The EU wants to ensure that sovereign debt ratings will not come 'out of the blue', at the most inappropriate times, by fixing three set dates per year when credit rating agencies may issue them.
The proposed sovereign rating rules are just the latest example of governments seeking special treatment. Consider the ban on “naked” CDS purchases, which falls under the new short-selling rules and prevents the buying of sovereign credit default swaps without owning the underlying sovereign bond. This ruse was patently designed to protect sovereign debt spreads.
It is quite possible regulators are taking a pragmatic view and deciding that, given the parlous state of many governments’ finances, it could push some sovereigns over the edge if they were required to stump up the collateral for these (very large) trades.
Under the proposed Basel III capital regulations, banks will also face a strong incentive to own sovereign debt. Such rules impose ruinous capital charges against investments in equities and other asset classes. European politicians, it would appear, are intent on simultaneously forcing institutions to buy their debt and stripping them of the tools to manage the exposure.
Very little is being publicly debated. That's because doing so would reveal a problem that may well torpedo one of the last great hopes for eurozone - a banking union.
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