Danny Alexander: UK’s AAA credit rating is ‘not the be all and end all’ of government economic policy

| August 7, 2012 | 0 Comments

  • Standard Poor’s last month confirmed UK’s AAA credit rating, despite poor GDP results
  • Comments come a year after U.S. suffered a debt downgrade to little effect
  • However other EU nations whose credit ratings have been slashed are now struggling to pay bills

By
Damien Gayle

07:55 EST, 6 August 2012


|

19:35 EST, 6 August 2012


'Not the be all and end all': Chief Secretary to the Treasury Danny Alexander on credit ratings agencies

‘Not the be all and end all': Chief Secretary to the Treasury Danny Alexander on credit ratings agencies

Maintaining Britain’s credit rating is ‘not the be all and end all’, of Government policy, a Liberal Democrat minister has said.

Chief Secretary to the Treasury Danny Alexander’s put himself at odds with Chancellor George Osborne who has repeatedly made clear he regards keeping the AAA rating as a fundamental goal for the Government.

Mr Osborne argues that a gold-plated rating from the credit rating agencies keeps down the cost of borrowing, which in turn keeps mortgage and interest rates low.

Two credit rating agencies have already put the UK economy on negative watch, suggesting they might take away the AAA rating if conditions deteriorate further.

But in a BBC interview played on Radio 4’s Today programme, Mr Alexander said: ‘The credit rating is not the be all and end all.

‘What matters is have we got the right policy mix for the country to get people back into work, to support economic growth, to deal with the huge problems in our public finances.’

He added: ‘The credit rating agencies reflect on those things and the ratings they give are a reflection of the credibility of that mix.

‘We have to make a judgment about what we think are the right policies for the UK, the credit rating agencies then make their judgments on the basis of that.’

The comments come a year after SP stunned the world by stripping the U.S. government of its AAA credit rating. That decision sparked initial chaos on the world markets, but now looks like a non-event.

Long-term interest rates are lower, the Dow Jones index is now up more than 1,600 points. The dollar has rallied, and gold prices are down from where they were when SP warned investors.

It is difficult to imagine a more decisive repudiation of SP’s warning that the U.S. government might not be able to pay its bills. 

But with the UK perilously close to
being sucked in by the wild currents of the worsening tempest in the
eurozone, and the U.S. benefiting from its pivotal global economic role,
a downgrade of the British economy could have more severe consequences.

'The world has confidence': Mr Alexander's comments come after Chancellor George Osborne hailed Standard  Poor's confirmation of the UK's AAA rating

‘The world has confidence': Mr Alexander’s
comments come after Chancellor George Osborne hailed Standard
Poor’s confirmation of the UK’s AAA rating

Bond investors are
demanding punishingly high interest rates from Spain and Italy after
downgrades saw both their credit ratings cut to BBB+.

It
is feared that Spain can’t afford to rescue its troubled banks and its
debt-ridden regional governments. And there are worries that Italy can’t
generate the economic growth and the tax revenue necessary to keep up
with the cost of caring for its aging population.

As fears grow the recession will be
deeper and more prolonged than previously thought, SP today
additionally announced that it was cutting its ratings on 15 Italian
lenders

The larger worry is
that financial pressure will eventually force countries like Spain and
Italy to abandon the euro currency. The breakup of the 17-country
eurozone could cause financial chaos as countries replaced sturdy euros
with local currencies of dubious value.

Ratings agencies have even threatened to
strip Germany, Europe’s economic powerhouse, of its gold-plated credit
rating because of the risk of the crisis spreading.

GERMANY WARNS AGAINST ‘DANGEROUS TONE’ AS EURO WORRIES MOUNT

Germany’s foreign minister warned today that arguments about European policy are taking on a ‘very dangerous’ tone as worries mount about the future of the euro.

Guido Westerwelle’s comments came after Italian Premier Mario Monti warned over the weekend of tensions that ‘bear the traits of a psychological dissolution of Europe,’ and a regional official in a German governing party said Greece must leave the euro this year.

‘The tone is very dangerous. We must take care not to talk Europe down,’ Westerwelle said in a statement.

He added that attempts to grab domestic political attention ‘cannot be the yardstick for our action in any European country, including Germany – the situation in Europe is too serious for that.’ 

Shadow Treasury minister Chris Leslie warned against shaping economic policy around credit ratings agencies.

‘I do think it’s a fundamental danger to structure all of your economic policies to orientate around the opinions of credit ratings agencies, rather than on the facts of the economy,’ he said.

‘These can be very conservative with a small ‘c’, orthodox economic viewpoints and they have been wildly wrong before.’

The darkest days for the credit ratings agencies came as the U.S. subprime housing boom unravelled in 2007-2008, when it emerged that many mortgage-backed securities given AAA ratings were, in fact, worthless.

However, with no other organisations so well placed to evaluate risk to investors, faith in the agencies has remained despite the scandal.

SP said its outlook for the UK’s AAA rating was stable and predicted the economy would pick up in the coming months.

The news was a boost to Mr Osborne after dire GDP figures prompted heavy criticism of his performance and the Government’s austerity measures.

Growth figures released last month showed the UK economy sliding deeper into recession with a 0.7 per cent fall in GDP between April and June.

Here’s what other readers have said. Why not add your thoughts,
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The comments below have been moderated in advance.

Muppets out today I see, what triple A means in the end is less debt which means less tax which means saving gouging the taxpayer even more. Remember the taxpayer those guys you are meant to serve!!

Cameron apart, does anyone really take any utterance from this wishy washy, anti-British lot seriously ?

It is if it keeps the interest rates down on the billions our idiot politicians are borrowing to shore up this country’s economy and maintain their unsustainable promises.

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