European Topics of the Week
INCREASED OVERSIGHT TO SOVEREIGN
DEBT RATINGS AGENCIES (MOODY `S,
STANDARD & POOR'S AND FITCH) PLANS
THE EUROPEAN UNION

By Rolando Arturo Leiva
21 november 2011

Heidelberg, (Germany) - A noticeable distrust across Europe, towards the Rating
Agencies (Moody’s, Standard & Poor's and Fitch), which control 90 to 95% of the
market-, began to spread last week, while the feeling was growing that instead of
rating some country debt, the Rating Agencies has became in fact a factor in
triggering the current crisis.

On Tuesday 14 November, the European Commission issued a sharp directive in
order to regulate strictly the work of the rating agencies, having simoultanesly been
discussed the possibility to even forbidden some reports -which was the desired too
for many- a mesure already specifically proposed by the European Commissioner
for Internal Market-, which has not been approved yet, but perhaps only postponed.
According to the words of the Communiqué issued, especially surprising and irritating
for the European has been, literally, "the timing of such ratings issued by the
agencies .." - it is said in one part of the press release, quoting the words of
Commissioner Michael Barnier, and the fact that those qualifications have been
issued during the debt negotiation process, or when the financial aid program to an
specific country is carried out, and thus affecting greatly that program, and arguing
that "no one could aloud the agencies to have the role of increasing market
volatility" .

At the same time, the EU considers that in specific moments, the agencies can be
held liable for having the desire to intentionally, or with great negligence, cause
damage to the investor, a situation in which, if demostrated, the agency in itself
must pay the costs of such a damage.

The agencies, -continues the same press release-, may neither qualify thereafter
financial institutions where the agency in itself has ownership interests.
EL PAIS of Spain, in its issue of last November 14, also states, literally, in a
headline: Agencies can be sued for Deception, and if in the current crisis, the fact
that they the agencies have threatened to cut sharply the qualifications, opening the
way for the public to interpret that as a sign that would cause even greater
depreciation in the market, that would mean an aggravated responsibility.
The Civil Liberties Union and the Centre for Social and Economic Rights in
February,-notes also EL PAIS from Spain- submitted to the National Court a
complaint against the three agencies for its downgrade of Spanish debt and for using
privileged information to alter market prices.

The IMF believes too, that agencies “use and abuse of their power” and they require
closer supervision, because their activities, -says IMF- have "a significant impact on
borrowing costs that may affect countries' financial stability. "

The 3 agencies that control 90 to 95% of the market, signals in turn LE MONDE of
France, have been accused of making cards "for criminal purposes, abuse of power,
oligopoly, intentional use of information and implementation of actions directed
anything other than to produce instability in the markets. "

Moody's Agency has tried to defend against these acussations by arguing that the
measures of control planned, and that have begun to being implementing against
the agencies "affect the quality of ratings, would disrup t even more access to credit
for businesses and governments, and increase the instability of the markets where
are traded the debts of each State. "

According to THE NEW YORK TIMES, London financial circles have also welcomed
the fact that at least the EU has not come to abolish the ratings agencies which in his
opinion would have increased market volatility.

The THE NEW YORK TIMES has indicated too, that the financial circles, -guarding
jealously the interests of the City of London, -the financial center where most trading
operations in Europe are conducted-, gave also their welcome to the European Union
measures because, at least, they "not arrive to the point to prevent or prohibit the
publication of the ratings" .-

Rolando Arturo Leiva
Heidelberg, Germany
21 november 2011

(Una versión de este artículo fue publicada en la News Letter - “InterEuropa Reporte”
- “La Crisis del Euro” noviembre 2011)