S&P downgrade may spark tougher EU ratings curbs

Mon Jan 16, 2012 9:26am EST
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By Huw Jones

LONDON (Reuters) - Standard & Poor's credit rating downgrades of nine euro zone countries will fuel attempts by European Union lawmakers to slap stricter curbs on sovereign ratings.

The bloc's financial services chief Michel Barnier proposed in November a third set of rules for rating agencies in as many years. But faced with opposition from some of his fellow commissioners, Barnier dropped one proposed element: publication blackouts on ratings downgrades.

Now, with many lawmakers angry about the timing of Friday's downgrades, that proposal could be revisited.

"What I do think that could happen is some members of the parliament that are in favor of banning publication of negative ratings will try to reintroduce that in the proposal," Wolf Klinz, a German Liberal member of the European Parliament said.

"Some of the socialists and conservatives say it's a good thing to have the option to ban the publishing of ratings if they do come at the wrong moment," Klinz told Reuters.

The original blackout proposal was intended to cover only publication of negative ratings of countries receiving bailouts.

But some politicians could now go further and ask for publication to be banned if it comes at an 'awkward' moment for the country concerned. This could cover election campaign periods, or bailout negotiations, although in practice would be very difficult to define and is considered unworkable by many.

Rating agencies were criticized for awarding high ratings to securities based on sub-prime U.S. mortgages which later became untradeable when home owners defaulted on their loans, sparking a global credit crunch whose effects still reverberate.   Continued...