Quick reaction from ratings agencies

Credit-rating agencies look set to play a greater role in financial markets as the European debt crisis continues to deepen.

Under fire for their lack of scrutiny over the collateralisation of United States mortgages, Standard & Poor's, Moody's and Fitch Ratings have been quick off the mark when it comes to downgrading the creditworthiness of debt-stricken countries.

Share prices fell yesterday in the Asia-Pacific region, on fears possible credit ratings of several European countries would derail progress in the euro zone.

The New Zealand dollar is forecast to rise this week, on the back of increasing economic growth and as a counterpoint to the looming threat of further downgrades in Europe.

Fitch warned it might downgrade France and six other euro zone countries, saying a comprehensive solution to the region's debt crisis was "technically and politically beyond reach".

Fitch revised the outlook on France's top-notch rating to negative, saying the downgrade was not imminent but could come in two years.

For Belgium, Cyprus, Ireland, Italy, Slovenia and Spain, a downgrade could come much sooner. Those nations were placed on credit watch negative, which traditionally signalled the possibility of a downgrade within three months, at most.

Craigs Investment Partners broker Chris Timms said yesterday rating agencies were setting the tone. Investors and banks were looking to the agencies to confirm or validate what they were already thinking about certain countries.

"The rating agencies are providing that independent view investors are seeking. In terms of influence, the agencies are pretty sizeable."

French President Nicolas Sarkozy had said that the possible downgrade of France was a bit of a concern but was not a "big thing", Mr Timms said.

However, people saw a downgrade as a loss of face. That had shown itself when the New Zealand economy had been downgraded.

The rating agencies had attracted much criticism over their handling of the mortgage-fuelled US financial crisis, he said.

Now, they were trying to ensure they were seen to be reacting quickly to any bad news and were taking a more cautious view of economic developments.

"They don't want to go through being accused of thinking something but not saying it. The agencies are definitely being more vocal and that could be because the media is picking up the announcements earlier or the agencies are becoming more proactive."

A downgrade of sovereign debt, the amount owned by a country, meant the government of the day had to pay higher interest rates to borrow. In terms of a percentage figure, it could be quite small. But in dollar terms, it could be significant, Mr Timms said.