Europe threatens 'mad' ratings agencies
Thursday 07 July 2011
The leading credit ratings agencies were threatened with tighter regulation and break-up yesterday by some of Europe's most powerful politicians.
The German finance minister, Wolfgang Schäuble, said he could see no justification for Moody's recent downgrade of Portugal's debt and believed that limits should be put on the rating agencies' "oligopoly" – the scene has been dominated for decades by the big three: Moody's, Standard and Poor's and Fitch.
Mr Schäuble praised Lisbon for its record on implementing its austerity package and economic reforms after a €78bn (£70bn) bailout in May.
Jose Manuel Barroso, the president of the European Commission, claimed Moody's downgrade of Portugal added to speculation in the markets and suggested an anti-Europe bias. The European Union, he said, planned to strengthen regulations overseeing the three majors, and said European legislators would also look into issues of "civil liability" for incorrect judgements by agencies on the credit worthiness of sovereign European nations, with an obvious focus on those currently under severe pressure – Greece, Portugal, Ireland and, to a lesser extent, Spain and Italy.
"It seems strange that there is not a single rating agency coming from Europe. It shows there may be some bias in the markets when it comes to the evaluation of specific issues of Europe," he said.
The Greek foreign minister, Stavros Lambridinis, said the agencies' actions in the debt crisis had been "madness". The fierce attacks on the agencies' integrity came after a shock downgrade of Portuguese debt to "junk" status by Moody's sent stock markets and the euro sharply down, and sparked fears of another round of contagion. Momentum is growing in European official circles to establish a new EU-based or sponsored ratings agency to rival the established firms, though there are doubts about how credible such an organisation might be.
A statement at the end of last week by Standard and Poor's that it would treat even a voluntary roll-over of Greek debt by private bondholders as a "selective default" in effect scuppered eurozone efforts to secure a new rescue package for Greece in co-operation with the commercial banks.
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