SOMETIMES a Gallic shrug is the appropriate reaction. On July 12th France’s government debt was downgraded by Fitch, one of the top three ratings agencies, from AAA to AA+. The markets reacted by pushing up the cost of French borrowing by a mere two-hundredths of a percentage point.

Of course, France had already lost its AAA rating from Moody’s and Standard & Poor’s. Fitch’s move was hardly a shock. But this is not the first case of market indifference to ratings. The downgrade of America in August 2011, an apparently epochal event, was followed by a fall in Treasury-bond yields. Britain’s downgrades this year also passed without incident.

One charge against sovereign ratings, therefore, is that they are irrelevant. The agencies have no more knowledge than the markets and are unlikely to be any more prescient. Since they failed spectacularly to predict the problems revealed by the subprime-mortgage crisis, why should anybody listen to what they say?

In fact the evidence suggests that, when it comes to governments, the record of the agencies is pretty good. Admittedly, the widespread rating of sovereign debt is a fairly recent phenomenon. Capital controls after the second world war made it difficult for investors to own foreign-government bonds. As recently as 1980 Standard & Poor’s rated only 12 countries. Even by 1990 that had risen to just 31. Now more than 120 have their debt rated.

But on this limited basis the agencies have yet to be caught out spectacularly. A Moody’s study found that all of the sovereigns that defaulted on their debt were rated as “speculative gradeat least one year before the event. A separate S&P analysis found a clear link between ratings and default risk, with 7.5% of bonds rated BBB defaulting within ten years; 15.1% of those rated BB; 32.1% of those rated B; and an impressive 94.4% probability for bonds rated CC or CCC.

No bond rated AAA or AA has ever defaulted within the subsequent ten years and only one A-rated sovereign (Greece) has proved a write-off. So an obvious explanation for the lack of market reaction to a downgrade from AAA to AA+ is that, in terms of likely default, it makes not a ha’p’orth of difference.

Furthermore, the downgrades of America, Britain and France mean investors have to be less picky than before. Back in 1983, 79% of sovereign debt was rated AAA by Moody’s; now only 13% qualifies for the highest honour. Investors will naturally stick with the safest government debt available, whatever its rating. So the effect of a downgrade on borrowing costs will be more muted.

Another charge against the agencies is that ratings of local-currency debt are pointless. Countries that issue debt in their own currency have no need to default; they can simply create more currency to repay their debt.

Although this may be theoretically true, in practice sovereigns have often defaulted on domestic debt in the past, as Carmen Reinhart and Kenneth Rogoff pointed out in their bookThis Time is Different”. Six countries have followed this path in the past 15 years (Argentina, Ecuador, Jamaica, Russia, Ukraine and Venezuela).

What’s more, excessive money creation may lead to high inflation and rapid currency depreciation, bad news for domestic and foreign investors respectively. If investors lose 50% of their purchasing power, it does not really matter how this happens. The risk of inflation or devaluation may not be reflected in the agencies’ ratings but perhaps it should be.

The final charge against the agencies, often put about by aggrieved political leaders, is that ratings changes reflect malign intent rather than reasonable analysis. On this view, ratings are driven by the demands of speculators who want governments to put the interests of creditors ahead of the wishes of voters.

It is certainly true that agencies in effect represent the interests of investors. That is the point of ratings, after all. But it is worth noting that the agencies downgraded Greece, Italy and Portugal in 2004 and 2005, well before the euro crisis kicked off and at a time when investors were happy to lend those countries money on almost the same terms as they charged the German government. Those downgrades did not lead to a debt spiral. It was the markets, not the agencies, that were being overly complacent.

For an investor to rely solely on ratings agencies would be foolish. But just as investors would not disregard a “sell note” on Treasury bonds from Goldman Sachs or Deutsche Bank, they should not be ignored altogether.