Brodbeck criticises credit rating ‘hysteria’

A German economist has warned from “dangerous monopoly circumstances” in the global rating business.

Karl-Heinz Brodbeck told Viennese newspaper Die Presse that the world’s leading credit rating agencies were issuing better grades the more money they made with the rating. He called the situation “dangerous” and called for more transparency.

The renowned economic expert – who lectures at several universities and Fachhochschule (FH) colleges – said he created a “screening” of states’ financial condition “which considers many economic aspects, of course, but also social issues like youth joblessness, poverty developments and spending power statistics”.

Brodbeck explained that environmental costs were also taken into account by his new rating programme “as every country will be confronted with such expenses sooner or later”. He told Die Presse that investors and shareholders using his model would become less dependent “on the manipulation and hysteria caused by rating agencies”.

Brodbeck accused Standard & Poor’s (S&P), Moody’s and Fitch – the biggest rating agencies in the world – of “playing a political game”. He said: “They support the United States for years in the global currency war but should have downgraded them. But the US dollar would become weaker – which would make oil imports unaffordable for the USA.”

The German economist’s attack on the big three of the global credit rating industry comes shortly after Fitch approved Austria’s solvency. The New York City-based agency reaffirmed the European Union (EU) member country’s top credit rating of AAA. Fitch also issued a stable outlook on the development of the Austrian economy.

S&P downgraded by one grade to AA+ in January while Moody’s left its AAA verdict unchanged. However, Moody’s gave a negative outlook, meaning that the agency might downgrade the state’s financial trustworthiness in the near future.

Austrian People’s Party (ÖVP) Vice Chancellor Michael Spindelegger said shortly after it emerged that Fitch had not changed its AAA for Austria that the country was “on track” in restoring the public budget. Social Democratic (SPÖ) Chancellor Werner Faymann claimed the rating agency’s decision was proof of international investors’ “great trust in Austria”.

Meanwhile, S&P expert Alois Strasser said money could be saved by “creating better structures”. The Austrian analyst added that this would not necessarily kill economic growth. Strasser called on Europe’s state and government heads to improve economic structures to substantially stabilise the continent’s economy. Speaking to Die Presse, the S&P analyst warned that “some years” would be needed to significantly improve the economic situation of the Eurozone’s struggling members.