[Debate] Barnier passes timid curbs on rating agencies - EU

[Riaz K Tayob]

[When Africans like Mbeki complained, they were told to shut up and lump 
it... this shoe does fit rather tightly now though...]

Finance
Barnier passes timid curbs on rating agencies
16 November 2011
Presseurop

La Tribune, 16 November 2011

“Too little, too late”: the ratings agency reform package presented on 
14 November by European Commissioner for Internal Market and Services 
Michel Barnier, the third in three years, does not satisfy La Tribune. 
Contrary to expectations, Barnier dropped a key proposal to suspend 
ratings of countries negotiating bailouts.

According to the business daily, Barnier’s Scandinavian colleagues, who 
were “shocked by the very idea of a ban on issuing ratings, which they 
deemed to be an infringement of freedom of speech, were behind 
opposition to the measure.” For journalist Jean Quatremer, Michel 
Barnier was forced to back down in the face “frenzied lobbying by the 
ratings agencies.”

The Commissioner’s text aims to reduce financial institutions dependence 
on ratings by the world’s three biggest agencies, Standard & Poor's, 
Moody's and Fitch: “The goal is to oblige investors to conduct their own 
evaluations, to create a European Ratings Index (EURIX) and to introduce 
forced rotation of ratings providers or the simultaneous taking into 
account of several ratings so as to avoid automatic investment decisions 
in the wake of downgrades,” notes the daily.

“The recurrent issue of a European ratings agency did not re-emerge,” 
remarks La Tribune, “much to the disappointment of socialists and even 
certain German liberals in the European parliament,” an institution that 
will also adopt the text along with the Council of Ministers.

On 14 November, parliament voted to curb short selling:

...transactions that entail the sale of an asset in advance of ownership 
in the hope of buying it in the future at a lower price will still be 
permitted but traders will now have to prove that they have a reasonable 
expectation of being able to borrow the shares they have sold at the 
moment of delivery which will have to occur sooner.

The European Financial Markets Authority (EFMA) will also have the power 
to ban short selling in the event of widespread market tensions, which 
will prevent a repeat of uncoordinated decisions by Europe’s 27 member 
states like those that were taken last summer when the markets were in a 
state of crisis. Sovereign debt trading will be the subject of special 
attention and highly speculative transactions will be prohibited.