EU seeks to gag ratings agencies

The European Commission is seeking to prohibit the ‘ratings’ agencies, such as Moody’s, S&P and Fitch’s, from publishing details relating to countries who have already got into trouble, such as Ireland, Greece and Portugal, or countries seeking or negotiating international aid.

The agencies are being accused of aggravating the economic crisis by publishing details of reductions in creditworthiness credit rating.

The EU Executive also wants the agencies to give prior notice to any country being downgraded in order for them to be able to object. The initial draft from the EU called for three days prior notice but it was then decided that this could lead to insider trading and the period has now been reduced to twenty-four hours.

The EU also wants the methodology used by the agencies to be more rigorous and transparent. Just like the workings of Brussels then.

Another proposal initially contemplated was the setting up of an EU ratings agency, an idea which had the support of Spain, France and Germany but this was later dropped as it could provide for conflicts of interest which could undermine its credibility. No kidding.

Finally, the EC also wants to establish a rule of shared responsibility across the European Union to allow investors the right to sue for compensation if an agency erroneously or negligently changes the credit rating of a country. In other words, gamblers or speculators can sue if they lose. How about the same for casinos?

This latest move is the third attempt to try and control the ratings agencies since the start of the financial crisis. The first provided for mandatory registration of all such agencies operating in Europe and the second gave the Financial Markets Authority ESMA) the power to oversee them.

Even before the earlier measures came into force, EU leaders admitted they were insufficient and asked the Commission to investigate further.

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