Barnier in fresh warning to the rating agencies

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Rating agencies were hit with a fresh blow yesterday after the European Union's financial services chief promised an investigation into the way they work, after a rapid series of downgrades to Greece's sovereign debt.

Michel Barnier, the European Internal Markets Commissioner, told members of the European Parliament: "I think we need to go further to look at the impact of the ratings on the financial system or economic system as a whole.

"That's why I asked for responsibility to be assumed in the work they are doing. If you look at Greece, for example, I was quite surprised by the quite rapid deterioration in (credit) rating." The power of rating agencies have been generating renewed controversy as Greece has seen its economy spiralling into crisis. Their reputations were badly damaged by the credit crunch, given the performance of some debt products which were accorded high ratings only to subsequently fail. The European Commission has already issued a reminder to the major rating agencies to be "careful" in their work.

Mr Barnier is in a position to propose new rules governing rating agencies, through his financial services brief. Has has already said that it could be possible to start a European agency to rate countries' creditworthiness.