The Prime Minister of Luxembourg, Jean-Claude Juncker, has called for a European credit rating agency to be established in opposition to Standard & Poors, Moodys, and Fitch. Recently the head of the European Central Bank, Jean-Claude Trichet, referred to the 3 agencies as an oligopoly.
There is a belief that a European agency would be able to judge better the medium-term outlook for European countries. A couple of examples of ‘bad calls’ that could trigger unforeseen events throughout debt the markets include:
– Moodys cut Portugal’s government debt form ‘investment grade’ to ‘junk’ status saying that the rescue package wouldn’t restore stability.
– S&P stated that the rescue package for Greece would impose losses for holders of Greek debt and therfore constitue a default.
– S&P had issued a warning about downgrading Italy’s debt. This was done before a planned austerity programme had been released.
The real concern amongst politicians is the fact that it seems to transpire that the decisions of a small bank of credit analysts who decide on a country’s credit rating have immediate real-world consequences. All this reminds of the movie documentary “Inside Job” and the interviews with the credit rating agencies, see below. Some interesting comments about opinions.