Euro ratings agency idea gains ground

(BRUSSELS) - Prospects for a European credit rating agency gained ground on Monday among political leaders reeling from a costly, months-long battering from markets over Greece.

But calls by German Chancellor Angela Merkel and French Finance Minister Christine Lagarde only underlined the power of US adjudicators in a hugely influential finance sector over which Europe has no control.

Rating agencies have come under fire for cutting Greece's sovereign debt to junk status and downgrading the credit-worthiness of Portugal and Spain, in turn unsettling investors and sending borrowing costs for those countries soaring on financial markets.

Merkel said a European rating agency "could be useful" in wake of the Greek debt crisis, along with "possible changes" to the European Union's stability and growth pact for euro currency partners.

"We will press for the creation of a rating agency in Europe so that European financial markets become more stable and reactive," Merkel said.

However, Lagarde also said that there should be closer supervision of the existing credit ratings agencies to ensure their full independence.

Interviewed in France's Le Monde on Monday, Carol Sirou, the head of Standard & Poor's France, admitted that "a doubt persists as to the identity of the future regulator or regulators" in Europe.

S&P's recently downgraded Greek debt to junk bond statues, while Moody's and Fitch Ratings, the other two major global players, have also downgraded Greek debt, with Portugal and Spain likewisw coming under what the Portuguese Prime Minister Jose Socrates described as a coordinated, triple-pronged "attack."

Socrates said the attack was "without foundation" and was "targeting the euro as a whole and the sovereign debt of several countries.

"Europe should take measures and go from words to actions," he stressed.

The problem for European political leaders wrestling with a domino effect on markets, as Sirou conceded, is that the existing financial market regulators "do not perform this role."

New supervision is planned for late-2010, under a new European Securities and Markets Authority, but debate remains intense at EU level pitting national capitals against the European parliament in Brussels.

Under an overhaul of financial regulation being debated by the US Congress, meanwhile, ratings agencies could be sued by investors if their advice falls wide of the mark, and may have to publish their relationships with banks, amid fears of conflicts of interest.

International Monetary Fund chief Dominique Strauss-Kahn, whose organisation is pumping in 30 billion euros of the 110-billion-euro (146-billion-dollar) bailout of Greece led by its euro partners, warned last week against setting too much store by rating agencies' decisions.

These organisations "are reflecting what they are collecting in the market," he said.

"One should not believe too much what they say, even if they are useful."

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