Commission questions Greek S&P rating downgrade

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The European Commission questioned Standard & Poor's latest downgrade of Greece, saying yesterday (30 March) it did not share the rating agency's view and had concerns about how credit rating agencies functioned.

Standard & Poor's downgraded both Portugal and Greece on Tuesday, further undermining financial market confidence in the countries' abilities to meet their debt obligations.

Moody's and Fitch have also been downgrading eurozone countries caught up in the bloc's debt crisis.

Standard & Poor's downgraded Greece's debt deeper into junk status, saying that a bailout scheme agreed by eurozone leaders last week increased the likelihood that private bondholders would be hit by debt restructuring.

The firm cut Greece's rating by two notches to BB-, lower than its rating of BB for Turkey and Egypt, and said it could downgrade the debt-choked country by another one or two notches in case of budget slippages.

Asked to comment on the S&P downgrade of Greece, Commission spokesman Amadeu Altafaj told a news briefing:

"We don't share that assessment [of Greece]. We have our own assessment and it is not the one of the agency you mentioned. We don't share that – we have our own view. It is shared by the IMF and the EU."

He added that Greece was doing all it could to implement a fiscal adjustment programme agreed with the European Union and the International Monetary Fund.

"Credit rating agencies have an important role to play. We have said here on several occasions that we have some doubts and a fair degree of criticism as to the way these credit rating agencies function," he said.

He added the Commission was making progress on preparing legislation that would regulate the rating agencies better and expected proposals later this year.

(EURACTIV with Reuters.)

 

Credit rating agencies entered the EU's firing line when the agency, Standard & Poor's decided to downgrade Greek debt to "junk" status, spreading widespread gloom across EU markets.

Credit rating agencies have been widely blamed for their role in the financial crisis which has swept the world since 2007.

They stand accused of over-evaluating borrowers' capacity to pay back their household loans in the so-called sub-prime crisis. They were also accused of potential conflicts of interest, because they are paid as consultants by the very banks whose debt they rate.

Last year, EU Internal Market Commissioner Michel Barnier said he would formulate a proposal to put credit rating agencies under the thumb of an EU agency, blaming the uncertainty in financial markets on the downgraded ratings of Greek and Portuguese debt.

A consultation was launched in November 2010 and the EU executive is expected to formalise a proposal before the end of the year.

 

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