Ratings agencies criticised by European Commission

European Commission President Manuel Barroso Commission President Manuel Barroso questioned the objectivity of the international ratings agencies

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The European Commission has strongly criticised international credit ratings agencies following the downgrade of Portugal by Moody's.

The Commission said the timing of the downgrade was "questionable" and raised the issue of the "appropriateness of behaviour" of the agencies in general.

Earlier, Greek Foreign Minister Stavros Lambrinidis said the agencies' actions in the debt crisis had been "madness".

Ratings agencies have downgraded Greece and Portugal many times recently.

The three main agencies are Standard & Poor's, Moody's Investors Service and Fitch.

German Finance Minister Wolfgang Schaeuble told a news conference that he wanted to "break the oligopoly of the ratings agencies" and limit their influence.

'Speculation'

On Tuesday, Moody's downgraded Portugal's debt to "junk" status, citing worries that the country may need a second bail-out.

"The timing of Moody's decision is not only questionable, but also based on absolutely hypothetical scenarios which are not in line at all with implementation," said Commission spokesman Amadeu Altafaj.

"This is an unfortunate episode and it raises once more the issue of the appropriateness of behaviour of credit rating agencies."

Commission President Manuel Barroso added that the move by Moody's "added another speculative element to the situation".

He also said it was strange that none of the ratings agencies were based in Europe.

"[This] shows there may be some bias in the markets when it comes to the evaluation of specific issues of Europe," he said.

'Self-fulfilling prophecy'

Earlier, Mr Lambridinis told a conference in Berlin that the agencies had exacerbated an already difficult situation.

He told the conference that Moody's decision to downgrade Portugal's rating was not based on any failure to implement economic reforms.

He said Moody's made an "assumption that Portugal would need a second bail-out", a move that had "the wonderful madness of self-fulfilling prophecy" - because it made it harder for Portugal to borrow to keep afloat.

Portugal's downgrade has led to the yield on its 10-year bonds exceeding 11%. German 10-year bonds - deemed the safest in the eurozone - have a yield of about 3%.

Avoiding default

Greece and Portugal - with the Irish Republic - are the eurozone countries whose finances are so weak that they have received assistance from the European Union (EU) and the International Monetary Fund (IMF).

Greece is currently in the process of negotiating a second bail-out. Rating agencies are watching this closely, as commercial lenders are discussing how they can contribute to the bail-out.

Later on Wednesday, senior executives from European lenders will hold a meeting to discuss how to agree repayment terms which would fulfil both their need for repayment and Greece's need to access funds.

The agencies have voiced doubts that this can be done without them declaring that Greece has defaulted on its debts.

That would spark a round of write-downs of Greek debts held by state and commercial banks, potentially causing mayhem on the financial markets.

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