The Power of Opinion: More Evidence of a GIPS-Markup in Sovereign Ratings During the Euro Crisis

This paper examines whether the Big Three credit rating agencies actually played as active a role in the Euro Crisis as previously asserted. On the basis of panel data methods for a set of 11 EMU countries, the analysis reveals significant evidence for an arbitrary markup on the GIPS group of countries across agencies. This markup, which ranges from 1.5 notches for Moody’s to 2.2 notches for S&P, suggests that GIPS countries were treated worse than other EMU members since the start of the Eurozone crisis in 2009, irrespective of economic and institutional fundamentals. A subsequent analysis of the markup’s effect on yield spreads shows that this markup had significant effects on financial markets, leading to risk premiums for these countries of up to 1.6 points.