The Australian Prime Minister, trailing hopelessly in the public opinion polls, made a fool of herself yesterday by commenting on last week’s S&P downgrade of European government debt ratings. she not only gave S&P more credibility than they are worth, but also demonstrated, once again, the mangled macroeconomic logic that is driving her own government’s obsessive pursuit of budget surpluses to our detriment. But there has been a lot of mangled logic about the S&P decision from a number of quarters in the last few days. Ultimately, the decision is only as relevant as the EU authorities allow it to be. The reality is that the fiscal capacity of the Eurozone is embedded in the ECB, which while ridiculous and reflecting the flawed design of the EMU, still means that the private bond markets can be dealt out of the game whenever the ECB desires it. In that context the S&P decision is irrelevant except for its political ramifications. And they arise as a result of the government’s own flawed rhetoric with respect to the role the ratings agencies play. That flawed rhetoric is exemplified by the Australian Prime Minister’s weekend offerings not to forget the French central bank governor’s recent claims that S&P should downgrade Britain’s debt ratings before it downgrades France. But does the downgrading matter? Answer: only if the ECB allows it to matter. The ratings agencies do not wield power. The issuer of the currency in any monetary union has the power – always.