EU may demand rating blackout for crisis states

Thu Oct 20, 2011 1:25pm EDT
 
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By John O'Donnell

BRUSSELS (Reuters) - The European Union's executive may ask for powers to censor credit ratings for countries in crisis, its financial reform chief said on Thursday, describing a ban as one way of stopping fallout from "ill-thought-out" ratings.

The proposal, which officials cautioned may be impossible to police, would be the most stringent curb yet on rating agencies and highlights frustration in France, which was this week warned by Moody's that its top rating was under threat, and Germany.

"These rating agencies should probably be considered one of the causes of this crisis," said Michel Barnier, the former French foreign minister who is now the EU commissioner in charge of regulating finance.

"We are thinking about the timeliness of rating countries that are covered by international programs. Is it appropriate? If we don't consider it to be appropriate, we could ban it or suspend ratings for the necessary timeframe."

The EU Commission plan, outlined in a draft EU law, is part of a shake-up of EU rules governing the rating agencies, which have downgraded several euro zone states in recent months -- decisions that some EU leaders say have worsened the crisis.

Barnier's suggestion comes at a crucial juncture in the euro zone debt crisis, ahead of meetings of EU and euro zone leaders expected to agree on plans to end the market turmoil.

Any downgrade of France could have profound implications for the euro zone's rescue scheme, the European Financial Stability Facility, which relies on the triple-A rating of just six euro zone countries, including France, to borrow cheaply.

"On rating sovereign debt, these knock-on effects on financial stability ... can be negative," Barnier said.   Continued...