Standard and Poor's downgraded Greece's debt yesterday. This reflected--and added to--perceptions that Europe's debt difficulties are worsening. Portugal, Spain and Ireland are now in deeper trouble as a result.

First, one notes that the European Union has made an unbelievable hash of managing this crisis, making the problem worse as much as helping to solve it.

The latest proposal, a 45 billion euro package by Europe and the I.M.F., has done little to calm the markets, and Germany's statement this week that it must first see more deficit reduction from Greece before fulfilling its pledge has only increased concerns that Europe is not united behind Greece. Kenneth Rogoff, a former economist for the I.M.F. who has studied sovereign defaults, calls the latest assistance package puzzling. "They put their wad on the table, but they could have gone further," he said of the international plan. "I never thought Europe could take the lead on this."

No indeed. But the role of the ratings agencies also needs to be looked at. Given the decisive part they played in the subprime mortgage debacle, how have they managed to escape reprisals from politicians and regulators? Now they are at it again, propagating a follow-on crisis in Europe. The question is not so much whether their new lower ratings on the PIGS' debts are justified, but whether, supposing they are, their earlier high ratings of the same debt conveyed useful information in the first place--or actually did the opposite, providing false assurance to the markets. No information is better than bad information. Creating a regulatory requirement for action based on this bad information, which is current policy, is doubly perverse.

