Sunday

5th Jul 2020

Merkel backs creation of European credit rating agency

  • Standard and Poor's head office in the US (Photo: Wikipedia)

Senior European politicians including Germany's Angela Merkel have indicated their support for the creation of a European credit rating agency.

And in a related move on Monday (3 May), the European Central Bank decided to loosen the terms under which it lends money to Greek banks, indicating that it will now accept Greek government bonds below 'investment' grade as collateral.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

The pivotal role played by the world's top three credit rating agencies, all of them US-based, has been highlighted in recent weeks, as incremental downgrades for Greece, Portugal, Spain and Ireland have helped fan a fire of market doubts, leading to higher borrowing costs for the weaker eurozone countries.

On the same day that her cabinet approved a €22.4 billion loan for Greece, Ms Merkel said there was a clear case to be made for a European ratings agency.

A European agency could provide "an understanding of basic economic mechanisms different from the existing agencies, more oriented towards ...[sustainability] of the economy and less on the short term," she said. "More competition in this area can not hurt."

The German government is now pressing for parliamentary approval for the Greek loan by the end of this week, after eurozone finance ministers on Sunday agreed to provide Athens with up to €110 billion over three years (2010-2012), together with the IMF.

The country's finance minister Wolfgang Schauble met with banking representatives on Monday in a bid to secure private sector support for the initiative. Officials told the Financial Times that Mr Schauble was seeking a commitment from banks and insurers not to sell their holdings of Greek bonds at the present juncture, in order to help stabilise markets.

French finance minister Christine Lagarde also added to the debate on credit rating agencies on Monday, saying there should be more supervision of the current agencies to ensure their full independence.

ECB liquidity provision

To date, the European Central Bank has only accepted 'investment' grade sovereign bonds from European banks looking to borrow money. But on Monday the Frankfurt-based institution performed an about-turn, saying it would in future accept 'junk' status Greek sovereign bonds as collateral.

The move, a clear indication that the ECB is also joining in with the eurozone's rescue efforts for Greece, highlights concern that further credit rating downgrades for Athens could result in a liquidity shortage for the country's banks, subsequently harming the economy.

The central bank was among those criticising the timing of last week's downgrade of Greek bonds to 'junk' status by credit rating agency Standard and Poor's, with fears that further such downgrades by the remaining agencies could shut Greek banks off from ECB lending prompting Monday's announcement.

But the decision marks a dramatic u-turn for ECB President Jean-Claude Trichet, who began the year saying the ECB would not change its "collateral policy for the sake of any particular country."

The bank's governing council meets this Thursday in Lisbon, where it will likely discuss the need to extend this provision to other countries.

Brussels to unveil credit-rating clampdown

The European Commission on Tuesday is to unveil proposals to clamp down on the credit-ratings industry, seen as one of the key villains in the eurozone debt crisis melodrama.

EU plans tougher checks on foreign takeovers

The EU and its member countries are worried that foreign powers, such as China and its state-owned companies will take advantage of the economic downturn and buy up European firms

Vestager hits back at Lufthansa bailout criticism

Commission vice-president in charge of competition Margarethe Vestager argued that companies getting large capital injections from the state during the corona crisis still have to offset their competitive advantage.

News in Brief

  1. EU grants Remdesivir conditional authorisation
  2. French prime minister and government resign
  3. France lied on Nato naval clash, Turkey claims
  4. EU highlights abuses in recent Russia vote
  5. Belgium bids to host EU mask stockpile
  6. France shamed on refugees by European court
  7. French and Dutch police take down criminal phone network
  8. EU launches infringement case on Covid-19 cancelled trips

Coronavirus

EU leaders to reconvene in July on budget and recovery

Most EU leaders want an agreement before the summer break, but the Dutch PM, leading the 'Frugal Four', warned there might not even be a deal then. But the ECB's Christian Lagarde has warned of a "dramatic" economic fall.

Coronavirus

EU leaders seek to first narrow differences at summit

EU leaders on Friday will share their takes - online - on the €750bn recovery and €1.1 trillion budget plans, before they try to seal the deal at one or two likely head-to-head meetings in July.

Stakeholders' Highlights

  1. Nordic Council of MinistersNEW REPORT: Eight in ten people are concerned about climate change
  2. UNESDAHow reducing sugar and calories in soft drinks makes the healthier choice the easy choice
  3. Nordic Council of MinistersGreen energy to power Nordic start after Covid-19
  4. European Sustainable Energy WeekThis year’s EU Sustainable Energy Week (EUSEW) will be held digitally!
  5. Nordic Council of MinistersNordic states are fighting to protect gender equality during corona crisis
  6. UNESDACircularity works, let’s all give it a chance

Join EUobserver

Support quality EU news

Join us