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From left to right: Pedro Passos Coelho, the new Portuguese prime minister, José Manuel Barroso, Commission president and José Luis Zapatero, Spanish prime minister, Brussels, June 23, 2011.
José Manuel Barroso, European Commission
president, today attacked Moody's, the US ratings agency for cutting Portugal’s
credit rating to junk. He said it's strange that Europe has no credit ratings
The credit ratings market is
controlled by three US agencies and during the boom they were perceived to have
been seriously conflicted in their dealing with Wall Street banks and hedge
funds, giving the seal of approval in return for large fees, to the packaging of
junk mortgages for sale to unsuspecting investors.
Barroso, a native of Portugal, said
in remarks to reporters today in Strasbourg, France that he deeply regretted the
decision of one rating agency to downgrade the Portuguese sovereign debt.
Moody's said that the evolving
private participation in the extension of maturities of Greek debt, is likely to
be replicated for Portugal.
Moody's decision has already had a negative
The IGCP, Portugal’s public debt agency, today
auctioned €848m in 3-month treasury bills at an interest rate of 4.926%,
compared with 4.863% in a similar auction on June 15.
Amadeu Altafaj, spokesman for Olli
Rehn, monetary and economic affairs commissioner, said the Moody's decision was
based on "absolutely hypothetical" scenarios which are not in line with
Portugal's economic programme.
"This is an unfortunate episode and raises once more the issue of the
appropriateness of behaviour of credit agencies and of their so-called
clairvoyance," he told a news briefing in Brussels.
“I regret it most in terms
of its timing and its magnitude. Portugal has just started to implement a
medium-term adjustment program negotiated and agreed with the European
Commission, European Central Bank and International Monetary Fund, a program
backed by all euro-area member states,” Barroso said
“Portugal’s fulfillment of the conditions attached to the adjustment program
will be assessed on a quarterly basis by the European Commission, ECB and IMF.”
“In the absence of new facts on the Portuguese economy that could justify the
new assessment,” and Moody’sactions “do not provide for more
clarity. They rather add another speculative element to the situation.”
“Rating agencies are market players. As such, they are not immune from the
market cycles and mistakes and exaggerations that come with them. We have seen
this in the financial crisis.”
The Commission president said the EU “is looking into
the regulation of rating agencies to determine whether there are some measures
that need to be taken with regard to the prevention of possible conflicts of
interest and other matters.”
“Developments since the sovereign-debt crisis show we need to take a further
look at reinforcing our rules.”
“We are working on an impact assessment with a view to legislative proposals
later this year and we plan measures to improve the methodology and transparency
of the rating of sovereign debt to reduce overreliance by financial institutions
on the ratings, to further reduce conflicts of interest and introduce more
“It’s quite strange, as I said before, that the market is almost dominated by
just three players.”
“On the issue of the creation of a European rating agency, we at the political
level are not of course taking decisions on that matter. I believe this a
decision for the markets.
“But, of course, to me it seems strange that there is not a single rating agency
in Europe. It shows that there may be some bias in the markets when it comes to
the evaluation of the specific issues of Europe.”