Europe is sliding into a war with international credit-rating agencies it may struggle to win, following a tumultuous week in which the agencies partly forced a major shift in the European Union response to the Greek sovereign debt crisis.
On Tuesday the commissioner in charge of the EU’s single market, French politician Michel Barnier, alternately sneered at and threatened the three big agencies that dominate 90% of the ratings industry: Standard & Poor’s (S&P), Moody’s and Fitch.
His remarks followed a broadside on Monday from fellow commissioner Viviane Reding of Luxembourg, who said the agencies’ “cartel” should be “smashed” since they were seeking to determine the fate of Europe’s single currency.
“We were surprised that the agencies would downgrade a country without warning,” Barnier said of last week’s verdict from Moody’s on Portugal, branding its debt as junk and predicting it was the new Greece. “You don’t rate a country the same way you rate a company or a product.
Barnier said he would announce “stiff measures” in November aimed at taming the power of the agencies. They would be forced to justify their decisions by revealing details of their analyses and criteria. Whether they were properly registered in Europe would also be scrutinised.
S&P concluded last week that Greece would be found to be in a form of default on its sovereign debt if its private creditors were involved in a new EU bailout, as is planned. That verdict helped trigger the rescue rethink announced in Brussels.
While she was French finance minister, Christine Lagarde, the new chief of the International Monetary Fund, suggested the agencies be banned from delivering ratings decisions on the eurozone countries in question.
Polish Finance Minister Jacek Rostowski will chair the meetings of EU finance ministers for the next six months. He looks an unlikely convert to the ban. —