Europe Seeks to Free Itself From Rating Agencies’ Grip

Risk and creditworthiness of state debt are largely assessed by three major agencies based in the US. Nations rated low – due to low revenues, excessive borrowing or threat of default – pay high interest rates to borrow. As Greece and Portugal struggle to repay massive debt, facing steep downgrade by the agencies, European politicians renew calls for an independent credit-rating agency based in that continent, reports David Böcking for Spiegel Online. Europe’s laws require credit ratings, but Europe’s leaders bristle about judgments by outsiders. They accuse the agencies of favoritism with US products, including recent sub-prime mortgages. Despite broad support for a new agency, Europeans struggle over how to guarantee independence and contain liability. Some officials question the need for ratings, arguing that national financial details are readily available for institutional investors. Others suggest requiring two ratings, but that could backfire. Wary investors could assign greater weight to lowest ratings and end up lowering ratings for all. – YaleGlobal