Schäuble wants to ‘break’ ratings agencies’ power

German Finance Minister Wolfgang Schäuble said on Wednesday he wanted to "break" the power of ratings' agencies and "limit" their influence after controversial decisions in the eurozone debt crisis.

Schäuble wants to 'break' ratings agencies' power
Photo: DPA

“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.

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.


Member comments

Log in here to leave a comment.
Become a Member to leave a comment.


German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.