In These New Times

Brian Johnson

The Parliament

16th June, 2010

Parliament’s Socialist group leader Martin Schulz has called on EU leaders to ensure they take action to curb the power of credit ratings agencies (CRAs).

Schulz’s call comes ahead of Thursday’s summit, when EU leaders will meet in Brussels for crunch economic recovery talks, and amid growing anger at the role and influence of CRAs.

The agencies have come under fire in recent days for compounding Greece’s current financial difficulties, and sending the euro on a sharp downward slide.

“The men and women who come together tomorrow bear a heavy responsibility because Europe is at a crossroads.

“Those who placed bets on the failure of the euro on international markets want to win those bets. These people have no morals,” said Schulz.

“We have to make sure these people lose their bets on the markets. We have to make sure we win this battle.”

Moody’s, one of the so-called “big three” credit ratings agencies, was sharply criticised by EU economic and monetary affairs commissioner Olli Rehn after the US-based agency downgraded Greece’s sovereign debt rating to junk status.

In comments reported on by Deutsche Welle, Rehn said Moody’s decision to cut Athens’ credit worthiness was both “surprising” and “unfortunate” and “again raises issues related to the role of credit ratings agencies in the financial system”.

Moody’s downgrade mirrors that of rival agency Standard & Poor’s, which cut Greece’s sovereign debt to junk status in April.

And despite warnings from the other main ratings agency, Fitch, that it too was likely to downgrade the country, Moody’s Monday move is expected to strengthen calls for the EU to take action on regulating the sector.

The Greek government also responded to the downgrading, issuing a statement saying,” Moody’s downgrade of Greek government bonds today does not reflect in any way Greece’s progress over the past months.

“Nor does it reflect the potential created by the country’s effort of fiscal consolidation and increased competitiveness.

“The Greek government remains committed to its programme for fiscal consolidation and increased competitiveness.”

MEPs also raised a number of concerns about the way the agencies may have exacerbated the Greek financial crisis during a parliamentary debate on better oversight of credit ratings agencies in Strasbourg.

Greek GUE/NGL deputy Nikos Chountis called on the European commission to cease what he called its unacceptable deference to the “mafia of speculators”.

“With the outbreak of the crisis the EU recognised the negative role played by rating agencies so one would expect the commission to restrict the role of CRAs in some way,” said Chountis.

“Instead we see continued deference to those who have destroyed economies and jobs at the expense of workers and citizens of EU countries. This is economically and politically outrageous.

“Moody’s, one of the holy trinity of speculators together with Standard & Poor’s and Fitch, once again re-created a negative outlook for the Greek economy, and the euro itself, with an unjustified four-point downgrading of the Greek economy.”

Fellow GUE/NGL member, German deputy Jürgen Klute, criticised the role of the credit rating agencies in the run-up to the economic downturn, arguing that they should have done more to alert the world to the impending crisis.

“They failed in the crises of the 1990s, they failed again in the Enron case, they provided incorrect assessments of financial products based on US mortgages in 2007 and they kept on giving Lehman Brothers high ratings, although the investment bank was already teetering,” said Klute.

“The big three rating agencies, Standard & Poor’s, Moody’s and Fitch, are private listed companies.

“They are granted the role of a referee when, at the same time, they are also players in the financial playing field, aiming for the highest possible returns.

“Currently, companies that issue securities pay for the rating of stocks, bonds and other financial products they want to sell to investors.

“Making investors, not issuers, pay for several, more objective ratings would bring a minimum of fairness into the match.

“States can not be compared to private profit-oriented companies. Window-dressing is not enough, a root and branch reform of the sector is required.”