Credit Rating Agencies and EU Sovereign Debt

The House of Lords EU Economic and Financial Affairs and International Trade Sub-Committee, chaired by Lord Harrison, conducted an inquiry into credit rating agencies and their influence on sovereign borrowing. The report was published on 21 July 2011. The debate was held in the Chamber on the 15 November 2011.

The inquiry investigated the role of credit rating agencies in the recent euro area crisis, and considered whether additional regulatory changes are needed to improve the relationship between credit rating agencies and sovereign debt. It examined whether proposals for an EU credit rating agency were a plausible option, or whether there were more desirable and practical solutions.

The Committee’s four month-long inquiry into the agencies’ influence on the EU’s sovereign debt crisis concluded that their role in the 2008 banking collapse, which was rightly criticised, should not colour assessments of their decisions on EU sovereign debt.

The agencies have caused controversy each time they downgraded further the sovereign debt ratings of Greece, Ireland and Portugal. But the Committee said the downgrades “merely reflect the seriousness of the problems” in some Member States. The valid charge against the ratings agencies is not that they precipitated or exacerbated the euro area crisis, but rather that they “failed to identify risks in some Member States” which, in some cases, had been building for many years.

Transcripts of all the inquiry's evidence sessions can be found on the publications page.