Credit rating agencies had warned the European Commission that they could stop rating risky countries if the EU executive went ahead with plans to make them legally liable for flawed downgrades, industry sources said yesterday.
The threat, which one expert said could remove stricken European countries from the investor map, marks an escalation in a row between the agencies and EU officials whose efforts to tackle a debt crisis have failed to stem rating downgrades. The three major agencies’ ranking of countries and companies determines their cost of borrowing.
Tensions peaked this week after Standard & Poor’s downgraded Portugal and demoted Greece’s credit status to below that of Egypt.
But public criticism of the downgrade by the EU’s executive did not deter Moody’s Investors Service from warning of further ratings cuts or Fitch from flagging the risk to ordinary bondholders from an EU bailout plan.
In a move many see as an attempt to stop a slide in country ratings, EU policymakers want to make the agencies legally liable if a downgrade of Ireland or Portugal, for example, turns out to be flawed.
The agencies, worried that the EU’s proposals could expose them to claims from thousands of sovereign bondholders, are fighting the proposal, arguing it could force them to cease publishing ratings on some countries altogether.
The row highlights the widening rift between the EU’s political leaders and financial markets.
Investors have been frustrated by conflicting messages from Europe’s leaders about how they would tackle the debt crisis. – Reuters