Scope Ratings has been ahead of the curve in identifying how sovereign creditworthiness in Europe has improved since the financial crisis. What should we put that down to?

Giacomo Barisone: The Great Financial Crisis and the euro-area debt crisis damaged the reputations of governments and financial institutions on both sides of the Atlantic. But many commentators and analysts underestimated how comprehensive the policy response in Europe was. Europe-wide and national reforms are still incomplete, but changes undertaken or underway have made the euro area and the broader EU more resilient.

What in particular did Scope detect had changed, regionally and nationally?

Giacomo Barisone: We took the view early on that Europe's response to the crisis--specifically, the establishment of a de facto lender of last resort, the building of the banking union and reforms of fiscal governance—made the region more resilient to shocks. There were also important national initiatives—in terms of wage restraint, labour-market reform, looser market regulations--that were relevant for the ratings of countries such as Spain, Italy and Portugal. We raised our rating assessments ahead of our North American competitors.

What does this say about Scope's approach to rating sovereign credit?

Giacomo Barisone: It shows the merits of having a significant qualitative/analytical component in our methodology. Analysts make significant judgments on the stability of a country's banking system, progress in institutional reforms and/or changes in the political environment. We like to look through the economic cycle to see what structural changes could have an impact on growth. For example, we emphasised Ireland’s structural growth potential in raising the country’s rating relatively early to the current A+.

Scope must also rely heavily on quantitative analysis, looking at the hard numbers?

Giacomo Barisone: Naturally. But even on the quantitative end, we do things somewhat differently. We supplement our analysis of historical, published economic and financial data with five-year forecasts, which makes our credit assessments potentially more forward looking. This longer-term benchmark on sovereign creditworthiness helped, for instance, in our assessment that the United States is no longer a AAA credit, based on metrics that no longer support this highest rating.

Managing Director Giacomo Barisone heads Scope's sovereign ratings team

Note: Scope acquired FERI EuroRating in 2016 and formally launched its own sovereign and sub-sovereign issuer and debt ratings in June of last year, now covering 33 sovereign issuers accounting for 99% of European issued sovereign debt and around 75% of global sovereign debt.

More details on how Scope’s approach to sovereign credit analysis is different. LINK