WRAPUP 2-ECB takes aim at quick-draw rating agencies

* ECB’s Bini Smaghi says hasty judgments hurt credibility

* Nowotny slams S&P downgrade as “very problematic”

* Policymakers dismiss talk of extra ECB steps

(Updates with Weber)

By Brian Rohan and Christian Gutlederer

BERLIN/VIENNA, April 30 (BestGrowthStock) – European Central Bank
policymakers slapped ratings agency Standard & Poor’s on the
wrist on Friday, accusing it of being too hasty to downgrade
Greek debt as they took aim at critics of a rescue package.

At the same time, central bankers dismissed speculation they
may re-arm their arsenal of stimulus measures after sovereign
debt rating downgrades fuelled concerns about possible default.

ECB Executive Board member Lorenzo Bini Smaghi said he
expected Greece to get the green light for its international aid
package this weekend and was optimistic the agreed reforms would
work.

Asked if the ECB would provide extra liquidity or consider
buying government bonds, he said: “We’re working on the ‘A’
plan, we think that if everybody signs the ‘A’ plan it will
work. Everything else is just speculation.”

S&P slashed its rating on Greek debt to BB+ on Tuesday,
saying a worsening economic outlook endangered plans to reduce
the country’s debt and deficit. An analyst from Moody’s said it
might also cut the country to junk status. [ID:nN29232834]

Bini Smaghi and Austrian central bank governor Ewald Nowotny
said S&P had acted too hastily with its downgrade given
negotiations on the aid and conditions were continuing among the
ECB, European Commission and International Monetary Fund.

“I regard it as very problematic that S&P changed its
ratings for Greece while negotiations about the measures were
still going on,” said Nowotny, who last month described
agencies’ sanctions as “bigger than God’s”. [ID:nLDE6220MM]

A spokesman for S&P said it was fulfilling its duty to
investors to update them on its views in real time, but Bini
Smaghi said premature judgments risked affecting credibility.

“Greece is on the verge of adapting a series of reforms
which are very important, which will change the way that the
country is working,” he said after an Aspen Institute conference
in Berlin.

“What is very strange, is that two days, or three days
before knowing this programme …. people give a judgement on
this programme without knowing it and say it will not work. And
some of these are ratings agencies.

“It is very surprising that ratings agencies already
communicate their intentions before knowing the data. This is
(the) limit of ethical good practice and it will lead to a loss
of credibility for these rating agencies.”

TIME FOR PLAN B?
Others are also sceptical the aid plan will work.

Yields on peripheral euro zone debt jumped earlier in the
week, although they were lower on Friday. U.S. economist Nouriel
Roubini said Europe should move to plan ‘B’, involving a debt
restructure and ECB interest rate cuts. [ID:nLDE63T0J4]
[GVD/EUR]

A spokesman for S&P said the agency had repeatedly said it
expected the aid package to be forthcoming, giving Greece
breathing room in the short term, and that Greece would meet its
2010 deficit target.

“Our focus, however, is on the longer-term economic and
fiscal challenges,” he said. “Our role is to provide an
independent opinion on creditworthiness. If our view of credit
risk changes, our duty to investors is to say it as we see it.”

Speculation is mounting that the ECB may have to lend banks
extra funds, loosen its lower limit on bonds eligible as loan
collateral or even buy government bonds if Greece’s problems
spread. S&P also downgraded Spain and Portugal. [ID:nLDE63R115]

But Germany’s Axel Weber, who has recently warned of upside
inflation risks, said central banks as well as governments
should push ahead with exit strategies. [ID:nLDE63T10Y]

Nowotny told reporters he did not want to go into details
about the ECB’s response, but denied Greece’s woes would have
any impact on setting official interest rates.

“Our monetary policy will be in no way influenced by
Greece,” he said at a news conference in Vienna.

The ECB is expected to keep rates at a record low 1 percent
this week and analysts see no change before early 2011.
[ECB/INT]

Nowotny said Greek 10-year bond yield spreads were “absurdly
high” at around 670 basis points over German Bunds, but Greece
had to implement bold measures to boost competitiveness.

ECB figures show Greece has lost competitiveness against
many countries, both inside and out of the euro zone, in the
last decade.

Investment Basics

(Additional reporting by Marc Jones in Munich, Germany;
Writing by Krista Hughes; editing by John Stonestreet, Ron
Askew)

WRAPUP 2-ECB takes aim at quick-draw rating agencies