by Alberto Arcuri, Research Fellow in Constitutional Law, University of Bologna [Oct. 2, 2024]
Published on 02 October 2024
It is a well-known fact that the crisis has recently returned to the centre of the discourse on the state, having opened the space for a well-known strand of studies that, at the end of the 1990s and the beginning of the 2000s, saw the dissolution of its power in the global space, characterising the present as the time of "de-statalisation". The stages of this process have now been reconstructed in a more definitive way and have coincided with a series of decisions which, without affecting the formal ownership of political authority over "its" territory, have gradually exposed the state to the need to finance itself on the global financial market, which in turn is linked to the ability to gain and maintain the trust of the ("global") subjects operating in it (and thus outside its control).
The sovereign credit rating fits into this mechanism: by transforming the likelihood that a state will be able to meet its financial obligations (on time and in full) into an "objectified" and globally communicated symbol, it actively contributes to determining the "trust" that the markets place in it. The process is very simple: a positive rating, which contributes to the perception of a State as trustworthy, determines an increase in the demand for its securities (and hence lower interest payments), just as, conversely, a low rating determines a low demand for their purchase (and hence higher costs in terms of interest payments).
This mechanism explains, among other things, the presumption of the prescriptive capacity of the determinations of "rating agencies": subjects capable (as they have repeatedly demonstrated) of conditioning the ability of the "debtor" state to finance public policies and, therefore, its economic choices. In fact, in order to obtain financing on the market (by issuing debt securities), one needs the "confidence" of the market, which, by determining the demand for securities, determines not only the amount of money that can be obtained, but also the "cost" of the interest to be paid (the greater the demand for the purchase of securities, the lower the interest to be paid at maturity, just as, conversely, a lower demand for securities determines an increase in the interest to be paid). It is not difficult to see how the coercive power of the rating goes far beyond the individual choices of investors, creating a mechanism of constant pressure on the political organs of the State, directing their policies. In a direct and immediate way, where it helps to determine the interest rates on securities, but also in an indirect and structural way, where it gives the system (through the political bodies that seek its favour) a constant incentive to devise policies that correspond to the evaluation criteria used to develop the rating.
Credit rating agencies (CRAs) have thus become perhaps the best-known global market players, although the fame that surrounded them a decade ago (because of their role during the economic crisis of 2008-2010) now seems to be waning. In a nutshell, they are private companies that assess the reliability of financial market participants and therefore their ability to pay for the securities they issue. This is what is known as a credit rating: a summary assessment, expressed by alphanumeric symbols placed on a predetermined scale, of an issuer's ability to "pay" its obligations (so-called issuer rating) or of the "riskiness" of a particular financial instrument (so-called issue rating). There are currently several agencies, but the so-called "three sisters" or "big three" (Moody's, Standard & Poor's and Fitch Ratings) dominate a market that has the appearance of a global oligopoly.
Sovereign credit rating has much the same characteristics as general credit rating and is firmly in the hands of the same oligopoly. However, it is obviously a very specific "piece" of this world, as it is aimed at none other than states (and the rating is geared to their economic, political and institutional situation). It has long been argued that the reason why sovereign credit ratings condition the power of states lies in the (at least questionable) political and regulatory choices made since the 1930s, first by the US legal system and then, by transfer, on the European continent. Such a foundation, however, may have even deeper and therefore more problematic roots, since it goes beyond the dimension of positive law. A foundation that seems to be tied to the rhetorical-persuasive capacity protected by the technical appearance of evaluation.
The ability to condense and express an articulate sequence of technical data in a de-specialised and comprehensible way, without the need for further intermediation, may have contributed no less significantly to reconfiguring in a "normative" sense (in fact) an evaluation that in theory presents itself as technical and descriptive (in a word: neutral). Thus, if it is certain that the existence of what is known as rating-based regulation produces economic reflections in the sense that the positive rating allows or favours the inclusion of a security in the portfolios of banking and insurance institutions, at the same time the position of power assumed by the agencies has been fed by the persuasive power that the rating derives from a "moral" legitimacy that has found its sublimation in the symbol.
Evidence of this belief can be found in the history of very similar indicators, which have acquired comparable importance despite never having been incorporated into positive law (thus remaining in the extra-legal dimension). The most striking case is that of the Doing Business (DB) reports, produced by the World Bank since 2003, which sought to measure and rank the business friendliness of the world's legal systems. An exercise that was discontinued in 2021 (but is now being revived), and yet, while it was in operation, it managed to penetrate deeply into the political agenda of states, stimulating the restructuring of entire sectors of national legal systems. There is a part of the story that is in danger of being lost if the problem is seen only in its strictly legal dimension. A part that concerns the situation of "power" that derives from the ability to formulate "global" indicators and to base the "implicit prescriptions" they convey on a technocratic type of persuasion, and that, although it operates mostly outside the categories used by legal theory, cannot continue to be neglected (as it has been until now, except in exceptional cases) by constitutionalist doctrine.
