In These New Times

New Europe

2nd May, 2010

European Monetary Affairs Commissioner Olli Rehn was frustrated with the downgrade of Greek debt by Standard & Poor’s to junk status last week, questioning the credit rating agency’s decision. “Who is Standard & Poor’s by the way?” asked Amadeu Altafaj, the spokesman for Rehn, during a briefing in Brussels.
The European Commission sent a warning to rating agencies urging them to act “in a responsible way.” After Standard & Poor’s downgraded Greece and Portuguese debts, EU markets plunged. Following the downgrade, the euro collapsed more than 1.5% on 27 April. The downgrade added to fears that Greece’s crisis would spread to other weak EU members.

“We would expect that when credit rating agencies assess the Greek risk, they take due account of the fundamentals of the Greek economy and the support package prepared by the European Central Bank, the International Monetary Fund and the Commission”, the spokesperson of the EU Financial services Commissioner Michel Barnier said.
Barnier said on 30 April that he is considering setting up a new European credit rating agency. “I am thinking… about the idea, feasibility and the added value of adding an extra rating agency that would be European,” French daily Les Echos quoted Barnier as saying.
European Commission President Jose Barroso said on 29 April that the Commission “has already taken action to put in place a regulatory framework on credit-rating agencies, and will continue to watch closely the behavior of the financial markets during this crisis.”
Greek Prime minister George Papandreou, addressing an Economist’s conference in Athens on 28 April, stressed that “a small fire, a spark must not be allowed to get out of control and become a threat for the Eurozone.”
Papandreou said that from the situation that has been created from the beginning of the crisis “the markets do not ultimately regulate themselves and they do not always function rationally,” while for the specific case he said that the markets “are afraid and evaluate by depending on the worst possible scenario and not the most probable.”
A day later, Antonis Samaras, the main opposition Leader, President of the New Democracy Party, who is a former member of the European Parliament, said that he had also called for the creation of a European rating agency. He said at the Economist conference that the rating agencies “were not always transparent” and often were “self-fulfilling prophecies.”
On April 30, Papandreou held consecutive consultations with his top ministers on the progress in the negotiations with a visiting delegation of the so-called “troika” of the European Commission, theECB and the IMF on the new package of economic measures expected to be announced in the coming days. Barroso said that the European Commission is making “solid and rapid progress” with the European Central Bank (ECB), the International Monetary Fund (IMF) and the Greek authorities to finalize the Greek adjustment program.”The Commission expects this work to be finalized in the coming days,” he said. “There is no doubt that Greece’s needs will be met in time.”