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Schäuble wants to 'break' ratings agencies' power

The Local · 6 Jul 2011, 14:36

Published: 06 Jul 2011 14:36 GMT+02:00

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"We must break the oligopoly of the ratings agencies," he told a news conference, a day after Moody's Investors Service downgraded Portugal's debt to speculative status.

"I cannot understand what this appreciation is based on," Schäuble said, referring to the influence the ratings agency have on financial markets, adding that he was "surprised like everyone" by the decision.

Moody's slashed its credit rating on debt-ridden Portugal by four notches to Ba2 from Baa1, warning it could be lowered further.

Fellow European partners, together with the International Monetary Fund and the European Central Bank, have put together rescue packages for Portugal, Ireland and Greece to help them out of the quicksand of their spiralling sovereign debt.

German Chancellor Angela Merkel, for her part, on Tuesday demanded that ratings agencies take a back seat to the IMF, the ECB and the European Commission in determining the fate of heavily indebted Greece.

"I think it's important that we in the Troika - the International Monetary Fund, the European Central Bank and the European Commission - don't allow ourselves to relinquish our freedom to judge," she told reporters at a news conference.

"That's why I trust in the evaluations of these three institutions when it comes to specific procedures" rather than those of rating agencies, she said.

This followed a warning by Standard & Poor's saying current proposals for a second Greek bailout could constitute an effective default.

Recommendations issued by the top ratings agencies - Moody's, Standard & Poor's and Fitch - deeply impact financial markets.

Standard & Poor's Germany boss Torsten Hinrichs on Wednesday sought to defend his firm in an interview on German ARD public television.

"There are about 100 ratings agencies in the world. The importance given to the big three comes from the fact they have proven to be accurate in their ratings" issued over many years, he said.

Earlier in the day, Greek Foreign Minister Stavros Lambridinis had also attacked what he termed the "madness" of ratings agencies saying they exacerbated an already difficult situation.

Speaking during a visit to Berlin, he said a decision this week by ratings agency Moody's to downgrade Portuguese debt was not based on any failure to implement economic reforms by the government in Lisbon.

The downgrading reflected rather "the assumption that Portugal would need a second bailout," he said. This had "the wonderful madness of self-fulfilling prophecy" by aggravating Portugal's fiscal straits, he added.

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He also accused market players of undermining his own debt-saddled country by betting on a default.

"Unfortunately a lot of people in these 'rational' markets have invested billions of euros in (a) Greek collapse," he said.

The European Commission Wednesday also criticised Moody's, saying its "questionable" decision on Portugal contradicted the EU's own assessments.

"The timing of Moody's decision is not only questionable but also based on absolutely hypothetical scenarios which are not in line at all with the economic programme" adopted by Lisbon, said Amadeu Altafaj, commission spokesman for economic affairs.


The Local (news@thelocal.de)

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Your comments about this article

18:17 July 6, 2011 by neunElf
Kill the messenger!
18:24 July 6, 2011 by Englishted
Yes hit them hard what good do they do?
20:56 July 6, 2011 by lwexcel
I have quite a few friends employed with the big 3 ratings agencies located in London & Frankfurt. Funnily enough they all have one thing in common. THEY ARE ALL EUROPEAN!!! These companies are truly global firms and do not serve to some hidden agenda. They are simply the messengers delivering a message that states that what Greece is currently doing is technically a default. Just because a company is registered in the U.S. does not mean that they would risk their competitive advantage by providing faulty information. It is high time that people started being accountable for their own mistakes and stopped blaming all of the negative outcomes on some secret American Hegemony!
22:30 July 6, 2011 by Expat IV

Thank you!
22:52 July 6, 2011 by MJMH
Why is Schäuble and The EU and Merkel so afraid of the truth. They are afraid that's why. The mess is much bigger than we think.

It's beginning to be so obvious that if Schäuble doesn't get what he wants, well he'll just change the rules and hope the truth goes away or at the very least the question will change. .

Attacking the ratings agencies won't make things any better.
23:34 July 6, 2011 by nemo999
First discredit the messenger, then kill the messenger. That will make the truth go away. Herr Schäuble has a problem. But before we discredit them and then kill them. Why don't we wait for the stress test report on the 91 EU banks. It has been suggest that almost 1/3 are insolvent. If that is the case maybe the messenger is telling the truth and Herr Schäuble just does not want to here it, because he will then have to deal with it.
02:02 July 7, 2011 by catjones
I don't like the exchange rates. Or test scores in schools. Or retirement dates. Unless they're favorable to me...then don't change anything.
07:17 July 7, 2011 by ChrisRea
@lwexcel (#4)

Where in the article or in the comments above you did you see people blaming Americans? The guys cited in the article blamed the three main rating agencies for questionable decisions (they probably read in the press that Portugal is in difficult situation; * tongue off the cheek), just like they did when undervaluating the risks of many financial instruments and thus triggering the global financial crisis. So the issue is that there are still many people unaware of the guilt of the big three in setting the financial crisis. So Mr. Torsten Hinrichs' statement should read "The importance given to the big three comes from the fact they (!) used to (!) be accurate in their ratings (!) couple of years ago (!)".
10:26 July 7, 2011 by Traveler33
These rating agency's provide a solid assessment of a countries economic capability to pay back their debt. I don't see anything wrong with what they are providing.

If I am a big bank and I am considering investing in purchasing a country's debt in the form of bonds, I want to know what the risks are to my investors (the bank) and if I should make this investment or not.

These agency's are rating these EU country's low because they are in economic trouble. Sticking your head in the sand and ignoring it won't make the problems go away.

The US is in the position, they are also looking at having their ratings lowered if they do not make serious changes to their own budget and debt so it is not just an EU problem but a global problem.
11:23 July 7, 2011 by lwexcel
@ChrisRae #9

Fair enough ... this particular article does not mention anything about it being an American company. However if you do a little external research on the issue, you will see that this article is covering simply a part of what is of a much larger call to "break the dominance of the US-based credit ratings agencies."
11:29 July 7, 2011 by ChrisRea
"These rating agency's provide a solid assessment of a countries economic capability to pay back their debt. I don't see anything wrong with what they are providing. "

Really? Are we talking about the same rating agencies that key enablers of the financial meltdown by giving incorrect investment-grades? The ones against SEC is considering filing civil fraud charges? The ones about the Financial Crisis Inquiry Commission says "This crisis could not have happened without the rating agencies. Their ratings helped the market soar and their downgrades through 2007 and 2008 wreaked havoc across markets and firms."?

If you are unaware of this, it is a blessing for banks that you do not work for them. :)
14:19 July 7, 2011 by cobalisk
I find the actions of the Ratings Agencies very suspect as of late and keep asking myself 'Who is benefitting'?

The announcement of the Portugal rating slash came out of NOWHERE and served only to tank what was a European recovery after Greece passed further budget cuts.

It made no sense and the timing was in fact 'horrendous' unless you are a Rating agency fighting to 'stay relevant'. So far Fitch is the only agency that has shown some flexibility with the Euro crises. Moody's and S&P seem to be taking a very hard line approach to any kind of investor losses and claiming that any participation of banks or funds in a rollover would be a default. This position is irrational actually. Voluntarily extending a repayment period is not a default so these two claiming it is serves only to benefit themselves and the speculators they serve. They believe they can set the terms. They are wrong.
16:22 July 7, 2011 by finanzdoktor
Well, what was Herr FinanzMinister Schauble expecting, after the EU has taken so long to remedy the situation, and the fact that the Greek financial crisis was caused by "cooking the books" all these years?

Now, he questions the timing of the rating agencies assessments, after EU meetings on the subject (in other news sources). Well, of course they do an assessment after an EU meeting!!!!! They wait to see what was discussed and any forthcoming measures, assess and evaluate them, and then make their own conclusion (not dictated by Herr Schauble, which is probably why he is so irriatated). That is their job and responsibility. Too bad others like Herr Schaulbe are not.
16:11 July 8, 2011 by catjones
'We must break the oligopoly of the ratings agencies' is a typical deflection of blame. The question to Schauble is: and replace them with what? Another agency? A german agency?

Everybody complains about the weather but nobody does anything about it.
18:54 July 8, 2011 by r2d2c3po
Here is something to consider. Both Greece and Portugal have tons of gold that could be sold to help pay down the debt. Why has Greece not been forced to sell it?
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