France demands S&P punishment for downgrade blunder

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Finance Minister Francois Baroin said Thursday that ratings agency Standard & Poor's should be punished after it sent out an erroneous email announcing that France's cherished top rating had been cut.

"It really ... creates unacceptable damage and you can't have powerful economic responsibilities without, when there's an error, sanctions adapted to the impact of the reality of what happened" Baroin said.

France's Financial Markets Authority (AMF) said on November 10 that it had opened a probe, as demanded by Baroin, within hours of the ratings agency sending out an email announcing the downgrade of France's top AAA rating.

The email added to market turmoil over the spreading eurozone debt crisis.

"A blunder of this nature is much stronger than the dictionary definition, much stronger," Baroin said at an AMF event, given "the singular context that we're going through, tempestuous, turbulent (times)."

S&P said on November 11 that its erroneous downgrade of France arose when an automatic email was sent out after an old web page on French banks was changed.

With European officials calling for a crackdown on the behaviour and power of ratings agencies, S&P explained that the emailed downgrade announcement was an accident related to a test adjustment left on its client website last year.

S&P has since reiterated France's rating of "AAA/A-1+' with a stable outlook."

But coming when French finances were already under heavy pressure and with ratings agencies already threatening downgrades, and with turmoil building over Italy's finances, the error infuriated EU policy makers.

EU internal markets commissioner Michel Barnier said the incident showed "that in the current tense and volatile market situation, market players must exercise discipline and demonstrate a special sense of responsibility."

Barnier said he would propose reforms that would reduce reliance in the European Union on ratings, increased competition and transparency in sovereign debt ratings, and toughen liability for misconduct.

S&P said it "has taken immediate steps to prevent a similar error from happening again."

© 2011 AFP

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