Portugal Downgrade Fuels Talk of Rating Agency “Oligopoly”

European markets were under considerable selling pressure on Wednesday, following Moody’s downgrade of Portugal’s credit rating to junk status.

The PSI 20 Index, Portugal’s benchmark equity composite, tumbled nearly 3% as bank stocks suffered steep losses.  The euro currency slid from over 1.45 to near 1.43 against the U.S. dollar, fueled by concerns that the sovereign debt crisis is continuing to spread from Greece to other members of the “PIIGS.”

Following the Portuguese downgrade, several European Union officials accused the ratings agencies of fueling excessive speculation over the financial health of nations challenged by the sovereign debt crisis.  Jose Manuel Barroso, President of the European Commission, criticized Moody’s and noted that Europe is considering lessening its reliance on on the mainly U.S.-based rating agencies and weighing legal action against them.

“Yesterday’s decisions by one rating agency do not provide more clarity. They rather add another speculative element to the situation,” Barroso commented.  ”It seems strange that there is not a single rating agency coming from Europe. It shows there may be some bias in the markets when it comes to the evaluation of the specific issues of Europe.”

Wolfgang Schaeuble, Germany’s finance minister, echoed those comments.  ”Portugal is … not only completely on course but even ahead of the curve, so there really is no factual justification for such an assessment at this early point.”

Schaeuble went on to say that “We must break the oligopoly of the rating agencies.”

While Moody’s did not respond publicly to the euro zone policymakers’ comments, its largest competitor did.  The head of Standard & Poor’s in Germany defended his company, stating that “It cannot be that S&P puts its more than 150 years of creditworthiness, credibility and predictability on the line to enable politically motivated push-ups.”