How (un)justified are the decisions of credit rating agencies?

Following Standard & Poor’s decision to brand Greece with the world’s lowest credit rating and Moody’s decision to announce a 4-notch downgrade of Portugal’s debt, and then downgrade Ireland to junk status, European policymakers reiterated their growing dissatisfaction with credit rating agencies. European Commissioner Michel Barnier noted (on the 11th of July): ‘Every day we are seeing the impact [sovereign ratings] have on countries: rising costs of credit, weakening of states, and possible contagion effects on neighbouring economies’.