The world’s credit ratings agencies have come under attack from Germany and France over their role in Europe’s debt crisis, with the US joining calls for tough measures to curb their influence over markets.
In a joint letter issued on the eve of Friday’s eurozone summit in Brussels, Angela Merkel, German chancellor, and Nicolas Sarkozy, French president, demanded a review of how the agencies evaluate government debt and publicise their decisions.
Eurozone leaders were incensed when Standard & Poor’s downgraded Greece’s debt to junk status as they were finalising a €110bn ($140bn) rescue package for the country. The downgrade led to a steep sell-off in the Greek, Spanish and Portuguese bond markets, adding to their borrowing costs.
Ms Merkel and Mr Sarkozy released their letter a day after José Manuel Barroso, the European Commission president, announced his intention to place the agencies under the supervision of a new European securities markets authority. The Commission is also studying the feasibility of creating a European credit ratings agency to compete with the big three: S&P, Moody’s and Fitch.
Tim Geithner, US Treasury secretary, and Hank Paulson, his predecessor, joined the attack, telling a US inquiry into the causes of the financial crisis that ratings agencies were part of the problem and that their influence should be clipped. They were a “dangerous crutch” for markets, said Mr Paulson.
“I don’t want the ratings agencies to be held up as the font of all truth and have the ratings be part of our securities laws,” he told the inquiry.
The German and French leaders called for a “critical review of the sense of using agency ratings in European regulations”. They suggested that the agencies should play a less influential role in determining how much capital banks should set aside to cover risks. BNP Paribas disclosed its exposure to Greece, saying that it held €5bn of its sovereign bonds.
S&P rejected the criticism, saying that its rating of Greece had been more positive in recent months than the verdict of financial markets in general. Other market participants said Europe’s leaders should choose their words more carefully, lest they prompt more misgivings about the direction of European economic policy.
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