Still true: nobody cares if a country's credit rating gets cut

A country's rating gets cut. Do bond yields go up or down? Toss a coin.

Remember how nobody cares if a country's credit rating gets cut? Well, nobody cares if a country's credit rating gets cut. Still.

Reporting for Bloomberg, John Detrixhe and Matt Robinson write:

Yields on sovereign securities moved in the opposite direction from what ratings suggested in 53 percent of the 32 upgrades, downgrades and changes in credit outlook, according to data compiled by Bloomberg. That’s worse than the longer-term average of 47 percent, based on more than 300 changes since 1974. This year, investors ignored 56 percent of Moody’s rating and outlook changes and 50 percent of those by S&P.

Of course, that's not particularly surprising. As we wrote last time Bloomberg published a similar report, in June:

One of the strengths of markets is that they are very good at pricing in future events. When an outlook changes, a downgrade is likely to follow, and so a lot of the expected spike in yields happens before the actual downgrade.

And all of that doesn't negate the large political implications of a downgrade – even while the rating agencies say otherwise:

U.K. Prime Minister David Cameron raised taxes and reduced outlays in 2010 to save its AAA rating, freezing pay for police, teachers, nurses and doctors, and capping welfare payments. S&P lowered its outlook on the country to negative from stable Dec. 13, citing the weak economy.

“Deciding on policy choices is the domain of governments and their advisors,” S&P said June 22 in a report. “We have not taken sides in the growth vs. austerity debate.”

But it does mean that if the government gives any reason for "safeguarding the UK's hard-won triple-A rating" other than "David Cameron would find re-election difficult", they're stretching the truth somewhat.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Don't bet on James Brokenshire saving devolution in Northern Ireland

The Northern Ireland secretary's decision to extend talks makes a settlement less, not more, likely. 

The deadline for the parties at Stormont to form a new executive has passed without an agreement. Northern Ireland secretary James Brokenshire has – as was inevitable – taken the least difficult option and opened a “short window of opportunity to resolve outstanding issues”.

Talks have been extended for a “short few weeks” – Brokenshire’s interpretation of the “reasonable period” allowed after the initial three weeks after the election elapsed. Despite his earlier warnings, there will be no snap election (for which he conceded there was “no appetite”).

Unhelpful though the tortured semantics of “a short few weeks” are, we can assume that new negotiations may well as last as long as the impending Commons recess, which begins on Thursday and ends on April 11th – after which, Brokenshire said, he will bring forward legislation to set regional rates in the absence of an executive. This, though not quite direct rule, would be the first step in that direction.  

So what changes now? Politically speaking and in the immediate term, not a great deal. For all the excited and frankly wishful chatter about the two parties approaching the final talks afresh after Martin McGuinness’ funeral last week, Sinn Fein and the DUP remain poles apart.  

The former declared talks to have failed a full day before the deadline, and Sinn Fein president Gerry Adams has since said there has been “no substantive progress” on the key issues at hand – particularly the DUP’s “minimalist” approach on the Irish language and marriage equality. Seemingly unassailable differences remain on a new Bill of Rights and measures to deal with the legacy of the Troubles. As such, both Adams and Sinn Fein's new leader Michelle O’Neill continue to stress their election lines: equality, respect, integrity, and, perhaps most tellingly, “no return to the status quo”.

Brokenshire clearly recognises that there will be no new executive without some movement on these issues: yesterday he referred to the talks to come as an “opportunity to resolve outstanding issues”. He is right to do so: Sinn Fein’s demands are, for the most part, as yet unimplemented provisions from the Stormont House and Fresh Start Agreements of 2014 and 2015. 

But will the DUP budge? It appears unlikely at first glance. Sinn Fein’s approach to negotiations has only heightened tensions between the would-be coalition partners, whose relationship has regressed to the openly adversarial (DUP leader Arlene Foster yesterday expressly blamed Sinn Fein for the collapse in talks).

There looks to be little appetite for compromise on Sinn Fein’s headline demands. The DUP’s opposition to historical prosecutions of Troubles veterans is well-publicised, and appears to be aligned with UK government thinking.

Nor does there appear to have been any real shift in the party’s position on legal recognition for the Irish language. Speaking on the BBC’s World at One yesterday afternoon, Ian Paisley Jr stressed in pretty woolly terms to the DUP’s commitment to “promoting minority languages”, which, however true, is not the commitment to an Irish language act that Sinn Fein are asking for. That the spirit of Paisley’s remarks was essentially the same as his leader’s contrarian take on the issue – she said, provocatively, that there was much a need for a Polish language act as an Irish language act – is not a promising sign.

The continuing fallout from the Renewable Heat Incentive scandal that triggered last month’s election also complicates matters. Though the London press have already relegated this public spending scandal to the footnotes, the full ramifications are yet to be seen. A full list of claimants was last week published by the Belfast News Letter, and the longer the process of negotiation and renegotiation drags on, the clearer the answer to the question of who exactly benefited from the scheme’s mismanagement becomes. Though, Foster's penance in the wake of the DUP’s calamitous election performance has gone some way to rehabilitating her public image, the taint of corruption could retoxify the brand. It isn’t difficult to see why veteran Stormont horse-traders like Reg Empey, the former leader of the UUP, believe an executive may well be unachievable until the inquiry into "cash for ash" delivers its ruling – a process which could take a year.

The political impasse, then, looks as insoluble as ever. Leaders of smaller parties such as the non-sectarian Alliance have blamed Brokenshire for the startling fact that there were no roundtable talks at any point during the past three weeks. The Northern Ireland secretary’s decision to extend talks for another fortnight could bury power-sharing as we know it for good. From Wednesday, the civil service will take control of the province’s budget, as per Section 59 of the Northern Ireland Act. The permanent secretary of the Department for Finance will immediately have access to just 75 per cent of available funds, and, if the situation persists, 95 per cent.

In the worst case scenario, this means cuts could well come hard and fast. All the better for Sinn Fein - as I wrote earlier this month, the imposition of austerity and Brexit from London offers an opportunity to parlay short-term pain into long-term political gain. Meanwhile, Brexit secretary David Davis has admitted that Northern Ireland would automatically rejoin the EU in the event of a border poll. The path to a united Ireland via direct rule looks clearer than ever before.

Unionists are not blind to this existential risk – and here Brokenshire’s bizarre insistence that he was ready to call Northern Ireland’s third election in twelve months exposes his political naivety. He maintains there is “little public appetite” for a new poll. He might be right here, but that doesn’t mean a revanchist DUP would refuse the opportunity, if it arose, to go back to a unionist electorate it believes have taken frit at Sinn Fein’s post-election manoeuvring. Some in the party are keen to do so, if only to put to bed what they deem to be premature and melodramatic talk of imminent Irish unity.

Another election would suit Sinn Fein’s long game. The more dysfunctional and unworkable devolved politics in the North, the stronger the logic for a quick transition to a united Ireland in the EU. Much of the Northern Irish political establishment deem Brokenshire a lightweight - as do many in his own party. That he seems not to have realised that threatening a new election wasn’t much of a threat at all – or foreseen this avoidable mess - does nothing to dispel that notion. 

Patrick Maguire writes about politics and is the 2016 winner of the Anthony Howard Award.