Barroso Faults Timing, Size of Moody’s Downgrade of Portugal
European Commission President Jose Barroso comments on the decision by Moody’s Investors Service to cut Portugal’s credit rating to junk and on plans in Europe for more regulation of credit-rating companies.
Barroso, a native of Portugal, spoke to reporters today in Strasbourg, France. The commission is the 27-nation European Union’s executive arm.
On the decision by Moody’s:
“I deeply regret the decision of one rating agency to downgrade the Portuguese sovereign debt.”
“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.”
“Portugal’s fulfilment 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,” the moves by Moody’s “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.”
In recent days, leaders in Europe “have made it clear that European Union decisions on financial matters are based not on market players’ positions, but on the objective assessments of the European Commission, the European Central Bank and the International Monetary Fund.”
On possible new European rules for rating companies:
The commission “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 now completing an impact assessment with a view to legislative proposals later this year. We plan measures to improve the methodology and transparency of the rating of sovereign debt to reduce excessive reliance 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 only three players.”
“Regarding 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 coming from Europe. It shows that there may be some bias in the markets when it comes to the evaluation of the specific issues of Europe.”
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