European rating agency stalls

Endeavors by European politicians to create a financial rating agency which would act as a counter-weight to existing US-based institutions have taken a severe blow as funding hasn't met the requirements for setting up such an agency, The Financial Times Deutschland reported in its Monday edition.

It said the Roland Berger Consulting Company, which had been tasked with collecting the start-up capital for the undertaking, admitted that not enough resources could be raised to implement the European rating agency.

Roland Berger was quoted as saying that 300 million euros ($390 million) from banking institutions would have been needed to get the project off the ground. It was particularly the biggest German and French banks which were reluctant to make sufficient contributions as they remained unconvinced of the effectiveness of such an agency.

European policy-makers had been hoping an independent rating institution could have limited the power of the three US-based agencies, Standard & Poor's, Moody's and Fitch.

US rating agencies eyed with suspicion

During the 2008-9 global financial upheavals and the eurozone debt crisis they frequently claimed that the American agencies had contributed to a worsening of the crises by downgrading the credit ratings of indebted EU states too readily, despite the bailout measures and austerity programs adopted by the European Union and the governments involved.

European governments have been supported in their promotion of a European rating agency not only by the European Commission, but also by leaders in China and some Arab nations. Banks, however, have not seen any reason to provide their own resources for a European rating agency, since they do not have to pay anything for the differently-modeled US counterparts.

Despite the strong headwind, the Roland Berger Consulting Company has not yet completely buried the idea of making the European rating agency a reality at a later stage.

According to The Financial Times Deutschland, Berger is hoping to collect enough money from a small group of Frankfurt-based bankers which will enable them to continue working on the agency and introduce some alterations to the concept in a bid to make the vision more attractive to all sides.

Author: Hardy Graupner
Editor: Michael Lawton