PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies

  • Manfred GärtnerEmail author
  • Björn Griesbach
  • Florian Jung


This paper asks whether rating agencies played a passive role or were an active driving force during Europe’s sovereign debt crisis. We address this by estimating relationships between sovereign debt ratings and macroeconomic and structural variables. We then use these equations to decompose actual ratings into systematic and arbitrary components that are not explained by previously observed procedures of rating agencies. Finally, we check whether systematic, as well as arbitrary, parts of credit ratings affect credit spreads. We find that both do affect credit spreads, which opens the possibility that arbitrary rating downgrades trigger processes of self-fulfilling prophecies that may drive even relatively healthy countries towards default.


Rating agencies Sovereign debt Credit risk Eurozone Panel data Debt crisis 


G24 H63 F34 


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Copyright information

© International Atlantic Economic Society 2011

Authors and Affiliations

  • Manfred Gärtner
    • 1
  • Björn Griesbach
    • 1
  • Florian Jung
    • 1
  1. 1.Institute of Economics, School of Economics and Political ScienceUniversity of St. GallenSt. GallenSwitzerland

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