Economic ranking of the European Union countries by MULTIMOORA optimization

Abstract

he aim of this paper is to apply the multi-objective optimization method MULTIMOORA in sovereign rating analysis and thus rank the European Union (EU) Member States. The following tasks are thus set: 1) to describe the MULTIMOORA method; 2) to establish an indicator system for credit rating; and 3) to rank the EU Member States and discuss the future challenges. Rating agencies like Moody's rate countries economic growth drivers by internal analysts using unclear methods, probably mostly on a qualitative basis, with a final judgment by the board of directors acting as decision makers and being judge of one’s own case. These ratings influence the countries credit rating and ipso facto of their firms. MULTIMOORA, a quantitative method comparing multiple objectives expressed in different units, unless similar methods, does not need normalization being based on dimensionless measures. The analysis was based on objectives originating both from statistics and from forecasts and characterizing the 27 EU Member States’ economies. A Dominance Theory, summarizing the three obtained ordinal numbers per country ranks the 27 countries. As a result, Sweden, Luxembourg, and Finland were the top-ranked states, whereas so called PIIGS sates remained at the very bottom.