The European credit rating agencies (CRAs) regulator European Securities and Markets Authority (Esma) allocates only €150,000 for onsite CRA investigations, which is less than the €161,000 for postage and telecommunications, and a fraction of its €20.3m total budget, according to a new study by think-tank Infrangilis.

The study, Rating Sovereign Raters (pdf), also revealed that the bold political words on supervising credit rating agencies (CRAs) that rate sovereign debt are not always backed up by resource commitments.

The think-tank found that just 13 from a total of 75 people at Esma are dedicated to dealing with the CRA industry across the whole of the Eurozone, which covers 27 countries.

In the same week that Cyprus edges closer to being the latest Eurozone country to seek bailout money, the study questions whether this is an appropriate allocation of EC resources to CRA scrutiny given the European Financial Stability Facility is €734bn. Particularly as, it is alleged, the financial meltdown was precipitated in part by a failure of the CRAs to identify and warn the markets about the Greek collapse and US sub prime mortgages.

The think-tank recommends a number of key policy changes to remodel the rating of sovereign debt. These include a return to the CRAs serving the public interest; "rewiring" regulation to reduce the importance of the CRA industry; the right kind of competition amongst CRAs; up-skilling the CRA workforce; more effective co-operation between governments on CRA supervision; politicians providing better stewardship of CRA supervision; and wider industry reform.

Philip Monaghan, CEO of Infrangilis, said:

It’s vital that Europe does not flip-flop on financial stability when it comes to "watching the watchers". Throwing more taxpayers' money at the problem isn’t needed. There's duplication of effort on supervision between the EU, US and other regions.

Timothy Geithner, George Osborne (who staked the government's reputation on protecting the UK's credit status) and other G20 treasury secretaries should agree a single, accredited, sustainable and transparent mechanism for certifying credit worthiness. This would allow us to do more with less.

Update: This story originally implied that the €161,000 was spent on investigating postal services. It was in fact Esma's post bill.