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News : EU Economy Last Updated: Jul 7, 2011 - 6:59 AM

Barroso attacks US ratings agency Moody's for cutting Portugal’s credit rating to junk; Says strange that Europe has no ratings agency
By Finfacts Team
Jul 6, 2011 - 3:01 PM

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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 agency.

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 impact.

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 in Strasbourg

“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 competition.”

“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.”

Portugal's Bonds Cut to Junk By Moody's:

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