Europe lashes out over downgrades.
“We can’t understand the basis of this announcement,” Mr Schäuble said. “We have to break the oligopoly of the ratings agencies.”
We stood those downgrades in the 80's during debt crisis and no one raise to break the oligopoly of the ratings agency...
Europe lashes out over downgrades
By Peter Spiegel in Brussels and David Oakley in London
Senior European officials lashed out at Moody’s on Wednesday, questioning the timing of the debt rating agency’s downgrade of Portuguese bonds this week and threatening new regulatory action against all three major rating agencies.
The high-profile criticism follows long-simmering European complaints about Moody’s and its two competitors, Standard & Poor’s and Fitch, centring on whether they have improperly attempted to influence policy-making in the ongoing debt crisis.
The Portuguese downgrade – four notches to “junk” status – comes amidst a heated debate over how hard to push private owners of Greek debt to delay repayments from Athens. José Manuel Barroso, president of the European Commission, questioned the timing, and said Moody’s was guilty of “mistakes and exaggerations”.
“I deeply regret the decision … and I regret it both in terms of its timing and its magnitude,” Mr Barroso said. “With all due respect to that specific rating agency, our institutions know Portugal a little bit better.”
On Tuesday, Angela Merkel, German chancellor, and François Baroin, French finance minister, sought to downplay Moody’s decision, saying it would not effect their decision-making.
But Mr Barroso’s comments, along with similar remarks Wednesday by Wolfgang Schäuble, the German finance minister, appeared a concerted change in tenor, with both men arguing that efforts to reduce the agencies’ power would gain momentum.
“We can’t understand the basis of this announcement,” Mr Schäuble said. “We have to break the oligopoly of the ratings agencies.”
Eurozone markets were hit hard on Wednesday following the downgrade. Portuguese bond yields, which have an inverse relationship with prices, saw one of the biggest daily surges this year and French toll road operator Autoroutes du Sud was forced to pull debt deals.
More worryingly, Italian 10-year yields jumped above 5 per cent for the first time since November 2008. Contagion to Italy could threaten the entire euro project because of the size of its economy.
Rating agencies defended their decisions, with a Moody’s spokesman saying the agency’s continues “providing independent, objective assessments of credit risk on debt securities”. S&P said: “We are focused on our role of providing investors with an independent and globally consistent view of creditworthiness, based on our published criteria.”
Some analysts accused European officials of attempting to distract voters and financial markets from their difficulties in formulating an effective response to the crisis.
“EU leaders will be well advised to stop blaming ratings agencies for their own shambolic handling of the euro area crisis,” said Sony Kapoor, head of Re-Define, an economic consultancy.
The European complaints echo similar criticisms made by Washington in April, when S&P cut its outlook for US bonds in the midst of budget negotiations between the White House and congressional Republicans. At the time, senior US Treasury officials questioned the timing and accused S&P of being misinformed about the budget talks.
European officials have argued that downgrades have frequently coincided with high-profile meetings of European leaders – evidence, they believe, of agency politicisation.
Greek debt was downgraded by S&P a week before last month’s summit of EU heads of government, for instance, and by Moody’s four days before a special summit of eurozone leaders in March. Fitch downgraded Portuguese debt the day of another March EU summit, and Moody’s downgraded Irish debt on the day of a December summit.
“The credit rating agencies are playing politics not economics,” said a senior EU official. “The timings of the downgrades are not a coincidence.”
Additional reporting by Gerrit Wiesmann in Berlin and Richard Milne in London |
