* Crisis gives ratings agencies huge influence in W.Europe
* Downgrade threat drives policy in Greece, Britain, Ireland
* Ratings agencies square off against Spain on spending
* Groups had been partly blamed for subprime mortgage crisis
By Peter Apps, Political Risk Correspondent
LONDON, Dec 10 (Reuters) - A year ago, they were being blamed for the financial crisis. Now, the three credit rating agencies are emerging as new powerhouses in European politics, driving policy as governments face record deficits.
A warning, outlook change or worst of all sovereign rating downgrade from Fitch, Moody's or Standard and Poor's raises the cost of a government's borrowing and provides easy ammunition for opposition parties. With markets jittery, it can spark a wider run on national assets.
"They've become colossally important because there just isn't anyone else impartial to rate the developed economies," said Steve Schifferes, professor of financial journalism at City University in London. "It's ironic, because they were being blamed only recently for the economic crisis."
Ratings agencies gave top AAA credit status to repackaged U.S. mortgage debt. When the housing market collapsed, serial defaults spread contagion throughout the financial system, destroying banks and triggering a worldwide recession.
But times have changed. The ratings agencies are determined not to be accused of missing credit risks again and even a simple negative statement from an agency analyst can send currencies falling and bond yields spiralling higher.
Greece has spent days trying to reassure investors after a Fitch downgrade. Its prime minister promised to do whatever it takes to restore credibility. As Greek markets wilted, European policymakers pointedly failed to promise financial backing.
The threat of ratings action lurked in the background of Ireland's brutally austere budget on Wednesday, as well as Britain's pre-budget report which -- while fiscally neutral -- promised future widespread cuts in public spending.
The same day, Standard and Poor's issued a direct challenge to Spain's government, which has embarked on a massive public works programme to keep unemployment down, by putting the country or negative outlook and demanding cuts.
"Politicians are a lot more worried about what ratings agencies say than they were previously," said Control Risks Western Europe analyst David Lea.
A negative outlook means there is a one-in-three chance of a downgrade over a two-year horizon. S&P lowered Spain's sovereign rating in January to AA+ from AAA.
Britain's AAA credit rating is also in the spotlight. S&P put it on negative outlook in May and while Moody's and Fitch retained stable outlooks, they have made a string of comments demanding greater austerity.
WAITING ON UK ELECTION
"It's hugely important that the UK maintains a high rating if it can for the simple reason that the cost of that (British government) debt will increase if the rating goes down," said Howard Wheeldon.
The opposition Conservative party has frequently cited the S&P move in speeches and policy statements to underscore its pledge to make stringent spending cuts.
Any downgrade before an expected May 2010 general election would be a heavy blow to Prime Minister Gordon Brown's embattled Labour government. A downgrade afterwards would undermine the credibility of a likely new Conservative administration.
"The thing I'm aiming for is making sure that Britain keeps its credit rating," Conservative Treasury spokesman George Osborne told Reuters on Friday.
For now, agencies look to be holding off any significant move on Britain until after the election, saying the pre-budget report did not materially change their outlook.
Sovereign ratings have traditionally been much more mobile in emerging markets, where many countries have seen their credit rating change over the last year.
But they have arguably been less crucial for investor sentiment than they are now with Western economies, because investors have watched International Monetary Fund bailout deals as a bellwether for creditworthiness.
IMF decisions to delay tranches of much-needed multilateral aid have hit Ukrainian, Latvian or Romanian assets far harder than ratings shifts.
But for Western Europe, there is no such independent arbiter, giving the agencies more power and influence.
Critics had accused agencies of a conflict of interest in that they were paid by the issuers to rate the subprime mortgage packages that almost undid the global economy. That is not the case with the ratings of countries such as Britain or Greece.
Some small countries such as emerging African borrowers do pay for a credit rating, but larger countries generally do not.
That leaves a handful of sovereign ratings analysts -- generally lower paid than their counterparts in the banking sector -- holding the fate of nations in their hands.
Another criticism is the relative lack of competition and, until recently, the absence of regulation. There are only three big ratings agencies and their methods are not subject to the same scrutiny that they apply to others' creditworthiness.
"It is not that they necessarily know more than any other analysts," said City University's Schifferes. "But because the credit rating is such an easy thing to focus on, they have much more power. It's not very democratic."
(Additional reporting by David Brett, editing by Paul Taylor)