Abstract
Although credit rating agencies are best known for their disastrous role in recent financial crises, the function they fulfil in “normal times” is just as important and arguably much more pernicious. Sovereign ratings place significant and tendentious constraints on the policy choices of democratically elected governments. They penalize center-left governments, generous entitlement systems, heavy taxation, and institutional arrangements that require consensus-based decision-making. These penalties not only constrain democratic sovereignty but also potentially undermine long-term growth, social cohesion, and even countries’ ability to repay their debt. The lecture will explain how rating agencies award sovereign ratings; why they impose penalties on certain political and policy choices; why they are in a position to interfere with politics and policy in the first place; and why it is unlikely that these unelected, unappointed, unaccountable profit-seeking institutions would be stripped of their power, which rivals that of institutions at the peak of global governance, like the IMF or the World Bank.
