Europe Seeks to Free Itself from Rating Agencies' Grip

Spiegel
July 6, 2011

The "Big Three" credit rating agencies can determine the fate of entire countries, by deciding whether they are creditworthy or not. Now Portugal is under pressure after Moody's downgraded its debt to junk status. European politicians want to create an alternative, even though they helped give so much power to the agencies in the first place.

Strange as it may seem, there are still credit rating agencies that give cash-strapped Greece top marks. The experts at Germany's Euler Hermes Rating currently give the Mediterranean country their top AA rating, citing its "very strong business environment."

And there is little doubt that Euler Hermes can be trusted. It is the first rating agency that officially meets the tougher European regulations for the industry that were introduced at the end of 2010.

There is only one problem: Their good rating for Greece is not related to the creditworthiness of the state, but to that of Greek companies. When it comes to rating sovereign bonds, that is still done almost exclusively by the three major US-based rating agencies -- Standard & Poor's, Moody's and Fitch -- who are collectively known as the Big Three.

That is something that European politicians have long wanted to change, and there have been repeated calls to set up an independent European rating agency. Now the European Union is working on its proposal for what such an agency could look like.

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