Credit rating agencies to be investigated after euro zone downgrades

| May 5, 2010 | 0 Comments
Credit rating agencies to be investigated after euro zone downgrades

Michel Barnier, the European Internal Markets Commissioner, has pledged to investigate credit rating agencies after a series of downgrades to Greece’s debt.

Mr Barnier told the European Parliament he had been surprised by the rapid deterioration of Greece’s rating.

Last week, Greece became the first euro zone nation to have its debt downgraded to “junk” status, while Spain’s credit rating was downgraded by one notch to AA from AA+ and Portugal’s debt was downgraded two notches A- from A+.

Rating agencies can influence the decision of fund managers into selling government bonds, or refuse to buy newly issued bonds.

As a result, Mr Barnier is calling for further regulation for credit agencies and will seek to force them to explain what they base their decision on.

“I think we need to go further to look at the impact of the ratings on the financial system or economic system as a whole,” said Mr Barnier.

“The power of these agencies is quite considerable not only for companies but also for states,” he added.

The European Commission has already reiterated to the major rating agencies to be “careful” in their work.

Many believe the three main agencies, Standard & Poor’s, Fitch, and Moody’s, failed to recognise the size and risk of the sub-prime mortgage crisis, which resulted in multi-billion pound losses.

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