Responding to what is widely felt by the political establishment in Europe to be the "destabilising" role played by credit ratings agencies in the ongoing euro zone crisis, the European Commission unveiled measures to curb their power.

The EC's financial services chief, Michel Barnier, said his proposed laws sought to increase the competition faced by the "oligarchy" of the Big Three agencies: Standard & Poor's, Moody's and Fitch Ratings.

Already much derided for their faulty ratings in the run up to the 2008 banking crisis, the agencies' role in the current sovereign debt problems faced by many European nations has also been in the line of fire.

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Matters came to a head last week, when the mistaken downgrade by S&P of France's banking sector led to a sharp market response at a time when the country is struggling to hold on to its triple-A rating.

Barnier immediately announced his intention to reinforce EC efforts to regulate the agencies more closely.

The draft law announced in Brussels on Tuesday proposes giving the European regulator, the European Securities and Markets Authority (ESMA), the power to call for a temporary suspension on sovereign debt ratings in exceptional circumstances, like bailout talks.

EU policy makers widely believe a ratings downgrade of Greek debt last year even as talks were ongoing to thrash out an aid package made the eventual bailout more expensive.

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The proposal also calls for giving the ESMA the power to vet the methodology of agencies.

It further requires users of ratings, such as companies and banks, to "rotate" between agencies every three years as a way of inducing greater competition in the sector.

The hope is some of the 10 or so smaller agencies registered in Europe, such as Euler Hermes, can pick up more business, thereby rectifying what is perceived to be the pro-US/anti-EU tilt of the Big Three.

The idea of creating a publicly funded European agency as an alternative to the Big Three, an idea that has been doing the rounds in Brussels, has been shelved.

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Finally, the proposal also calls for a civil liability framework in the case of serious misconduct or gross negligence.

This is the third piece of EU legislation since 2007 intended to reign in the agencies. The earlier two laws made it mandatory for agencies to seek authorisation and required them to report directly to the newly established ESMA.

Critics of the latest proposal, including Britain, believe the draft law to essentially be a case of "shooting the messenger" while doing little to shore up the credibility of euro zone governments.

Ratings agencies are arguing the intrusive rules will distort markets and hurt the credibility of ratings by restricting the freedom of analysts to make independent judgments.

The draft law needs the approval of the European parliament and member states before coming into effect.