I disagree with paragraph 22 of the committee's report, which says that credit rating agencies play a role in determining the cost to governments of borrowing. They simply do not. The realistic situation of the borrowing nation's capacity to pay determines the price it pays for credit. The thermometer does not trigger the fever. The credit rating agencies measure the likelihood of repayment. They certainly do not have any impact on the cost of credit. Again, at the risk of giving even more credit to the noble Baroness, Lady Noakes, she was absolutely right in pointing to the case of France where the credit rating agencies may say one thing about the rating of that country but the pricing of its debt in the markets says something rather different in terms of differentiation between France and Germany, the quality of covenant and the capacity to honour debt obligations.He then shows deep suspicion of the EU's atempts to take control,
The reality is that credit rating agencies are a lagging indicator rather than a leading one. They tend to verify the market's judgment rather than to lead it.
The implementation of the credit rating agency directive will be in the hands of the European Securities and Markets Authority-ESMA. This has only recently been established but is an important agency because it will exercise direct regulatory authority. I hope the Minister will correct me if I am wrong here, but I believe that ESMA has the power to overrule national regulatory agencies. In other words, the FSA is subordinate to ESMA and could not, if it wished to, introduce higher standards. ESMA has been clear that it intends to ensure that its rules are enforced uniformly across the EU and in so doing will limit the ability of individual countries to require additional measures. Mr Steven Maijoor, the chair of ESMA, was quoted in the Financial Times recently as saying that,But is the words that relate to the EU Commisioner in charge, Michel Barnier, that really raise eyebrows,
"we are moving toward common supervisory standards".
The regulations will not be based on the UK's "comply or explain". They will be enforced on all national regulatory agencies by ESMA. I would welcome an assurance from the Minister that he will stand up for self-determination of regulation in the UK and not allow us to be steamrollered by ESMA or any other part of the European regulatory architecture.
We saw some very flawed thinking from the European Commission on credit rating agencies-that there should be a government sponsored CRA, the banning of the publication of ratings, and the pre-approval of methodology, which implies again some process by which these become nationally recognised outcomes rather than the opinions of rather average people.
I worry very much about Mr Barnier. I met Mr Barnier when he was a Minister. He came to see us at the Treasury. He came down the corridor and I was watching him. I am a great fan of art and I was rather impressed that he stopped to look at every painting. I thought this is a man with whom I share a common interest-until I realised he was actually looking at his reflection in the glass on every painting, and adjusting his hair or his toupee. This to me is a man whom we should treat with a very long spoon. I hope the Minister will take due care in working with Mr Barnier because we have been forewarned that this man intends to seek even more powers than those he announced today. He said he wants to return to the issue of censoring rating agencies. I sincerely hope that the Government and the Opposition would have no part in endorsing such an activity.Ouch.