Thursday

13th Aug 2020

EU moves to rein in ratings agencies

  • Michel Barnier has asked EU finance ministers to consider curbing ratings agencies' powers (Photo: European Commission)

The EU commission on Monday (11 July) for the first time indicated plans to regulate ratings agencies after several run-ins over agency decisions about the credit reliability of ailing eurozone members.

Speaking in Paris, internal market commissioner Michel Barnier said the agencies occupied a place that is "far too important in Europe" and mooted a ban on ratings for countries covered by international rescue packages.

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

"One can't just not take into account the fact that these Member States are members of a European Union, they benefit from the solidarity of its members; and they are subject to internationally agreed aid packages."

"That is why we should ask ourselves, in the same way as Madame Lagarde has, whether it is appropriate to allow sovereign ratings on countries which are subject to an internationally agreed programme," said Barnier, referring to an idea first suggested by former French finance minister Christine Lagarde, now head of the IMF.

The commissioner also said he is considering making it obligatory that a rating agency inform a government of its decision first and that the agency publishes its reasoning in full. Ratings agencies may also in the future be required to conduct full analyses of countries more regularly.

"CRAs must follow a methodology which is both specific and very rigorous when they rate sovereign debt, and they must be held accountable by supervisors," said Barnier.

The commission has been grumbling about what it sees as the too-powerful role of ratings agencies for months but matters came to a head last week when Moody's, one of the three major international agencies, downgraded Portugal's credit rating to 'junk'. It made the move directly after Lisbon had agreed new austerity measures.

It provoked a strong reaction from EU commission chief Jose Manuel Barroso who questioned both its "timing" and its "magnitude" and suggested it was based on only superficial analysis.

Brussels has in the past suggested that a European ratings agency should be created, pointing out that the big three - Moody's, Fitch and Standard and Poor's are all international.

However, analysts suggest such an agency will have an immediate credibility problem if it is perceived as being too close to governments.

And while ratings agencies have been getting much bad press in Europe for some time - German finance minister Wolfgang Schaeuble has spoken about "smashing" their "oligopoly" - they were strongly defended by the Financial Times' influential commentator Wolfgang Muenchau on Monday.

"We have to thank the rating agencies for giving the eurozone's policymakers a clearer vision of which strategies are feasible, and which are not," he wrote in a piece entitled: 'Don't blame Moody's for a messy euro crisis.'

Chinese yuan to be convertible with euro by 2015

China is seeking to make its currency fully convertible by 2015, officials said in Beijing, a move which may help the ailing euro and dollar, which are losing against an under-valuated yuan. The Asian country is also looking at expanding its ratings agency to Europe.

Column

Drums of war again, in Europe

Just a few weeks ago, as Europeans in several countries put their furious debates about masks and corona appsinto higher gear, Turkey and Greece almost came to blows in the Aegean Sea.

Minsk violence prompts talk of EU sanctions

Images of bloody injuries after police attacked protesters with batons and stun grenades marked Belarus' latest sham election, posing questions on EU sanctions.

Column

Drums of war again, in Europe

Just a few weeks ago, as Europeans in several countries put their furious debates about masks and corona appsinto higher gear, Turkey and Greece almost came to blows in the Aegean Sea.

Opinion

Schrems privacy ruling risks EU's ties to digital world

With more and more trade moving to the digital realm, Europe can ill-afford to cut itself off. Meanwhile, China continues to advance a vision for an internet that is fractured along national boundaries and controlled by governments.

Stakeholders' Highlights

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

Join EUobserver

Support quality EU news

Join us