The European Union is examining plans to set up a European credit-rating authority for sovereign debt ratings in the wake of the Greek crisis, the bloc’s top financial regulator said today.
Financial Services Commissioner Michel Barnier is also probing whether ratings companies have too much power, he told the European Parliament’s economic and monetary affairs committee in Brussels.
“We are undertaking work on creating a European agency,” Barnier said. “We need a very fast, but not off-the-cuff reflection,” he said. “The power of these agencies is quite considerable, not just for products but also for states.”
Scrutiny of credit-rating companies intensified after Greece’s rating was last week cut to junk status by Standard & Poor’s. The downgrade added urgency to European plans to bail out the debt-plagued nation, agreed on May 2. Euro-region governments and the International Monetary Fund bet 110 billion euros ($144 billion) in economic medicine for Greece will be enough to inoculate the rest of their region, including Portugal and Spain, from contagion.
Stocks in Spain and Portugal slumped on concern that the rescue package for Greece may fail to prevent contagion in Iberian markets. Portugal and Spain are under pressure to tackle their soaring budget deficits after the Greek crisis forced euro-region governments to approve the bailout.
Spain’s deficit was the third-highest in the euro region last year, at 11.2 percent of gross domestic product. Portugal’s deficit was 9.4 percent of economic output.
Standard & Poor’s roiled bond markets after it lowered its rating on Greece and warned that investors could recover as little as 30 percent of their initial outlay if the country restructures its debt.
Mark Tierney, a spokesman for Standard & Poor’s in London, declined to comment today. Spokespeople for Moody’s Investors Service and Fitch Ratings didn’t immediately respond to messages seeking comment.