Credit rating agencies (debate)
The next item is the debate on:
the oral question to the Commission by Nikolaos Chountis and Jürgen Klute, on behalf of the GUE/NGL Group, on credit rating agencies - B7-0302/2010),
the oral question to the Commission by Udo Bullmann, on behalf of the S&D Group, on credit rating agencies - B7-0309/2010),
the oral question to the Commission by Jean-Paul Gauzès, on behalf of the PPE Group, on credit rating agencies - B7-0312/2010), and
the oral question to the Commission by Sylvie Goulard, on behalf of the ALDE Group, on credit rating agencies - B7-0313/2010).
Mr President, today's debate in the European Parliament concerns the activities of credit rating agencies and the impact they have on the global and European economy. The European Union and the European Central Bank have issued regulations granting credit rating agencies, such as Moody's, SnP and Fitch, the right to evaluate not only businesses but also the Member States of the European Union themselves.
When the crisis broke, the same institutions of the European Union recognised the very negative role played by credit rating agencies. Whereas one would have expected the European Commission to limit the role of these agencies, on the contrary, their role was upgraded and formalised in a new regulation in November 2009.
Credit rating agencies had already started to downgrade Greece's credit rating at the beginning of 2009 and, as a result, it pays double the interest rate it paid before and has entered a vicious circle of depreciation and speculative borrowing. We all know what the final results were. Just yesterday, Moody's tried yet again to generate a negative climate for the Greek economy and the euro with a blatant speculative intervention, by downgrading the state of the Greek economy by 4 points for no good reason.
Moody's is one of the three private US companies which the European Union officially recognises for the purpose of rating the Member States' economies, despite the fact that it is being accused by every economist, politician and institutional player in Europe and the USA of bearing huge responsibility for the recent crisis.
To be precise, it was this agency that was accused by former analysts in the US Congress of being forced by their superiors to give toxic securities a positive rating. It was this agency that is being accused by dozens of businesses of being coerced through ratings into paying fees. It was this agency which, together with the rest of the 'Holy Trinity', namely SnP and Fitch, received dozens of complaints from municipalities, regions and states in the United States which were mislead into undertaking investments and lost millions of dollars. It was this agency that is being accused by numerous insurance funds that lost their investments due to erroneous ratings. The insurance fund of the State of Ohio alone lost USD 450 million.
As we know all this, as it is unacceptable for European economies to be rated by self-seeking private US agencies, this job should be undertaken by a public, democratically controlled agency which has no connection to private interests. However, instead of this, Mr Barnier, we see the Commission filibustering even today, with the result that the speculation mafia continue to coerce and direct economic policy at the expense of the workers and citizens of the Member States of the European Union.
I believe that the European Parliament should, at long last, accept its responsibilities, intervene and demand that the European Commission and the Council, having consulted the European Parliament, legislate directly to put an end to this unacceptable situation.
Mr President, Commissioner, ladies and gentlemen, the Group of the Progressive Alliance of Socialists and Democrats in the European Parliament is seeking to draw attention with this oral question to the problems concerning credit rating agencies. Our aim is to find out from the European Commission what the next steps will be, starting with the possibility of creating a European credit rating agency which we support and feel is taking shape, partly in the light of what President Barroso himself has said on this issue.
We must give praise where praise is due and acknowledge that credit rating agencies have achieved virtually the impossible: they have managed to play a decisive role both in the very early stages of the 2008 financial crisis, during the collapse of Lehman Brothers, and now at this second stage, which began with the debt crisis in Greece.
In 2008, they disregarded - and, in some cases, even promoted - the risks of toxic products, and now they have decided to do their bit for the stability of the markets by slashing the ratings of Greece, Portugal and Spain, just when the negotiations between the European Union, the IMF and the Greek Government were under way. President Buzek, there are no two ways about it: these people are evil!
Now, it is not that I want to put all the blame for what has happened in the world and in Europe on credit rating agencies. However, the fact that they are always present at the scene of the crime - and I am referring to the Parmalat case, the Enron case, the Lehman Brothers case - ought to make us react in a more appropriate and practical manner than we are at present, since we are doing nothing.
Commissioner, when will an inquiry be carried out into this affair and into this sector? We worked on this with Mr Gauzès a while ago, when we drafted the regulation on credit rating agencies. A sectoral inquiry is now required in order to shed some light on the scandalous, unacceptable situation in which a concentration and oligopoly are being created in this sector.
Let us get a grip on the situation before things get even worse and let us turn our words into deeds. As well as the need to create a European public agency, we should also reflect on the role that independent courts of auditors can play in providing an assessment of sovereign debts, thus absolving private agencies of the responsibility for them.
President Sarkozy and Chancellor Merkel - and I shall conclude here - have officially asked the European Commission to draft some proposals to strengthen competition in the credit rating market. It is a pity that in the European Council, in which President Sarkozy and Chancellor Merkel sit, it is, in fact, the governments that are delaying the approval of the financial supervision package and thus preventing ESMA, the European authority that will be responsible for monitoring, from being set up.
Therefore, President Sarkozy, Chancellor Merkel, you should put your own house in order before telling President Barroso what to do.
Mr President, Commissioner, ladies and gentlemen, credit rating agencies were a matter of concern to this Parliament at the end of its previous term, and I should like to highlight in this regard the responsiveness of both the Commission and Parliament, which has adopted a regulation on credit rating agencies.
Today, we are raising this issue once again because of the observations that it has been possible to make about the role of credit rating agencies during the crisis. They can be criticised for not having seen the crisis coming, they can be criticised for the volatility of their ratings and for their untimely decisions in announcing their ratings, especially when they relate to sovereign debt.
Nevertheless, I believe that we must examine this issue with a clear head. Firstly, the fact that credit rating agencies rate products that they have submitted to investors is not, in itself, shocking. Investors who invest, who provide funds, are entitled to try to discover the risks or the difficulties that may arise, just as they are entitled to try to discover which ratings are good.
Where the situation becomes slightly more ambiguous is when these ratings are used, in banking regulations, to determine the amounts of own funds that banks must have in exchange for some of their investments. From this point of view, the 2009 regulation does not really provide a solution since the idea was to provide for both the approval and the supervision of credit rating agencies. Therefore, a rating may be legitimate, but is it legitimate to issue ratings as the agencies do?
I believe that the texts that you will propose - I would emphasise, Commissioner, that you have just submitted the text on the introduction of European supervision of credit rating agencies within the framework of the new financial regulation - must enable a solution to be found to these issues, especially that of competition in the field of credit rating agencies. From my perspective, I do not think that simply confirming the creation of a European agency, even if it is public, solves the problems. If the idea is to have an agency that issues ratings in a kinder, more generous fashion than the others, it will not be of much use.
More questions need to be asked, in my opinion, about the conditions in which the agencies issue their ratings. There are ratings of private enterprises, and there are ratings of sovereign debt. I shall emphasise the ratings of sovereign debt. The authority which, at Parliament's request, will be responsible for monitoring and supervising those agencies that will operate in Europe is ESMA, the new financial services authority. I also think that the powers conferred on ESMA should include the possibility not only to supervise the agencies effectively, but also, as regards sovereign debt, to provide for a facility by which to monitor, though not censure, the way in which credit rating agencies issue sovereign debt ratings.
We cannot allow a situation - and such situations have indeed arisen - in which, 15 minutes before the markets close, an agency downgrades a country, thus giving rise to completely undesirable consequences. In fact, what needs to be done is to implement a preventive system that will force credit rating agencies to inform the supervisor, within a very short timescale, if need be, of the conditions in which they envisage issuing ratings so that the supervisor can verify both that the standard procedures have been followed and, above all, that the conditions in which the ratings are issued will not adversely affect the situation as regards, in particular, sovereign debt. The debt of businesses is not the same as that of states; it deserves to be treated differently. That being said, some people have mentioned the Court of Auditors, but such courts do not exist in every European country, and they are not all independent.
That, Mr President, Commissioner, is the thrust of our questions. How can we improve the operating methods of credit rating agencies and, above all, the dissemination of information, and how can we improve competition?
Mr President, Commissioner, you come from a country in which ratings always tend to cause a stir - I am talking about the Michelin Guide's best restaurant ratings. Therefore, we are not going to say that we are against ratings, since, after all, they also make for healthy competition and enable different standards of performance to be rewarded.
Consequently, I fully agree with what Mr Gauzès said just now. It is not a question of demonising rating agencies. It is really about looking at the conditions in which they operate. In the case in point, these are institutions that have really quite considerable powers, and that is why we must look closely at the way in which they work.
Mr Gauzès just pre-empted me by saying that there is a difference between the rating of private businesses and that of sovereign debt. In both cases, however, the problem is the same; in other words, is the methodology right? Are the right criteria being used to assess what a business is doing or how a State is managing its debt? Secondly, are the potential links between the rating agency and the subject of the rating transparent enough?
All of that in fact merits close examination and supervision, and we are grateful to you for forging ahead with the proposals that Parliament itself made during the last parliamentary term, with regard to Mr Gauzès's report.
In this regard, I believe that it is very important that we continue the work that Parliament has already embarked on. I share the view that a European rating agency is not necessarily the top priority today. What is important is that we ensure that the supervisory work, as it stands today, as it is being performed, is monitored.
On that note, I should like to say a word about ESMA, this authority that is due to be established shortly. I am one of the rapporteurs for the financial supervision package, as is Mr Giegold, who is in this Chamber and who is the rapporteur for ESMA. I should like to launch an appeal to the Member States - the Presidency is not here, but I know how capable you are of transmitting messages to it, Commissioner, and also how appreciative we are of your efforts to make progress on this matter. I believe that the Member States must adopt a serious approach.
One cannot, on the one hand, make fine statements to the media because one is justifiably upset about the consequences of certain decisions taken by the agencies and, on the other, throw a spanner in the works when it comes to the creation of this new authority, ESMA. We really want this authority to be clearly identified, to be equipped with strong powers at European level, and, in particular, to be able to supervise rating agencies. This will be one of its tasks, and an important one at that.
This also reflects our desire to see, for example, market infrastructure and clearing houses supervised by a European authority. There is a lack of transparency on the market that worries us. We are not hostile to competition, far from it. We are not hostile to competition among stakeholders, far from it. To put it simply, the way in which their services are assessed must comply with the rules of transparency and serious conduct, which characterise markets worthy of the name.
Therefore, once again, we encourage you to forge ahead and we call on the States not to hinder the process of getting ESMA off the ground, not to empty the supervision package of all content, because, if vetoes are applied, we could ultimately find ourselves being unable to supervise that which each and every one of us, in this House and in the capitals, wants to subject to more rigorous supervision.
Mr President, ladies and gentlemen, first of all, I should like to thank most sincerely the political groups that are responsible for this series of questions on an extremely important matter. I am grateful to Mr Chountis, Mr Pittella, Mr Gauzès, Mrs Goulard - who spoke just now - and other Members who are due to take the floor.
I should like you to hear my honest opinion and to fully appreciate my determination on this matter, as on others that concern the lessons learnt from the crisis and the transparency to which citizens and businesses are entitled. I also had the opportunity, on 20 April, to speak to you about this issue of credit rating agencies and their importance for the functioning of the economy and of the financial markets.
When it comes to checking whether a product, a business, and, if necessary, a State - I refer here to sovereign risk, and I shall come back to this subject - is in good health or has a fever, you will agree with me, Mrs Goulard, ladies and gentlemen, that breaking the thermometer does not cure the fever. The question is whether the thermometer works properly and, if necessary, whether we can use several thermometers to perform the validations and checks.
I feel that there is plenty to say about the functioning of the thermometer and, hence, about the functioning of credit rating agencies, which play a major role in assessing the risks associated with the situation of businesses and States alike. The crisis has shown, and continues to show, Mr Chountis - you are right - that they have not always functioned in an exemplary manner, with very serious consequences at times.
This is an area, ladies and gentlemen, in which the G20 has taken strong decisions - as it has on other matters - and the decisions in this case have involved the introduction of supervision and rules of governance. I would remind you that, at the time of the crisis - many of you have mentioned this, including Mr Gauzès and Mrs Goulard - the Commission quickly assumed its responsibilities, and it has made the regulation of the activities of credit rating agencies a priority over the last two years.
In September 2009 - in other words, one year after the collapse of Lehman Brothers - the regulation on credit rating agencies was adopted with the very strong support, help and improvements of Parliament - and I am grateful once again to Mr Gauzès - in order to address the problems that the operating methods of these agencies were causing and which contributed, in a way, to the financial crisis.
The regulation introduced a system of mandatory registration for all agencies established in the Union and imposed a set of stringent requirements to ensure, as far as possible, that there are no more potential conflicts of interest, to improve the quality of ratings and the methodology used, and, finally, to ensure that agencies operate in a more transparent way.
Ladies and gentlemen, I am confident that these new rules will noticeably improve the independence and integrity of the rating process, will make these rating activities more transparent, and will improve the quality of ratings themselves, including ratings of the sovereign debt of the countries of the European Union and of the financial institutions of the Union.
Two weeks ago, on 2 June - this is the second stage - the Commission, at my instigation, adopted a proposed amendment to the regulation on credit rating agencies in order to entrust the future European Securities and Markets Authority (ESMA) with sole responsibility for the ongoing registration and supervision of credit rating agencies.
However, ESMA still needs to be set up, and I fully agree with what was said a moment ago by Mrs Goulard and which you all believe: as we discussed recently with the rapporteurs for the supervision package, for the de Larosière package, a dynamic, credible compromise must be reached between Parliament and the Council in order to implement what has been proposed, which is the creation of these three independent authorities on 1 January. We are not there yet.
We must make an effort, and here I call once again on this House, on the Council and Parliament, to come closer to agreement. I repeat, Mr President, the Commission's willingness, and my willingness in particular, to help bring about this dynamic compromise.
Moreover, in order to increase the benefits of transparency and to boost competition among credit rating agencies, a provision has been introduced to facilitate access to information on the structured financial products of any credit rating agencies interested in publishing an unsolicited credit rating.
In other words, when an agency receives information enabling it to work out its credit rating on structured products, the other agencies will have the right to use that information to work out their own rating.
This is the stage we are at. It is not enough. It is becoming ever more widely accepted, in Europe and throughout the world, that the current failings in credit rating procedures, which have been brought to light by the crisis, have not been sufficiently addressed, and I wish to voice my agreement with Mr Chountis on this matter.
That is why I have asked my services to undertake a new assessment of the entire architecture and role of credit rating agencies. It is within this framework, Mr Pittella, that, in the coming months, we will carry out what you called an inquiry, but in any case an objective, very precise analysis and examination of the operating methods of these agencies in the light of and in accordance with the new legislation, even though it is not yet fully implemented; we will have to wait until early December for that.
I, like all of you, ladies and gentlemen, believe that there is a problem, and it is quite simply to do with the diversity of this market. This market is too concentrated; it is in too few hands. There is not enough competition in this sector, and that worries us. Without singling out one particular option for the moment, Mr Pittella, the Commission is looking at structural measures, including the creation of an independent European credit rating agency, which for some of us - I am speaking for myself here - is a welcome thing, particularly when it comes to sovereign risk ratings, which were mentioned just now by Mr Gauzès, as well as by Mrs Goulard and Mr Pittella.
Another structural measure that we are considering is the increased participation of independent public bodies in the credit rating process. Particular attention must be paid to sovereign debt - since that is what we are referring to when we talk about Greece and possibly about other States too - in order to ensure that the methods employed are indeed the right ones and that they are appropriate.
The lack of due diligence on the part of the banks and the other financial establishments, and the lack of alternative criteria for assessing the reliability of an investment also merit special attention. The current financial regulations, which expressly provide for the use of credit ratings, also need to be thoroughly re-examined.
Those are all the issues, and we will not sidestep any of the difficult matters on which the Commission is working. We will be able to present our initial guidelines in September and, at the same time, we will address other important matters relating to transparency and monitoring in the context of the regulation of derivative products and short selling.
In addition, we will table some legislative proposals at the end of this year or at the very start of 2011, not only to continue - I am echoing what you said, Mrs Goulard - what was begun by my predecessor with your support, which is being implemented but which is not enough, but also to achieve a greater degree of transparency so as to prevent conflicts of interest and to ensure that these ratings are greater in number, more diverse and, when it comes to sovereign risk, above reproach.
Mr President, Commissioner, the credit rating agencies were not able to anticipate the subprime mortgage crisis, the risk of structured financial products, or the collapse of Lehman Brothers.
The regulation adopted in April 2009 promotes their transparency, submits the agencies themselves to European supervision, and begins to deal with issues relating to their responsibility and quality, tackling some of the conflicts of interest in their operations; the Commission's new proposal continues along these lines.
I am convinced that we in Parliament are going to contribute to the existence of supervision from 1 January 2011 and, furthermore, cooperate in supervision projects in order for there to be a stricter regulatory framework.
The role that the credit rating agencies are playing in the debt and public deficit crisis, revealing the discretional nature of the methods used for their ratings, how they are prepared and how they are communicated; the highly pro-cyclical impact of the ratings of agencies that have sometimes been described as pyromaniac firemen who stoke the fires even further; and their clash with the positions of the main international and European financial institutions to the extent that the European Central Bank has decided to disregard their ratings in sovereign debt transactions: all of these make it necessary to reconsider their role in a more in-depth way and match them up to the general interests.
Questions are now being openly raised as to whether the credit rating agencies are capable of making objective and responsible evaluations, in particular, of sovereign debt. The questions that are being asked are of a deeper nature - as you said, a structural nature - and affect their compatibility with democratic principles, because they have a bearing on the efforts that pensioners, workers and vulnerable parts of the population are making, and which they do not wish to see wasted and trampled on by irresponsibility in how the markets operate.
They are questions that affect independence. Are public credit rating agencies compatible with private ownership? Is it possible to be both judge and interested party? Is it possible to have a credit rating as a business model based on payments by the very actors who are to be examined? Can the actors themselves choose who examines them?
The United States Senate is already tackling these issues and we need to tackle them here too; they are issues that affect responsibility and sustainability.
Can responsible governance be ensured, that avoids short-term perspectives and ensures stability? Can the agencies remain indifferent to the commitments of the European authorities and the efforts of the main international public actors? Will they respond to the effects of the market, above all, of their consequences that could - as you have said - be classified as harmful? Will the privileges of regulation be maintained? Will the regulator be bound by the rules that call for their ratings to be used? Will there continue to be a lack of competition?
As far as legitimacy is concerned, can agencies maintain so much influence over our economies with such little control? Is it necessary to go beyond supervisory control and go to the internal control of the structure of governance itself, and even the structure of business itself?
A public European credit rating system should be established and a new role imposed on the existing European agencies, while new agencies should be promoted and the need for a global rating system following new principles should be considered.
These are the questions to which answers are needed, Commissioner.
on behalf of the ALDE Group. - Mr President, not so long ago, voices were raised to say that rating agencies should not have downgraded Greek and other bonds. 'Look at what it has done to the euro,' they said.
Now I was going to say whether any more needed to be said to prove the huge conflict of interest that there would be if countries effectively rated their own debt. Then this morning, in the debate on statistics, Commissioner Rehn said yesterday's downgrade by Moody's was not 'conveniently timed' and that that would influence Commission thinking on credit rating agency regulation.
I am sorry, I do understand frustration, but my thoughts were: have you gone mad? I do not want ratings that are 'convenient', whether that be 'convenient' for investment banks or 'convenient' for central banks. Indeed, ratings have been a bit too 'convenient' for regulators to lean on too, driving out proper due diligence.
Now, a public agency for non-sovereign assets has some attractions, but how do we get over the implied guarantee? How do we get over political interference if bank capital is at risk with the macro-economic consequences of that?
We have some way to go in the search for capacity, independence and integrity, but of one thing I am sure, and that is that corporate governance principles play a part, be it in the public or private sector, and that should apply to ESMA and the other ESAs too.
Mr President, Mr Barnier, thank you for speaking in German.
Firstly, I would like to say that the crises that we have yet again experienced once more raise certain key issues. In addition to what has already been said, I would like to particularly re-emphasise certain aspects. One is that the rating agencies have frequently turned out to be guessing agencies; in other words, agencies that were no more capable of assessing the risks than anyone else. Consequently, we must considerably reduce the importance that is placed on the assessments made by these rating agencies as compared with other assessments in the market.
A second central problem that has emerged is the oligopolisation of this market. There are only a few serious providers. As a result, it makes sense to expand the number of providers and also their backgrounds. To this extent, your comments, Mr Barnier, on bringing more players into the market - which have also been echoed by others here - make sense.
Thirdly, we have the central problem of incentives, about which little has been said so far in this debate. For what do we find among the rating agencies? A situation in which those who give the ratings are selected by their clients from among the few agencies that exist and are paid for doing so. It is as akin to university students visiting their professor before their exams and negotiating payment with him, with everyone wondering afterwards why the grades were systematically so high. We need to look at this problem of incentives.
I know that the Commission is also giving some thought to how we can ensure that those that offer a financial product can no longer select, as it were, their rating agency. This takes us to the heart of the reforms required in those sectors where private providers are involved - those that are subjected to rating; in other words, in the areas other than government bonds. We need to remove this false incentive system. Rather than replacing a private oligopoly with a public monopoly, as has sometimes been suggested by those on the left, we should ensure that a public agency ensures that different players are continually selected to provide ratings and that the quality of the ratings is made public and systematically checked.
Mr Barnier, I look forward to your proposals. I hope that these proposals will result in us being able to systematically resolve the problems that remain in this area following previous efforts, including those of Mr Gauzès and the previous Commission and the Council - for which we are grateful; and that we are able to do so without creating a new monopoly, but rather by consistently getting to grips with the problems of incentives and regulation.
on behalf of the ECR Group. - Mr President, it was clear very early in the financial crisis that there had been huge failings on the part of credit rating agencies. Hence, it was one of the first things addressed by the EU last year. Updating the directive to cast responsibility for the EU activities of the predominantly US-based agencies is to be welcomed as a move to monitor their activity more closely here in Europe.
Credit rating agencies are extremely powerful organisations and have the ability to move the markets with a change of rating. Their independence needs, therefore, to be ascertained and maintained at all times. However, any rating decisions that trigger a flow of billions of euros should not come as a surprise to the market. For example, credit rating agencies should publish their ongoing stress tests and scenario analyses so as to improve market transparency and minimise shocks.
However, we must remember what it is credit rating agencies are set up to do: to assess the risk of default of an entity, be it a product or a corporation, especially a publicly listed company including financial institutions or even sovereign states. In the same way that we should not blame credit rating agencies for responding to legitimate information on the state of our banks, we should not use them as an excuse for the market's reaction to the dire state of our public finances.
Although monitoring their activity more closely is to be supported, a more critical proposal needs to be framed around a different question, namely: why have the markets, investors, corporations and sovereign states relied so heavily on credit rating agencies rather than conducting adequate due diligence and collecting information for themselves? In particular, why is the credit rating market dominated by three names when there are many more available to the marketplace? When we have answered these broader questions, then the way credit rating agencies are held to account will become more meaningful. With their great power and influence in the markets, there should also be significant responsibility.
Mr President, I would just like to remind you that the rating agency Moody downgraded Greece again last night. We all know that the Greek Government has placed enormous pressure on its people in recent weeks, in order to get the crisis under control. We all know that the European Union has put together a package worth EUR 750 billion in order to support the countries that have found themselves in crisis and to help them out of it. Nevertheless, Greece has been downgraded. In fact, the same fate has befallen Spain, as well, because it, too, has been downgraded after adopting a savings package.
Mr Barnier, you have just used the metaphor of a thermometer and said that it must not be broken. I do wonder, however, if a thermometer is really a suitable metaphor for rating agencies. A thermometer obviously does nothing to help improve the condition of the clients, the patient in question - which is something it just cannot do. After all, the thermometer is no drug and is obviously making the patient's condition even worse. However, it is unacceptable that the countries which are making these efforts should end up being downgraded even further, despite everything they have done.
This raises the question about what these rating agencies actually do. It has already been said that they failed to spot the crisis coming. Therefore, rating agencies did not help predict or diagnose the crisis. Shortly before it collapsed, Lehman Brothers received quite a positive rating. So, with the methods they used, they were not able or did not want to recognise what we had in store. In that respect, this instrument has been a total failure.
Nor have they helped us manage the crisis. I have just given you a newspaper quote on that: 'Ratings have not helped improve the crisis situation despite all the efforts made and there is concern' - as the media put it - 'that we will not be able to see through the packages we have put together'. This means they will pull us down and downgrade us even further.
To conclude, I would like to point out that countries and companies are just not comparable. We have to take a closer look at these ratings. Just doing a bit of window dressing is not enough. What we need is a root-and-branch reform of rating systems.
on behalf of the EFD Group. - Mr President, credit rating agencies sold their souls to the devil some years ago when they started to rely on those companies whose bonds needed grading for payment. He who pays the piper calls the tune.
It inevitably led to misgrading. Most credit rating agencies employ children who can barely read a balance sheet. They only change their gradings when a disaster is apparent to all. Paradoxically, it is usually the hedge funds who find out the truth behind the numbers. They exposed Enron, for example. But the truth about numbers can be unpopular, especially here, which is why we hate them.
However, even the coke-sniffing youngsters at the credit agencies know that Ireland, Greece, Spain, Italy, the United Kingdom and Portugal are broke. Kaput is kaput in any language!
So what does this House propose? Our own credit rating agency paid for by us, guaranteed to dance to our tune. It can stick AAA ratings to junk bonds issued by the eurozone's failed economies. The question is, who would these fool? I suggest, with the exception of some English county councils and the BBC economics correspondents, virtually nobody. When the people of Europe realise that they have been the guinea pigs in a gigantic failed currency experiment, they will burn this place down and guillotine the lot of us, and who could blame them?
(FR) Mr President, Commissioner, ladies and gentlemen, the harm caused by credit rating agencies is now plain to see. The sovereign debt crisis has just confirmed their pro-cyclical nature. Blind as they were before the fire started, credit rating agencies are acting like real arsonists, fanning the flames of the crisis. The Commission regulation of September 2009 has, as ever, gone unheeded. Due to their inherent lack of foresight, the European bodies are being forced, once again, to take urgent action.
The proposals being submitted to us range from maintaining the law of the market, which is perverted by obvious conflicts of interest, to the Soviet-style excessive regulation beloved of the European Commission. We are jumping out of the frying pan into the fire. The desire recently expressed by Mr Barroso to place credit rating agencies under the supervision of the European Central Bank and of the Commission is simply unrealistic, especially after the astounding statement made by Mr Trichet in February 2010, and I quote: 'The efforts to consolidate bank balance sheets require a high degree of confidentiality'. In other words, they require obscurity and secrecy.
It is clear that we are tackling the effects of the problem and not the causes. Knowing whether it is investors or issuers that have to pay the agencies, and whether the latter have to be private or public, independent or supervised, solves nothing. As Maurice Allais says, until such time as it is no longer possible to use credit ex nihilo to buy without having and to sell without owning, capitalism will go from boom to bust, with increasingly devastating consequences for nations and economies.
Above all, then, we need to ban the creation of any money or bonds without real and tangible compensation. In so doing, we will put an end to the wild and irrational speculation of the markets, which means that there will no longer be a need for credit rating agencies.
Mr President, the recent attack by European leaders on credit rating agencies, regarding the timing and degree of downgrades being meted out to countries' sovereign debts, may be seen by some as somewhat exaggerated.
However, the failures of credit rating agencies are now well known - I think there is general agreement from all sides of Parliament on this. They have given high ratings to bonds that subsequently defaulted. Now that the tide has turned, and the economic outlook across Europe remains bleak, they are guilty of overreacting in the opposite direction. Not even an impressive and unprecedented EUR 750 billion package seemed to convince them. Having said that, we have to be careful when reacting to this, and not appearing to shoot the messenger just because he brings bad news.
One thing is for sure: whether they overrate or underrate a financial product, the influence of the rating agencies on global financial markets is enormous. In effect, they can and do hold a country and its people to ransom, including workers and pensioners. This cannot but have political implications, which need to be addressed.
We need to understand how rating agencies create and sell their ratings. The arrangement between the security issuer and the agencies is an obvious problem. Secondly, there is the question of the number of agencies themselves and the degree of effective competition between them. If banks and financial institutions are to be regulated, as they must be, why should rating agencies be treated any differently, especially given the oligopolistic structure of the rating agency market?
The causes of the problem, including the conflicts of interest, are therefore clear. The solutions, however, appear less straightforward, so let us keep level-headed and find the right solution, being careful not to overreact with serious consequences.
(DE) Mr President, Commissioner, rating agencies have played an appalling role in the global financial crisis and in the euro difficulties and are far from deserving of praise. Lack of transparency, conflicts of interest, financing through contracting entities and the publication of ratings at questionable times with a procyclical effect, or shutting the stable door after the horse has bolted, speak for themselves. Rating agencies have been, and continue to be, oblivious to this and do not see these problems.
I personally have proposed that the EU should act now and I am pleased that you, too, feel the same. We should establish a European rating agency on the basis of a foundation model. Obviously, this foundation model must be financially independent. It must not be subject to any political interference, either from the European Central Bank, the Commission or any Member States. As an independent foundation, this European agency could become a serious competitor to the oligopoly, or indeed the monopoly, of the three rating agencies we are discussing now. It should be the case that any product offered in Europe and all issuers operating in Europe be required to give two ratings, one of which must come from this European agency.
In order to be independent, this foundation must also be financially independent. This means that we need seed-funding that could be provided by the European Investment Bank or perhaps the Commission, and from that point on, this European foundation would have to finance itself. The question of whether such financing should come from contracting authorities or users remains to be clarified. This was raised earlier on by Mr Giegold. We have to reach a decision on this as well.
On a general note, we should also consider whether we could restrict our reliance on rating agencies somewhat because it seems to me that we are much too dependent on them at present.
Mr President, I welcome the debate on rating agencies. We do need to look at the reliance on ratings and how to encourage more agencies so that there is more competition, as well as the issue of conflict of interest with respect to borrower-paid ratings. However, I would say that it has always been well known to every investor that this potential for conflict existed and that credit ratings are themselves not a recommendation to buy or sell.
We should also remember that, to achieve our 2020 goals, the EU needs investment and that needs market confidence, and rating agencies are a vital part of market confidence. When ratings work, they increase capital markets' access for borrowers, lower interest rates and thus, for sovereign issuers, save taxpayers' money. They also serve to give investors some guidance but, as I said, not buy and sell decisions.
Please remember that in Europe, no AAA-rated sovereign or corporate issuer has ever defaulted. Even in this crisis, the level of AAA defaults in structured credits in Europe is less than 0.3%, which means that 99.9% of AAAs have not defaulted. We do need this investor confidence. We do need to look at our rating agencies, but please remember that they have not got everything wrong.
(IT) Mr President, ladies and gentlemen, I am convinced that credit rating agencies should be made more transparent and accountable, but I do not agree with all those who would like to limit their scope and functions. The failings of credit rating agencies in terms of forecasting risks and of warning the market about them are simply a reflection of the far more pronounced failings of the existing public financial institutions and authorities and of the banking system as a whole.
I believe in the free market and I believe that a greater degree of openness and competition is desirable in the credit rating sector too. However, the creation of a European public rating agency would be an oxymoron, a disgraceful, authoritarian venture designed to extend public control over the market.
In short, it would be overly simplistic to restrict our analysis to the issue of credit rating agencies' responsibility for the current financial crisis when the crisis is, above all, an economic one. The data and the policies adopted demonstrate how, in Europe and in many countries, there was a belief that we could substitute the real economy with finance, thus, in effect, abandoning the entire manufacturing sector.
(EL) Mr President, Commissioner, today's debate on the framework for the supervision and operational control of credit rating agencies is, unfortunately, even more topical following yesterday's decision by Moody's to downgrade Greece's credit rating by a full 4 points. Of course, this is not the first time over recent months that Greece's credit rating has been seriously downgraded. However, yesterday's downgrading is obviously provocative and unwarranted, given that it takes no account either of the progress made in applying the financial restructuring programme, which was welcomed by the representatives of the troika who have been in Athens since yesterday, or the creation of the Financial Stability Fund, or the fact that EUR 110 billion have been earmarked to finance the needs of the Greek economy.
Does it make sense, at a time when the President of the European Central Bank, the head of the Deutsche Bank and the representative of the European Commission are congratulating the Greek Government on the implementation of the memorandum, thus helping the euro to recover against the dollar and the European money markets to recover, for Moody's to downgrade Greece even further by making exactly the opposite assessment? I think this move clearly proves that there is a conflict of interests, given that it is not simply undermining Greece's efforts at financial restructuring; it is also fuelling continuing speculative attacks by the markets on the Greek economy and on the euro area as a whole.
This again confirms that these agencies issue ratings without ensuring that they are reliable and without any controls on the incentives for and results of their ratings, which raises serious issues of democracy and national and European sovereignty, given that we are talking about the evaluation of economies in the euro area.
One could cite numerous other examples. However, what we need to know is what we are doing to protect the European economies from the speculation caused by these dubious and non-transparent ratings. Immediate action is needed on two levels: the first is to take action to create a competitive European rating agency and the second is to set up a strict and reliable operating framework for these agencies, an operating framework that lays down transparent and uniform standards for rating criteria, for the time at which ratings are published, in conjunction with the resulting market reaction and, finally, for the evaluation of ratings over time in terms of their accuracy and reliability.
(LT) Against the general backdrop of the crisis, the crisis that has come about in the area of credit rating agency allocation reveals the dangers of this system. The most important thing is that no one feels responsible for the final result of risk assessment, although the activities of these agencies have a significant impact on the stability of the financial market, and very significant opportunities to obtain credit and the cost of credit depend on them. On the other hand, it is good that the Commission, understanding that we need to restore faith in the market and increase investor protection, is providing new EU-wide rules laying down general procedures for the regulation of credit rating agencies. The amendment of credit rating agency rules means better supervision at European Union level and greater transparency in this sector, but it is necessary to analyse this sector further and in more detail.
It is necessary to ensure adequate credit rating agency controls and to issue appropriate penalties for infringements. Loans in rating agency activities must become more transparent so that investors and rating users are better protected and, most importantly, so that the credit rating sector becomes more competitive.
(DE) Mr President, the incomprehensible decision by Moody yesterday clearly shows the dominance and power of rating agencies and the lack of transparency surrounding decision making. Every rating agency must be registered and their activities and the bases for their decisions scrutinised. We have to guarantee the independence of rating agencies and this means that we must not allow rating agencies to be financed by those whose credit worthiness is being checked.
The incompatibilities and conflicts of interest must be eliminated: we cannot have credit agencies both providing consultancy to companies and rating them at the same time. Transparency is necessary, which means that models and the basis for valuation must be disclosed. We must counter monopolistic dominance with a second opinion and increased competition, which is why we also need agencies that are based in Europe. The foundation model has been proposed, but the limited company model could provide another alternative. In the autumn, the Kangaroo Group will be able to present the Commission's proposal together with Mr Klinz.
(RO) The issue is that the activities of credit rating agencies not only led to the current financial crisis, but have also helped make it worse. The regulation of the European Parliament and of the Council on Credit Rating Agencies introduced in 2009 was devised as a response for regulating their activities. This regulation has introduced compulsory registration for all credit rating agencies doing business within the European Union and is focused on three main aspects: supervision, transparency and conflicts of interest.
However, we are far from resolving the issue of transparency and that concerning the oligopolistic structure of the credit rating agency market. It is not normal for Member States' economies and, by extension, their companies, to rely on the rating from just three agencies. Speculation about a country's rating can push states which are somehow in a critical situation towards bankruptcy. In these circumstances, I think that an exclusive European credit rating agency needs to be created, which will provide real competition and an alternative instrument for existing companies.
(DE) Mr President, Commissioner, we all know that it is downright absurd that two private US firms and one from the UK should be making decisions about the bankruptcies of EU Member States. In my opinion, this oligopoly of rating agencies is highly volatile. Another astounding thing is the times at which these agencies become active. The euro has scarcely begun to recover before someone is downgraded. All the talk about the awareness among these agencies of their responsibilities can be put into perspective when you consider the fact that the loans of unemployed US citizens packaged as securities were often awarded the triple A rating and were thus declared completely safe.
On closer inspection, the apparent non-partisan position of the awarders of ratings has been exposed as fallacy, because they are getting paid by issuers of securities. The quality of the rating valuations is also doubtful. After all, before the international financial crisis, they gave the banks which would subsequently collapse the highest ratings.
It is therefore high time that rating agencies were kept in check. However, the enhanced supervision of rating agencies should not be limited to the EU level alone.
(RO) Against the backdrop of the current crisis, the activities of credit rating agencies are being subject to ever-mounting criticism due to the fact that they have failed to be objective in evaluating the level of credit risk for companies and even states. These agencies did not provide any early evaluations indicating the risk of a crisis, but have actually downgraded the rating for several European states, thereby exacerbating the crisis.
The major problem is the lack of competition on the credit rating services market because it is controlled by just three US companies. In this regard, I support the proposal from President Barroso to set up a European Credit Rating Agency. As you are all aware, one of the three agencies changed Germany's credit rating last week on the back of an unacceptable error.
I wish to end by saying that the European Union must ensure that the activities of credit rating agencies will be better regulated in future.
(CS) Mr President, Commissioner, I have been listening very carefully to this afternoon's debate on rating agencies, and I am definitely no supporter of rating agencies, nor am I their advocate.
On the other hand, I have no concerns whatsoever about some form of monopoly or oligopoly emerging among rating agencies. I have not heard a single speech here talking about how it could be possible that certain States where these enormous debts were incurred got into such a financial mess that there was no way out. I think it would be a very good thing to consider a system of state intervention in the running of the free market. Perhaps if we were to develop our ideas further in that direction, we would have fewer concerns over rating agencies.
(IT) Mr President, Commissioner, ladies and gentlemen, thank you once again for giving me the opportunity to speak in this debate, which comes days after yet another downgrading of the Greek debt by a credit rating agency.
The issues linked to the nature and the governance of these agencies, which have now become almost institutionalised on account of their importance in our economic system, are currently dominating political debate due to their role in the global financial crisis and in the current crisis in the euro area.
An economic system such as ours cannot function without independent bodies analysing public accounts and the accounts of private companies. The challenge lies in ensuring that these credit rating agencies carry out their activities transparently and in accordance with common standards, because an error on their part could actually cause a company to go bankrupt or could be a significant factor in the onset of a new crisis.
I believe that we absolutely must not nationalise credit rating agencies but rather seek to strike a balance between their independence and the need to guarantee an adequate level of accountability towards governments. Finding a balanced solution is therefore, in my view, the right way to ensure a better future, including in Europe.
(EL) Mr President, Commissioner, yesterday's downgrading of Greece's credit rating by Moody's does indeed raise numerous questions, as other members have said.
At this point, I should like to add an element, so that we can try to understand if the operating framework for these agencies is ultimately clean, if it is transparent and if it is formalised. Most action taken by private individuals against these specific agencies in the United States of America is unfounded, due to a 1933 law which stipulates that rating agencies are not liable for money lost as a result of erroneous ratings.
Action by these specific agencies therefore tends to be uncontrolled. The game of speculation has no limits, it has no borders and the lack of a European legislative framework causes major ructions in the European Union and every country.
We must understand that a free economy does not mean the law of the jungle, it does not mean unaccountability. Where this is not understood, we need to respond with our legislation; we need to impose it by law. You spoke, Mr President, of more competitive, more numerous agencies. We expect a great deal of the Commission in the immediate future.
Mr President, I am grateful to each and every one of you for the quality and the candour of your speeches. I shall not go back over the role of these agencies or the importance of the ratings that they issue; Mrs Comi gave a very good account of this just now.
My second preliminary remark, to echo the comments made just now by Mr Papanikolaou and Mr Strejček, is that we must improve the way in which these agencies operate. There has to be transparency - I will come back to this - and these ratings have to be as conclusive and as objective as possible. We shall achieve this, we must achieve this, but it does not mean that undertakings, especially financial undertakings, will not have to be managed properly, will not have to have both internal and external supervision systems, and crisis management tools - this also forms part of the proposals drawn up by the Commission - and it does not mean, either, that States will not have to govern themselves properly, will not have to manage their public finances properly and will not have to control their spending.
I will now turn to credit rating agencies. We hope that the new proposed amendment to the regulation on these agencies will be adopted without delay so as to ensure their more effective monitoring by ESMA. She is no longer here, but, Mrs Le Pen, you should revise your information. Neither the Central Bank nor the Commission will supervise these agencies. We wanted more supervision and more transparency on the market, and it is only logical that the new independent authority, ESMA, should be the one to assume that role. As Mr Klinz put it so well, we need this transparency when we see what has been happening over the last few years.
However, as I said just now at the start of my speech, these proposals, together with the existing legislation - Mr Cutaş mentioned this legislation on credit rating agencies, which should be duly implemented between now and the end of the year, but which will only be fully applicable in December 2010 - do not address all of the issues.
Certain issues, for example, have not been thoroughly examined. Diversification, greater competition - Mrs Swinburne and Mr Scicluna referred to this need for a market of agencies that is not concentrated in the hands of a few people. Mr Giegold also spoke very clearly about the now widespread 'issuer pays' model: is it a healthy model? Is it sustainable? Mr Karas also raised this issue.
We must focus on this issue at the same time as evaluating the rules that appear in the new legislation, which is due to enter into force by December, since we have specifically targeted conflicts of interest in a bid to reduce them. Will this legislation be enough? We must, in any case, reflect on this issuer pays model mentioned by Mr Giegold.
The third issue that we must address as part of our new efforts is European and national laws. Is it not the case that these laws are, as I believe, too reliant on the credit ratings of credit rating agencies? Lastly, Mrs Băsescu just raised the issue of the particular methodology for sovereign risk: here too, we must carry out some detailed work.
I should like to thank Mr Sánchez Presedo for supporting a swift agreement on the supervision package. This is one of the key aspects, in fact, since we need ESMA to supervise these agencies, and to do other things besides.
Yes, we need a more structural response. That is why we are closely examining all the issues that I have just raised, and more specifically: independence, which Mrs Bowles was anxious to see, and I too want independence - by which I mean credibility - for these agencies; all the actors who are not performing well enough; the structures of the markets; and competition, including the idea - a legitimate one, in my view - of a European agency, in particular, for addressing the issue of sovereign risk, and perhaps other issues too.
I have not mentioned the status of that agency. Will it be a public agency, a private agency, a private-public partnership, or the interesting idea mentioned by Mr Klinz of a foundation? We are going to work on all these issues, too, over the coming weeks.
Many of you, including Mrs Bowles, Mr Chountis just now, and Mrs Podimata a moment ago, mentioned the recent downgrading of the Greek rating. I, as Commissioner, am not going to start commenting in detail on each rating issued by a given rating agency. It would take up a great deal of time, and that is not our role; we should not be overdramatic when it comes to the credibility of ratings that have been, or are, issued.
That does not stop me, or my colleague and friend, Mr Rehn, who addressed you this morning, from saying that I was surprised - and Mr Mölzer also expressed his surprise - at the timing of this latest rating of Greece by one of the agencies yesterday. Ladies and gentlemen, we are very aware - and we must say so to the outside - that, as Mr Klute mentioned, Greece is currently making a huge effort to stabilise its public finances and to restore strong, healthy growth.
The Commission has complete confidence in this process, which is not easy but which is necessary and which must succeed. It is also important to point out that Greece is not alone. It has the benefit of European solidarity - this solidarity was shown at the highest level by the Heads of State or Government, by the Commission, by the Central Bank and by the International Monetary Fund a few weeks ago, and it will continue to make itself felt and to prove itself.
The various ratings, and all the attention focused on them, the disputes, too, over the methodologies and the timings: all of that encourages me in our work of reforming the agencies, work that we have begun, as I indicated in our communication of 2 June, and I would point out that we will be tabling some legislative proposals on these issues at the latest by the end of the year or at the start of next year.
Finally, Mr Klute, you mentioned that, when we talk about all these issues, we are talking about more than just rating agencies. We must integrate this element, this tool that absolutely must be improved - more transparency, control, credibility and diversity - into an overarching structure that is one of intelligent regulation and effective supervision. These are the lessons from the crisis, which is not over, and we are going to learn from all these lessons. I reiterate, I repeat: not one actor, not one product, not one market, not one region must escape effective supervision and intelligent regulation.
It is this very agenda that was proposed by the Commission on 2 June, supported by the Council of Ministers in Luxembourg a few days ago, and supported too, I hope, and as President Barroso wants, by the European Council. Moreover, ladies and gentlemen, you can count on me and on us to make proposals to you, one by one, step by step, between now and the start of next year, on all the undertakings we have made, so that we may learn, at European level and in good cooperation with the other regions of the world and, in particular, with the United States, every single lesson from this crisis affecting citizens, consumers and businesses.
The debate is closed.


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