime case, may have had conflicting interests and biases towards rating subprime mortgage CDOs higher than they should have, which I think then comes back to the whole situation where I personally would like to see raters remaining somewhat detached and distant from the parties who are likely to gain or lose basing on the ratings.

But all of this is ultimately very much moot as the fundamental issue still remains: the EU has made a total hash of things and it should now focus on fixing the core causes of the whole trouble, i.e. increasing the competitiveness and entrepreneurial activities while decreasing the corruption and inertia in the troubled member states. If this isn't done, then ultimately arranging bail outs and negotiating loan terms is pointless as the loans will never be repaid unless the countries actually get their financial growth back on track. And while this is going on, maybe EU shold resist the temptation of lashing out at windmills...