(eToro Blog) According to a recent report, the European Union’s administration may ask for new powers which would allow for the censoring of the various credit ratings agencies. In the words of the financial reform chief, it’s a way to eliminate the repercussions of “ill-thought-out” credit ratings. Analysts point out that such an action would be difficult to monitor, but just the suggestion of it underscores the frustrations of policymakers. Take for example, France’s government, which continues to work at a fevered pace to prevent a downgrade, efforts which may eventually prove fruitless.
The former foreign minister of France, Michel Barnier, who now heads finance regulation as an E.U. commissioner, says that the credit ratings agencies are part of the problem echoing the sentiment of not a few economists and policy makers. M. Barnier said the new rules would not ban the credit ratings agencies outright, but rather ensure that their announcements are disseminated on a more appropriate basis, time-wise.
However, differing opinions exist on the matter. One co-founder of a Brussels-based think tank believes that such a ban would do nothing to help the Eurozone’s financial stability. He believes that the governments’ own response to a downgrade action have more of an impact than the actual announcement.
In any event, even if approved by the E.U. member governments, an E.U.-enforced ban would only impact “local” credit ratings agencies, and not S&P or Moody’s, which are U.S.-based. They’d still be free to make possible market-impacting announcements like the one earlier today, which said that if the Eurozone slips into a recession, S&P would likely downgrade several of the E.U. member economies, including France and Spain.
A comment from a Moody’s spokesperson dismissed the proposal, saying that such a ban would undermine confidence and increase volatility in the Eurozone’s markets.
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