German minister wants to 'break' ratings agencies' power

6th July 2011, Comments 2 comments

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

"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," Schaeuble 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 debt-wracked Greece's fate.

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.

© 2011 AFP

2 Comments To This Article

  • dave posted:

    on 6th July 2011, 18:52:36 - Reply

    Politicians yet again trying to pretend to be economists. The rating agencies got slated for not predicting the current crisis - because they allowed politicians to influence them previously...and now that they are telling the truth the politicians arent happy! All the european politicians are trying to protect the euro at the sake of everything else, the rating agencies are just stating the way it is.
  • Elsa Wanders posted:

    on 6th July 2011, 18:21:43 - Reply

    Great news and more countries should rise against Moodys! They bring countries down without any reason. Portugal is following all IMF recommendations and they are doing a great job. Why this sudden decision from Moodys? Whats really behind this? If the euro falls the dollar falls.