Report from the Commission to the European Parliament and the Council on the appropriateness of the development of a European creditworthiness assessment for sovereign debt

The recent EU sovereign debt crisis revealed macro-economic imbalances and highlighted the risks associated with over-reliance on external credit ratings of sovereign debt. Credit ratings of sovereign debt play a role in determining the borrowing costs of governments. During the crisis, over-reliance on credit ratings created market disruption which could, under certain circumstances, undermine financial stability in the EU.

The negative impact of over-reliance on sovereign credit ratings can be mitigated if investors in the European sovereign bonds market assess the creditworthiness of European sovereigns themselves, instead of relying solely and mechanistically on external credit ratings. To do so, they should be equipped with accurate and relevant information to carry out their own credit risk assessment of sovereigns.

A good appreciation of the creditworthiness of European sovereigns facilitates investment in EU Member States' sovereign bonds. This contributes to investors’ overall market confidence in individual Member States, which influences their investment decisions towards other asset classes in those Member States, for example investments in corporates and financial institutions incorporated there. The availability of appropriate and accurate information on the creditworthiness of European sovereigns could contribute to President Juncker's Political Guidelines as an underlying element for stimulating investment.

This report describes the risks observed due to over-reliance on ratings of sovereign bonds and the policy response to date. The report subsequently analyses if the existing sources of information are sufficient and adequate for investors to allow them to carry out their own credit risk assessment of sovereigns, or whether an additional tool - possibly in the form of a European creditworthiness assessment for sovereign debt – is appropriate and could complement the existing information.

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