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Technology & Innovation

Toppling Credit Rating Corruption

European politicians are blaming the escalation of the euro crisis on American credit rating agencies. Some are supporting a German initiative to establish a rival European agency.

What’s the Latest Development?

A German management consultant, Markus Krall, is gaining support for his idea to create a European credit rating agency to rival Moody’s, Standard & Poor’s and Fitch. The three U.S.-based agencies are being blamed for the euro crisis in some political and economic circles. “The campaign had gotten off to a slow start. But ironically, now that Europe is sinking more deeply into debt, Krall’s venture is gradually gaining momentum. ‘There is a very good chance that the idea is about to take off,’ he says.”

What’s the Big Idea?

Not everyone is on board, however, with the idea of creating a distinctly European credit rating agency. “For years, the U.S. agencies collected their fees from the same banks, investment funds and insurance companies whose securities they rated. As a result, they were very lax in rating the companies that were paying them, vastly underestimating the risks associated with US mortgage-backed securities. … But a European agency would hardly be less exposed to conflicts of interest.”


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