07-31-2011, 09:17 AM
Europe Declares War on American Ratings Agencies E
| Europe Declares War on American Ratings Agencies |
European leaders hope they can sweep Europe’s financial problems under the rug by shooting the (American) messengers of bad news.
The three leading ratings agencies criticized for being American – Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings, which actually is majority owned by a French company — rate the creditworthiness of companies and countries, as well as the quality of funds and stocks. Their assessment determines the conditions under which firms, banks, or countries may borrow money on the capital markets.
The agencies, which collectively hold a global market share of roughly 95 percent, exert considerable influence over Europe because European companies active on U.S. markets are required by securities laws to have ratings that are issued from these firms.
(well simple then, withdraw from American Markets)
But European politicians are now accusing these companies of outside meddling, as if American ratings agencies are responsible for the bankruptcy of countries like Greece, Ireland, and Portugal. In a frantic effort to regain control over the narrative that was carefully crafted over many years that Europe is a global model of socialist utopia, European elites (as always in denial), are, once again, reaching for the tried and true fall-back position of anti-Americanism.
The latest bout of anti-American rhetoric was triggered by the July 5 decision by the New York-based Moody’s to downgrade Portugal’s credit rating to “junk” status. The downgrade was made just as Portugal was to implement austerity measures in return for a €78 billion ($110 billion) EU-IMF bailout, and as the eurozone was struggling to craft yet another rescue package for Greece.
Consider, for example, the reaction of Viviane Reding, the European commissioner for justice. Reding told Germany’s Die Welt newspaper: “Europe cannot let itself be destroyed by three American private companies.” She added: “I see two possible solutions: either the G-20 states agree together to smash the cartel of American rating agencies. Or independent European and Asian rating agencies are established.”
European Commission President José Manuel Barroso accused the agencies of “mistakes,” “exaggerations,” “conflicts of interest,” and of having an anti-European “bias.” Barroso asked: “Is it normal to have only three relevant actors on such sensitive issues where there is a great possibility of conflict of interest? Is it normal that all of them come from the same country?”
Attacking the domination of the ratings sector by the Americans, Barroso continued: “It seems strange that there is not a single rating agency coming from Europe. It shows there may be some bias in the markets when it comes to the evaluation of the specific issues of Europe. It is important that we do not allow others to take away our ability to make judgments.”
The unelected Barroso also said it was time for a European ratings agency to emerge as a counterweight to the U.S.-dominated groups: “We know that when there are oligopolies there are sometimes attempts to abuse the dominant position or market manipulation, so the more competition the better — this is our credo.”
German President Christian Wulff said it was shocking that the rating agencies continue to exercise so much power, and warned of the need for policymakers to “re-conquer the primacy of politics.” German Finance Minister Wolfgang Schaeuble said he “cannot decipher” the recent ratings downgrades of Portugal. “We need to examine the possibilities of smashing the rating agency oligopoly,” he added.
lots more red meat in the article .....
Not all politicians in Europe agree, and some have warned that attacking the ratings agencies was a ploy aimed at distracting attention away from deeper structural problems in European economies. Kay Swinburne, a British member of the European Parliament, said: “The EU seems determined to find scapegoats for the current crisis. The problems in the eurozone are predominantly as a result of poor fiscal policies of some EU governments, not because of the decisions of ratings agencies to downgrade them.” |
Sharon Bowles, the British chairman of the European Parliament’s Economic Affairs Committee, has also warned against demonizing the rating agencies: “They are being shot as the bringer of bad news. I am not entirely convinced that the [rating] system is broken,” she said.
But apart from public posturing, it remains unclear as to what European politicians can really do to limit the influence of American ratings agencies. International investors are unlikely to put much faith in an Orwellian-like European ratings agency that is funded by the state and created for the sole purpose of providing European countries with ratings that are more favorable than the ratings assigned by its American competitors. |
In case there is any doubt, there are myriad examples of what a politically managed EU ratings agency would look like. For example, while the big three U.S. credit rating agencies downgraded Greek debt to “junk” more than one year ago, Germany’s Euler Hermes ratings agency currently gives Greece their top AA rating, citing the country’s “very strong business environment.”
Another example involves the European Banking Authority (until just recently it was known as the Committee of European Banking Supervisors), which in July 2010 stress-tested European banks. It concluded that the Bank of Ireland and Allied Irish Banks were capitalized to meet even the most adverse of scenarios. But just a few months later, the two banks needed €18.5 billion of new capital to remain afloat.
European policymakers are now drafting laws designed to curb the ratings agencies by increasing their legal liability, among other things. But a proposal to make the agencies legally liable if a downgrade of a country turns out to be incorrect is facing conceptual problems: officials have yet to come up with a clear definition of the word “incorrect.”
Last edited by EmptyTimCup; 07-31-2011 at 10:32 AM.
[ Reply w/Quote ]