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17 Jan, 2012 13:37

Rating agencies aggravate tension

The world’s ratings agencies, Fitch, Standard & Poor’s and Moody’s are coming under increasing pressure over their apparent contribution to the world economic turmoil.

“The rating agencies were criticized for being to slow to downgrade in 2001, now we have European governments saying they act too fast”, says Simon Fentham-Fletcher, of Renaissance Asset Managers. Some critics have pointed out that the rating agencies were partly to blame for the global financial crisis of 2008–2009 as they gave top ratings to risky debts. Now, the euro dropped to a 17-month low against the dollar after S&P cut the rating of nine European countries including AAA rated France. The agency said its decision was driven by a combination of economic and financial factors along with “insufficient” measures taken by European leaders in dealing with the crisis. But analysts say, the move wasn’t out of the blue and was predictable.European politicians have been long criticised the agencies, especially those based in the U.S. German Foreign Minister Guido Westerwelle called for creating a European independent rating agency. "It is time for Europe to prove capable of facing up to the credit ratings agencies," Mr Westerwelle said.

Meanwhile analysts find the idea of creating a European rating agency non-viable. “I think the establishment of a European only rating agency is a little on the silly side. It’s basically a slap down: We don’t like what you have said; we’re going to set up our own”, says Simon Fentham-Fletcher. “Is it independent? Whom does it report to? There is a whole raft of questions”.Russian market participants were unhappily when Fitch downgraded the outlook on Russia’s debt rating from positive to stable due to political uncertainty and the degraded global economic outlook. But some analysts consider Fitch’s poor outlook not a reflection on reality.Yaroslav Lissovolik, Chief Economist of Deutsche Bank in Russia , stressed “the current fiscal policies and most of all progress in WTO accession Russia merits a sovereign credit rating upgrade”.