GERMANY - German asset manager Union Investment has challenged Standard & Poor's, Moody's and Fitch's ratings for European sovereign bonds.

Following Moody's recent threat to downgrade the EU's AAA rating, Union published details of its own in-house ratings for European sovereign bonds, arguing that the agencies were "no longer at all adequate for forward-looking investors".

Frank Engels, head of fixed income portfolio management at Union, added: "Despite the criticism in recent years, we have seen these three US rating agencies continue to act pro-cyclically and react belatedly to developments."

He acknowledged that the current crisis had put all European Union members "under pressure", but he said it was unclear why Europe - "whose fiscal data is significantly better overall than that of the US or the UK, and, in fact, has small current-account surpluses" - had been rated lower than the Anglo-Saxon countries.

Union has rated Greece and Italy a notch below the three large agencies' average, but Spain is at the same level, while Ireland and Portugal are slightly better off.

The German asset manager has given the US a BBB+ rating, while the average among the large three agencies remains AAA.

Union warned that investors looking for stable government bonds could only rely on traditional ratings "to a limited extent".

It also pointed out that, with the three large agencies, "all countries undergo the same assessment process" - including macroeconomic fundamentals and measurable social and political indicators - and said the rating therefore did not need to include "country-specific interpretations".

It said their ratings failed to take into account a country's willingness to pay - "not only the extent to which a country is able to fulfil its payment obligations, but also how willing it is to fulfil them", including "actually implementing any reforms required in a crisis".

Union lamented that asset management companies remained "dependent" on the established rating agencies for statutory and regulatory requirements and said it was using its own ratings to manage its portfolios and for the targeted selection of securities.