July 10th, 2011
Econintersect: Here is a mind-blowing fact for all those who think Greece is on the verge of blowing up in a giant sovereign debt default: Germany's Euler Hermes Rating currently give the Mediterranean country their top AA rating, citing its "very strong business environment." This report from Der Spiegel compares to the "big three" U.S. credit rating agencies who have downgraded Greek debt to the lowest levels of junk many months ago. There is some logic in this picture, though. Euler Hermes is not rating Greek sovereign debt, but that of Greek corporations.
Follow up:The big three, Standard & Poors, Moody's and Fitch, all American companies, have essentially cornered the market on rating sovereign debt and many officials in the EU don't like that. The protests in recent days have been strengthened by the threat from S&P that the planned restructuring of Greek debt might be declared a default by the rating agency. (See GEI News report.)
Here is a summary of EU criticism of rating agencies from Der Spiegel:
European politicians sharply criticized credit rating agencies on Wednesday after Moody's downgraded Portugal's debt to junk status, a drop of four notches.
German Finance Minister Wolfgang Schäuble said the downgrade was totally unjustified, given Lisbon's efforts to sort out its finances. "We must break the oligopoly of the rating agencies," he said.
European Commission President Jose Manuel Barroso claimed Moody's move was fuelling speculation on the financial markets and said that the agencies were not immune to "mistakes and exaggerations." Barroso claimed there were also signs of a bias against the EU on the part of the rating agencies. "It seems strange that there is not a single rating agency coming from Europe," he said. "It shows there may be some bias in the markets when it comes to the evaluation of the specific issues of Europe."
The Commission president also said that the EU was working on additional measures to regulate the agencies, which would be presented by the end of the year. "We plan measures to improve (the) methodology and transparency of (the) 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.