Those credit rating agencies are heading for the spotlight again. In the coming days, European Union lawmakers and diplomats will try to agree another tranche of rules to improve the operation of CRAs. That this is Europe’s third effort, post-crisis, to rein in agencies’ behaviour says a lot. The big three agencies had a badly-flawed track record pre-2008, making tighter regulation for the lightly-monitored sector look essential. More recently, though, this reform drive has taken on a big political dimension as European leaders have fumed over the timing of some sovereign debt decisions.

If motives are mixed, so are objectives. Even CRAs’ harshest critics recognise that ratings are embedded in the financial system. So the short-term aim is to make CRAs work better. Longer-term, though, there are more fundamental goals: to reduce banks’ and investment firms’ reliance on external ratings, and to make the supply of ratings more competitive.

One problem with the current legislative proposals is that they tend to muddle these aims. Take the idea of disrupting any cosiness between CRAs and issuers by mandating rotation. Fine – in principle. Not so fine, though, if this drives down quality (not enough agencies have proper expertise) or increases costs to issuers and agencies (especially new raters trying to establish themselves). So EU countries want to restrict mandatory rotation to the rating of re-securitisations for the time being, which seems sensible. MEPs, though, think that plan too limited. Similarly, keeping raters on their toes via tougher liability rules has superficial appeal. But it is less attractive if new firms are deterred from entering the ratings business.