EU mulls rating agency ban: report
Updated: 2011-10-21 08:06
The Moody's Investors Service Inc headquarters in New York. EU politicians are accusing rating agencies such as Moody's, Standard & Poor's and Fitch Ratings of totally misrepresenting the financial situation of individual countries. [Scott Eells / Bloomberg]
FRANKFURT / MADRID - The European Commission is considering a possible ban on rating agencies from publishing their assessments of EU countries in difficulty, the Financial Times Deutschland reported on Thursday.
The European Union's commissioner for internal markets and services Michel Barnier has drawn up a draft proposal empowering the new European Securities and Markets Authority to "temporarily prohibit" agencies from publishing their analyses on a country's solvency, the newspaper said.
FT Deutschland said it obtained a copy of the confidential draft.
Barnier is concerned that the publication of a rating at an "inopportune moment" for a country when it was negotiating financial aid from the EU's bailout fund or the International Monetary Fund could have "negative effects for that country's financial stability and possible destabilizing effects for the global economy".
Politicians accuse rating agencies such as Moody's Investors Service Inc, Standard & Poor's Ratings Services and Fitch Ratings of totally misrepresenting the financial situation of individual countries, thereby only intensifying the crisis further.
A downgrade of its sovereign debt rating has enormous consequences for a country, pushing up its borrowing costs and its loan repayments.
Earlier this week, Moody's warned France that it may place a negative outlook on its cherished AAA credit rating in the coming months as the government's financial strength "has weakened".
Also this week, Moody's cut Spain's rating by two notches to A1 from AA2, with a negative outlook, "to reflect the downside risks from a potential further escalation of the euro area crisis".
The downgrade came days after a similar move from Standard & Poor's, which last week cut Spain's sovereign rating from AA to AA-, with a negative outlook. Fitch Ratings slashed Spain's rating by two notches earlier this month.
Spain's Treasury challenged the sovereign downgrade, saying in a letter to investors the downgrade "may be motivated more by a short-term reaction to negative news about the eurozone debt markets" than by long-term fundamentals.
"The nation's significant deleveraging has significantly reduced its external financing needs," the Treasury said. "The Spanish government remains committed to fiscal consolidation and structural reform."
Barnier is to officially submit his proposals by next month at the latest, and some amendments are possible, FT Deutschland reported.