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It’s a position that riles just about everyone, whether companies, regulators or politicians. Michel Barnier, the European Commission’s markets commissioner, is itching to break what he sees as their oligopoly. And even central bankers are not averse to wading in. When S&P hinted last December that, after downgrading America’s AAA France’s might be next, up popped a furious Christian Noyer. “The rating agencies fuelled the crisis in 2008,” the Bank of France governor declared. “And we can question whether they are not doing the same thing in the current crisis.”

Some people simply can’t contain their anger. Tory MP David Ruffley stormed out of a Treasury Select Committee hearing in April branding David Riley, Fitch’s global head of sovereign ratings, “incompetent”, “complacent” and “useless – absolutely useless”. No matter that Ruffley had mixed up his briefing notes and found himself quizzing Riley over a document on UK banks actually produced by Standard & Poor’s.

“When I tried to respond he cut me off, so I’m not sure he was interested in my answers,” says Riley. “He just wanted to express his personal low opinion of the rating agencies.”

Riley is used to that. “One of my kids came up and said to me the other day 'why do people really dislike you dad?’. Some of the backlash seems to be motivated by a belief that we are either the cause of the crisis or we are doing things because we are fundamentally against Europe or whatever.” This is a common jibe given that both S&P and Moody’s are American-owned. Fitch’s ownership is split between France’s Fimalac and the US Hearst Corporation.

“If I go to dinner parties I don’t necessarily advertise my role,” Riley says, laughing. “I sit in the corner with the estate agent and other people who aren’t very popular.”

Over at Moody’s, the paranoia’s palpable. Ask to record an interview with Frederic Drevon, its head of Europe, Middle East and Africa (EMEA), and his PR produces his own recorder too, grimacing: “I hope you don’t mind.”

That it has come to this around sovereign debt ratings is quite a feat. As Drevon points out: “Sovereign analysis is a very small part of our activity. The core of our business is corporate and bank ratings. We rate about 10,000 corporates, thousands of structured finance instruments and 110 sovereigns.”

What’s more, Moody’s and its two main rivals don’t even charge for rating bigger countries, like the US, Germany and Britain – though smaller nations, like Greece, have to cough up for the privilege of being downgraded.

Riley recalls a recent conference where an analyst asked: “Why do you do sovereign ratings? You don’t make much money from them and there’s nothing but political risk”.

His answer is that Fitch is “a full service agency” working in what has become a “systemic” eurozone crisis, where the boundaries between a sovereign’s rating and those of its financial institutions have blurred.

But the debate over what precisely the agencies are up to with their sovereign ratings is more nuanced than that.

Some critics claim the trio are shameless publicity seekers, timing their announcements for maximum effect with cavalier regard for the consequences. Others dismiss them as the markets’ johnny-come-latelys, pitching up and crying “Fire!” when the house is already burning down – and then cack-handedly fuelling the flames.

Nick Bullman, managing partner at investor analytics firm CheckRisk, voices a familiar complaint when he says: “What is the point of a ratings firm that downgrades the sovereign after the event? That’s not very useful to anyone.”

In his submission to the Treasury Select Committee for its upcoming report into the agencies, London School of Economics professor, John Ryan, notes: “They have been accused both of failing to predict the crisis, and then of precipitating it by downgrading the ratings of eurozone sovereigns too far and too fast.”

To all this, Fitch’s Riley says: “There is some misunderstanding about the role and nature of ratings agencies. On the sovereign side the impression might be that if we downgrade Spain, or whoever, we’re cutting them off and making their situation more difficult in the market. Yet, at the same time, we hear a lot of people saying 'you’re late to the party, the market’s already there, it’s irrelevant what you’ve done’. We can’t be both. We can’t be all-powerful and irrelevant. The truth is we’re neither of those. We’re something in between.”

What that is precisely is harder to define, though Moody’s Drevon finds common cause with his rivals when he talks of the focus on the long term.

“We try to balance being both accurate and stable,” he says. “If you’re an investor you have access to market tools – credit default swaps and other instruments – that are volatile measures of credit risk. We come from a more fundamental perspective. In some instances we may take longer than the market.

“We don’t see that as a problem because it is counter balanced by the fact that we have credit opinions that are more stable and less subject to volatility. We assess probabilities, which is why we have a scale of 21 different ratings.”

Drevon would be the first to admit to “clearly very disappointing ratings” over sub-prime. But he believes Moody’s track record is “extremely good” on corporate and sovereign ratings.

“Ultimately we are going to be measured on how well those ratings perform. If statistically they are deemed to be performing well, we are useful to investors and the market. If not, we should be replaced by something else.”

But how good are the agencies’ track records on eurozone sovereign debt? How do they come up with their ratings? And what influences the timing of announcements?

Yann Le Pallec, S&P’s executive managing director of EMEA ratings, says the agency was well ahead of the market at the start of the eurozone crisis. “We downgraded Greece in 2004. At that time market-derived indicators said Greece was close to AAA – a comparable credit risk to Germany.

“We started to downgrade Italy in the same year and then again in 2007, highlighting diverging levels of competitiveness between Italy and the core eurozone countries.” Portugal, he says, was a broadly similar story.

Indeed, all three agencies quote an IMF study from October 2010 that found “all sovereigns that defaulted since 1975 had non-investment grade ratings one year ahead of their default”.

But things have moved faster since then. Riley at Fitch admits: “As the eurozone has become a systemic crisis, the deterioration has been more rapid and dramatic than we would like in terms of our ratings. We have downgraded Spain five notches in five months. That’s a lot.”

Isn’t that an admission of failure? “I wouldn’t use the term 'admission of failure’. When circumstances change you change your assessment,” he says, recalling how the bailout for Spanish caja Bankia went from €4.5bn to €23.5bn in a matter of days. “But five notches over five months is a big change. It’s unusual.”

It’s hard to find any excuse, though, for a Moody’s note in December 2009 entitled: “Investor fears over Greek government liquidity misplaced.”

Arnaud Marès, a senior vice president in Moody’s sovereign risk group, wrote: “The risk that the Greek government cannot roll over its existing debt or finance its deficit over the next few years is not materially different from that faced by several other euro area member states.” At the time, Moody’s rated Greece A1, or comfortably investment grade, though it was under review for a potential downgrade. Six months later Greece requested a €110bn bailout.

Drevon admits “we will not get it right in every case” but points out: “It depends on the bailout – a bailout may mean no credit risk. There are different levels of support you have to anticipate.” In Moody’s defence, it wasn’t until March this year that Greek bond holders were forced to take an effective 70pc haircut – though that hardly exonerates Marès’s note.

What too of the quality of agencies’ analysis, again in the spotlight last week when Moody’s was roundly criticised by the downgraded Royal Bank of Scotland and Lloyds Banking Group? A familiar criticism is that the agencies tell the market what it already knows, not least with sovereigns where Drevon says “everyone has an opinion”.

“You have an incredible range of views and research available,” he says. “We are just a small component of that research. That means when we take a rating action the market may have already come to a more conservative or negative perspective. That’s absolutely normal. The market can react instantly.”

But there are surprises. For starters, the agencies are not exactly chocka with sovereign analysts. Moody’s has 41 worldwide and claims 20 staff on the eurozone, including analysts, managers and researchers. For the entire EMEA, S&P has “26 or 27” analysts, 10 for the eurozone. At Fitch, “half a dozen” analysts focus on the euro bloc.

The agencies stress that ratings decisions are taken by committees, with those for sovereigns including country analysts, banking analysts, regional specialists and experts from other areas to provide benchmarks. As Drevon says: “When we assign a rating to a sovereign here it should be comparable to our Asian analysts assigning a rating on, say, Singapore.”

Even so, he would admit that Moody’s “macro-economic perspective is very much in line with the consensus view”. And, while analysts have “access to government officials”, it’s questionable how much independent research they do, given how many countries they are looking at. Sarah Carlson, Moody’s senior sovereign risk analyst, leads on six, including Greece and the UK. The others are Switzerland, the Netherlands, Cyprus and Turkey. Bizarrely, when Moody’s issued its warning in February that it could downgrade Britain, Carlson was on holiday.

What too of the taunt that the best analysts are poached by the banks, which pay a lot more? “It’s chiefly bank analysts and bankers who say that and, as you know, they typically have people who believe they are the smartest people in the room,” is Riley’s response to that. For anyone interested in “international political economy”, sovereign credit rating is “one of the best jobs you can do,” he says.

S&P’s downgrades of the US and France both drew brickbats over its analysis. Its American cut triggered a row over the agency’s methodology after S&P was accused of getting its sums wrong by $2 trillion. In fact, after discussions with the US Treasury, it changed its assumptions over the pace of discretionary spending growth, which in turn cut the projected debt outlook by 2021 from $22.1 trillion to $20.1 trillion. But, as Le Pallec stresses, the change had “no impact on the ratings decision”.

Its downgrade of France began as comedy. S&P’s computers erroneously issued an email in November 2011, titled “France Downgrade”, which quickly got into the market. “It was a technical systems error,” says Le Pallec, who hit France with the real thing two months later.

S&P’s warning in December that it could downgrade 15 of the 17 eurozone countries and its subsequent decision in January to downgrade nine provoked rows over timing. The announcements both came as Friday night bombshells, the first just as a summit of eurozone leaders appeared to be making progress.

S&P dismisses as “ridiculous” the notion that its announcements are timed for maximum publicity. Le Pallec says: “We understand people want to interpret it as they want but we are doing our best to make sure we communicate as quickly as we can after committee while, in Europe, keeping to the 12-hour rule,” The regulation compels agencies to give issuers 12 hours notice of ratings decisions.

“Genuinely we are not seeking publicity,” Riley says. “We are commentating through our ratings on an economic crisis that involves mass unemployment, recessions and so on. The associations aren’t very positive.” But withholding a ratings change just because “European leaders are about to have a summit is a very slippery slope.” he argues.

Agencies are not aiming to surprise the market. One consequence of the sub-prime fiasco was that all of them examined their methodologies. One outcome, says Le Pallec, is that S&P now provides more detailed outlook statements, flagging the second-most likely scenario – “a 20pc to 30pc chance which is material enough to flag to investors”. Such outlooks “allow users to do their homework and come to their own conclusions. When we downgraded France there was no impact. The markets were prepared for that.”

That doesn’t quite tell the full story. S&P’s France rating cut led to the swift downgrade of the European Financial Stability Facility – the bail-out fund partly underwritten by Paris – reinforcing the criticism that agencies make a bad situation worse.

In its 2010 report, the IMF found that ratings do “influence market prices and that downgrades through the investment-grade barrier trigger market reactions”. That’s because “market impact is associated not only with new information, but also with a certification role” – though the IMF found this most evident with agencies’ “use of 'outlooks’, 'reviews’ and 'watches’ rather than actual rating changes”.

Most pernicious of all though is where ratings are “hard-wired” into banking or insurance regulations, such as the European Capital Requirements Directive and Solvency II, which broadly stipulate that only financial instruments with the requisite ratings can count towards regulatory capital. While the rules often have some flexibility for bigger banks and insurers, that’s rarely the case with smaller ones.

The agencies should not be blamed for this, they say. “We have been vocal for more than 15 years saying you should not be embedding ratings into regulation because it creates a mechanistic response to rating change,” saysDrevon. “That is never good for any market. Investors also have to do their own due diligence. They shouldn’t be relying on ratings in a blind way.”

His rivals would echo that. Indeed, the agencies might even gain a bit in the popularity stakes if people stopped taking them so seriously. Says Fitch’s Riley: “We don’t give advice on whether investors should buy or sell. We provide the world’s shortest editorial, 'you’re A’. We give an opinion, which is in the public domain – like our rating history, so you can see where we have made the right calls or mistakes. That’s something you’d struggle to find with a sell-side investment bank. What is their opinion? They might have multiple ones because they have multiple voices.”

In other words, don’t shoot the messenger. Says S&P’s Le Pallec: “Look, we welcome competition. We welcome feedback from investors. And, if one day the market says 'OK guys you’re not relevant, we don’t care about you’, so be it.”

Judging by the current brouhaha, that day hasn’t arrived yet.

How the credit rating agencies compare

Moody’s Investors Service

Founded: 1900 by John Moody
Owned by: New York-listed Moody’s Corporation
2011 revenues: $1.63bn, up 11pc
2011 operating income 2011: $763m, up 17pc

Standard & Poor’s

Founded: 1860 by Henry Varnum Poor
Owned by: New York-listed The McGraw-Hill Companies
2011 revenues: $1.77bn, up 4pc
2011 operating income: $719m, down 6pc

Fitch Ratings

Founded: 1913 by John Knowles Fitch
Jointly owned by: France’s Fimalac and US’s Hearst Corporation
2011 revenues: €526m (including Fitch Solutions), up 8pc
2011 operating income: €145m (including Fitch Solutions), down 13pc