New ECB rating agency puts weight on protection

Berlin-based Scope could play a significant role in any future financial market crisis. — Reuters

LONDON: Scope, the first credit ratings agency approved by the European Central Bank’s (ECB), promises to put more weight on the eurozone’s improved ability to navigate crises although it has concerns about Italy and France and warns the Dutch election result could trouble its AAA grade.

By joining a soon-to-be-five-member group that the ECB uses to judge government bond collateral values, Berlin-based Scope could play a significant role in any future financial market crisis.

It also fulfils an ambition held by policymakers for a domestic player since the height of the bloc’s debt troubles 15 years ago, when mass downgrades by US agencies like S&P and Moody’s were openly blamed for stoking the turmoil.

Scope said its European roots give it a native appreciation of the way the eurozone has tooled itself up, part of the reason it became the first agency to restore the investment-grade rating of financial crisis poster child Greece.

“One of our distinguishing characteristics is that we emphasise the multiple improvements in Europe’s institutional set-up,” said Scope’s top sovereign analyst, Dennis Shen, when asked how the agency assigns ratings compared with S&P, Moody’s, Fitch and DBRS Morningstar – the other firms on the ECB’s list.

“We take such institutional enhancements very seriously,” Shen told Reuters in the firm’s first in-depth interview since winning the ECB’s approval earlier this month, citing an example of how Covid-related support measures would outlast the pandemic.

While the eurozone has pledged to do “whatever it takes” and jointly issued debt for the first time during the pandemic, its debt load remains eye-watering.

Italy, France, Spain, Portugal, Belgium and Greece all have debt-to-gross domestic product ratios well above 100% while Cyprus, Ireland and Luxembourg are the only eurozone members expected to be spending a smaller share of their tax revenue servicing debt interest payments in five years’ time. — Reuters

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