* EU's Barroso says Portugal downgrade fuelling speculation
* Commission chief wants to cut reliance on credit agencies
* Germany's finance minister adds to agency criticism
(Adds Schaeuble quotes, details)
By Luke Baker
BRUSSELS, July 6 Europe issued a full-throated
assault on credit ratings agencies on Wednesday, saying there
were signs of bias against the European Union after Moody's
downgraded Portugal's debt to "junk" status.
European Commission President Jose Manuel Barroso said
Moody's decision to lower Portugal by four notches and maintain
a negative outlook was fuelling speculation in financial
markets . Europe was looking at getting away from its
reliance on the mainly U.S.-based ratings companies and weighing
possibilities for legal redress, he added.
[ID : nLDE7650RE]
His view was seconded by Germany's finance minister,
Wolfgang Schaeuble, who said Portugal's downgrade was totally
unjustified in present circumstances, when the country was
taking steps to put its finances in order.
"Yesterday's decisions by one rating agency do not provide
more clarity. They rather add another speculative element to the
situation," Barroso told reporters, adding that the agencies
were not immune to "mistakes and exaggerations".
"It seems strange that there is not a single rating agency
coming from Europe. It shows there may be some bias in the
markets when it comes to the evaluation of the specific issues
of Europe," he said, stating publicly a view that many senior EU
officials have pushed privately for some time.
Schaeuble said limits should be put on what he called the
ratings agencies' "oligopoly".
" Portugal is ... not only completely on course but
even ahead of the curve, so there really is no factual
justification for such an assessment at this early point," he
" We must break the oligopoly of the rating
agencies . "
It is not the first time during the sovereign debt crisis
that the EU has taken the major agencies -- Moody's, Standard
&Poor's and Fitch -- to task, but the message this time was
delivered with a much greater sense of frustration.
Barroso's comments followed German Chancellor Angela
Merkel's brushing aside on Tuesday of a warning from S&P, the
largest agency, that it would view the current French plan for a
partial rollover of maturing Greek debt as a default.
Such a move would narrow the options available to EU leaders
to tackle the crisis and could greatly exacerbate the situation.
Merkel suggested the EU had depended for too long on the
opinion of outside, private-sector agencies and said Europe had
its own institutions that it needed to put its trust in.
"It is important that the troika (EU, IMF and European
Central Bank) do not allow their ability to make judgments to be
taken away," she said. "I trust above all the judgment of these
Last year, the EU introduced rules that require the agencies
to spell out how they come to rating decisions, such as a
downgrade of Portugal. Barroso said further steps were in the
works and would be outlined by the end of this year.
"We plan measures to improve methodology and transparency of
rating of sovereign debt, to reduce excessive reliance by
financial institutions on credit rating, to further reduce
conflicts of interest and introduce more competition," he said.
"We are for instance looking at civil liability by the
agencies," he said.
EU officials have frequently criticised the ratings agencies
for being American, although in fact only Moody's and S&P are
U.S.-based -- Fitch has headquarters in both London and New York
and is majority owned by a firm based in Paris.
There are moves afoot to have a Europe-based agency,
although Barroso said no decision had been taken.
"I know that there are some possible developments regarding
the possible creation of rating agencies originating in Europe
said, without elaborating.
Before new laws are introduced, and policymakers don't
expect them to be in place until the middle of next year at the
earliest, there is little the European Commission or other
parties can do to influence the agencies' decisions.
A pan-EU markets watchdog based in Paris has the power,
however, to intervene if it sees failings in their work. It
could withdraw their license to issue ratings, although such
drastic step is unlikely.
Under assault from several corners of Europe, ratings
agencies have begun to push back against the criticism.
The head of S&P in Germany defended his company's work this
week, saying: "It cannot be that S&P puts its more than 150
years of creditworthiness, credibility and predictability on the
line to enable politically motivated push-ups," he said,
referring to the political desire to prop up Greece.