ECB slams credit rating agencies

09:30, June 02, 2010      

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European Central Bank policymaker Christian Noyer hit out at credit rating agencies Tuesday, saying central banks were too dependent on their judgments.

The dependence on rating agencies is "absolutely unsatisfactory," Noyer, a member of the ECB's governing council, told a conference in Seoul.

The agencies have been accused of compounding problems by belatedly downgrading ratings of countries.

This is a problem with sovereign debt because it affects the types of bonds that central banks are allowed to use as collateral for lending, said Noyer, who is also governor of the French central bank.

Agencies have proved themselves "plain wrong" in judging sovereign-credit risk, slashing ratings on Greece and other countries as markets panicked, when there was no change in the credit-worthiness of their governments, he said.

"The fact that these decisions were taken at a certain point of time under the stress of markets seems to show that credit rating agencies are simply not giving information to markets but taking information from markets," Noyer added. "They are not sending the signals at certain points of time when it should be warranted and sending it when it's too late and increasing the problems."

"It's an enormous problem because it always happens at just the wrong time."

The Greek crisis, which investors fear could spread to other weak eurozone states, has highlighted problems in the system under which the ECB accepts bonds as security for loans based on the judgment of major ratings agencies such as Standard &Poors, Moody's and Fitch.

Over the past several weeks the credit ratings of Greece, Portugal, Ireland and Spain have been downgraded by agencies due to concerns over their debt levels, leading to a sell-off in the euro and sent stock markets plummeting.

European Union (EU) finance ministers are pushing the ECB to develop its own rat-ing system for eurozone countries in the wake of the Greek crisis, the German business newspaper Handelsblatt reported earlier this year. Spokespeople for Moody's Investors Service, Standard &Poor's and Fitch couldn't be immediately reached for comment.

In a separate report, the EU defended the need for austerity plans to help governments cut their budget deficits, but promised trade unions it would pay attention to the problems that reforms could cause workers.

Laszlo Andor, the EU's employment commissioner, said European Commission President Jose Manuel Barroso would meet a union delegation Friday to discuss the social impact of the economic crisis.

Source: Global Times


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