Journal of Credit Risk

Sovereign credit ratings and the new European Union member states

Nick Wilson, Pavol Ochotnicky and Marek Kacer


This paper analyzes the factors influencing the sovereign credit ratings of the new EU member states along with potential entrants. We model the ratings of the three rating agencies using a range of macroeconomic and governance variables and panel regression techniques. The unbalanced panel consists of ratings on fourteen countries over the years 1993-2012. Our sample covers a group of countries that have made the transition from planned economies, entered the European Union and in some cases the euro. In addition to the variations across ratings agencies, the panel includes the pre- and post-crisis period, country entry point into the EU and the timing of entry into the Eurozone. The rating of these countries is therefore particularly challenging against the background of shifting policy initiatives of the member states. We focus on the main factors that drive ratings for these countries, their relative importance, the predictive accuracy of the models, agency consistency and compare the results with the findings of previous studies. We find that the political stances (or changes in political stances) and geographic location (and, therefore, trading partners) of countries are important factors determining ratings in more turbulent periods.

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