Meet the Man Behind Europe's Debt Downgrades

On Jan. 13, Standard & Poor's Ratings Services cut the credit ratings of nine euro zone countries, stripping France and Austria of their triple-A status and ringing alarm bells in global financial markets about the region's financial health.

The move swung the spotlight onto key figures at the ratings agencies who make those decisions. Their snap upgrades or downgrades of a country's debt influence entire nations' borrowing costs and can even decide whether investors will lend to them at all.

Moritz Kraemer, the lead analyst in S&P's European downgrades, has long toiled in obscurity and has avoided taking a big public profile as he monitors Europe's next move from a Frankfurt office tower.

But his decisions have huge impact. Since 2007, Kraemer and his team of little-known economists at S&P's European sovereign debt team have downgraded euro zone countries 36 times.

Kraemer declined to be interviewed for this article. S&P said they wanted to underline that their ratings decisions were taken by committee and were not moves made by individuals.

The agency's sensitivity is understandable. Ratings agencies were heavily criticised after the 2008 financial crisis and have been under fire again in Europe because of their decisions.

A 2011 U.S. Senate investigation reported that ratings agencies downgraded risky mortgage bonds in 2007, only months after they deemed the securities to be comparable to Treasury bills. The inquiry also said ratings agencies worried they would lose fees if they gave lower grades for mortgage bonds.

In announcing the downgrade of much of Europe, Kraemer defended the ratings cuts and criticised Europe's leaders for not doing enough to address the region's debt crisis. "The policy initiatives taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the euro zone," Kraemer said at the time.

Colleagues say that is typical of Kraemer, who speaks English, German, French and Spanish.

"I'm sure like anybody else he doesn't like to face such harsh public criticism, but that is part of the role and I think he is the right person for the job during such difficult times," said Michael Zlotnik, S&P's former head of EMEA bank ratings who worked alongside Kraemer at the firm for a decade up until 2011. "He doesn't let himself be dragged under by the public storm."


Kraemer, who grew up in Germany, earned his doctorate at Goettingen University in central Germany. At Goettingen, his world was far removed from the creditworthiness of the euro zone. He studied developing country economics. His studies and papers encompassed subjects including tropical deforestation and how railway projects could reduce poverty in Africa.

"He was very engaged in third-world issues and development economics. That was originally his main interest, how to overcome poverty," said Hermann Sautter, Kraemer's professor both at Goettingen and in Frankfurt where Kraemer did his undergraduate studies.

Sautter, who said Kraemer was one of the best students he ever taught, asked him to join him at a new post at Goettingen where Kraemer worked as his research assistant and pursued his doctorate.

"I really could rely on him in every aspect and delegate nearly everything to him," Sautter said. "I had the very best impression of him in a human sense, a personal sense and an intellectual sense."

Sautter recalls that an ambitious Kraemer completed his thesis in just six months because he had a deadline to start a new role in Washington. Despite the ultra-quick turnaround the thesis "was excellent," Sautter said.

After a stint in Washington at the Inter-America Development Bank, which provides funding for Latin American and Caribbean projects, Kraemer joined S&P's London office in 2001 as a sovereign analyst. Within two years, he had become head of S&P's European analysts before being promoted to oversee Europe, the Middle East and Africa in 2006. The new job allowed him to return home to Frankfurt.

Today, Kraemer oversees a team of a dozen economists - many have backgrounds in academia and banking - from a sober, off-white office on the 27th floor of one Frankfurt's tallest office towers. The building offers a view of the Main river cutting through Frankfurt toward the Rhine in one direction and the forested Taunus hills in the other.

Kraemer's euro zone analysts are scattered throughout Europe- and as far afield as Dubai. His Frankfurt-based Middle East chief also studied under professor Sautter in Goettingen and was someone he himself taught during his time as Sautter's assistant and handpicked for S&P. Kraemer's analysts visit the countries they rate at least once a year to meet with political and finance officials, central bankers and transport and union leaders.


When an analyst recommends a rating change, they present their assessment to a secretive rating committee of between five and 10 experienced analysts who approve or reject the change. Kraemer sat alongside Michael Zlotnik, the former head of S&P's Europe, Middle East and Africa bank ratings team, on various rating committees.

"Moritz can be firm and he can be intense" in the meetings, Zlotnik said. "And believe me, such discussions in committee can become very, very intense."

It is a delicate business that puts Kraemer and his team in a no-man's land: Downgrade too late, and critics charge S&P has moved too slowly. Criticizing a country wins the ire of politicians.

A downgrade by S&P can create a vicious cycle by ratcheting up borrowing costs for countries already struggling to renew debt. Recently published European Central Bank research said that each one-notch downgrade by S&P between 2008 and 2011 had added some 1 percent to Greece's borrowing costs on average.

S&P's cuts started in earnest in 2009 with Greece, Portugal and Spain in the initial flurry of moves. By 2010, Greece's credit ratings had sunk to a point where the ECB was forced to change its rules to ensure banks could use Greek bonds as collateral for loans, a move that helped prevent Greece's financial system from imploding.

In September 2011, Kraemer and his team downgraded Italy by one notch to A/A-1, incensing euro zone officials. At the time, Italian leaders were in the midst of hammering out a budget of cost cutting and wage reforms to stabilize the country. Then-Prime Minister Silvio Berlusconi said S&P's move was influenced by "political considerations" and that the downgrade was "dictated more by newspaper stories than by reality."

Ratings agencies, criticized for being too slow to recognize the 2008 crisis, are now criticized by European policymakers for being overzealous. S&P's downgrade of Italy in September came without warning - and just three days after rival Moody's had said it planned to downgrade the country.

"You hear on the grapevine that there is a lot of pressure internally (at S&P) to be the first mover," said one head of sovereign ratings at one of S&P's main rivals.

According to the recent ECB analysis, The downgrade of Italy back in September widened the difference between 10-year Italian and German bonds to 4 percent. That gap today is at 3.6 percent.

S&P hasn't avoided embarrassing stumbles. In November, S&P mistakenly announced it had downgraded France. The agency subsequently blamed the error on the fact that a computer analysis had misinterpreted a change to banking sector information. The error rattled markets, sending the French/German spread to a record 1.9 percent.

In December, Kraemer and his team told Europe's