BBC and other media have asked, just as S&P, Moody’s and Fitch are moving with downgrades of some Eurozone debt, is regulatory action by European Commission directed at the rating agencies retaliatory rather than policy driven? It is a bit of both. From the outset of the financial crisis, many in the EU sought to dramatically alter dependence on the major global rating agencies, all of which have their roots in the US and its financial system. The French were particularly vocal, but then the crisis appeared to pass more quickly and less painfully than originally anticipated – until the Eurozone crisis hit full force this summer and still continues. (Read - “LIKE FLAT CHAMPAGNE, AFTER G-20” - diplomaticallyincorrect.org/films/blog_post/like-flat-champagne-after-g-20-in-france-by-ambassador-mo/39983). The rating agencies have kept up the pressure on Eurozone leaders during this latest crisis. It has not been in form of advocacy or public statements but ratings downgrades and alerts of possible downgrades – the manner in which the rating system has worked for several decades. Nonetheless, many Euro leaders do not appreciate being seen as meandering behind the rating agencies rather than being ahead of the problem. The new regulatory provisions are not likely to be readily absorbed or necessarily effective. They could give rise to new Euro-based rating agencies which would from the outset model themselves consistently with the EU regulations. However, there are particularly high costs to entry/doing business under the EU system – potential liability – as well as having to ramp up what is a business model highly dependent upon its extensive record and institutional memory. (Having served as counsel and Senior VP at S&P, I’m impressed that most do not grasp the substantial infrastructure and people resources necessary and the significance of precedent/models established over decades). A new breed of EU rating agencies may have to depend on European public funding to become economically and functionally viable, which could immediately raise the issue of potential and/or appearance of conflict of interest. Of course, it may be the not so very veiled objective of some European officials to make sure that the rating agency tail does not wag the European dog, as they see it. S&P’s downgrade of US Government debt may have frightened rather than impressed EU regulators regarding the independence of the rating agencies, and thus even more encouraged the notion that this tail should not wag so freely anymore. (Read- “S&P Downgrades US Debt” - diplomaticallyincorrect.org/films/blog_post/sp-downgrades-us-debt-by-ambassador-mo/33202). The other consideration, it could make Euro sovereign debt less or unmarketable outside EU jurisdictions. Regardless, the new EU regulatory methodology will deliver a substantial change in the way business is done, if it can be done at all and the consequences for issuers, investors and economies as a whole, (this would necessitate u much longer article to more comprehensively address), will be dramatic and probably take sometime to fully absorb on the many different levels and institutions affected. By Ambassador Muhamed Sacirbey










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 “International Financial Crisis Channel” - diplomaticallyincorrect.org/c/international-financial-crisis