EU Queries CRA Impartiality

The debate about the power credit agencies wield has reached new heights as a result of Moody’s downgrading Portugal’s credit rating to ‘junk’ status. Although it has been publicly stressed by French European Affairs Minister Jean Lionetti that credit rating companies were not the decision makers in rendering aid to euro-area states, it’s been acknowledged that they become an unwelcome aspect of the decision making process due to their considerable influence on investor psyche. President of the European Commission, Jose Manuel Barroso, noted that Moody’s negative outlook and its decision to drop Portugal’s rating will undoubtedly fuel speculation in financial markets. He also noted they were addressing the problem of Europe’s reliance on external credit rating agencies, most of which are based in the United States, such as Moody’s and Standard & Poor’s, with Fitch Ratings having dual-headquarters in New York and London.

Investors are already very concerned about the outcome of Greece’s austerity measures and private sector strategies. Should these fail, it would put huge pressure on Europe’s bankers to take action. Portugal’s credit rating downgrade adds to the already considerable burden in Europe. Among the reasons cited for the downgrade, Moody’s reportedly listed the European Union’s management of the area’s financial crisis. Barosso stated that the EU is planning on putting measure in place to improve transparency and methodology in the rating of sovereign debt, and would also be looking at addressing civil liability by credit rating agencies.