Constructing Creditworthiness: Differing Conceptions of "Sound Public Finances" in Credit Ratings and in European Fiscal Surveillance, Their Institutional Origins and Their Implications for Policy Making

How is a country’s fiscal situation assessed? While the notions of deficit, debt, fiscal sustainability or creditworthiness are intuitively clear, their definition is elusive in practice. In this paper, we compare how two different fiscal surveillance systems (technocratic surveillance in EMU and commercially motivated credit scoring) calculate deficit and debt figures and what assumptions they use in analysing sustainability and creditworthiness. In particular, we focus on how they account for pension reform, privatization, bank bailouts and crisis management. These are far from technical issues. They have important implications for policy making in these politically loaded policy areas, not only because they have significant consequences for what is deemed prudent or imprudent policy, but also because the pronouncements of oversight bodies like credit rating agencies (CRAs) and the European fiscal surveillance system have material consequences for governments’ ability to secure financing under favourable conditions. The paper shows that the two surveillance systems handle these issues differently and, consequently, they generate divergent standards for fiscal prudence. Furthermore, the paper argues that the differences arise from the different institutional logics of CRAs and the European fiscal surveillance system. By highlighting the differences in conceptions of appropriate policy and emphasizing the institutional origins of the divergences, the paper contributes to a prominent constructivist literature in IPE, which has documented the power of ideas in policy making.