Studio Guest: Henrik Enderlein, Hertie School of Governance | Made in Germany | DW | 31.08.2011

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Made in Germany

Studio Guest: Henrik Enderlein, Hertie School of Governance

Our studio guest today is Henrik Enderlein, a professor of political economics at the Hertie School of Governance

Watch video 03:29

DW-TV: Mr. Enderlein, why doesn't Europe have its own rating agancy yet? What's taken so long?

Henrik Enderlein: Why would it matter where information is located? Agencies are global, markets are global. I wouldn't put too much emphasis on the US-vs-Europe story. Rating agencies have a very specific business model. Providers, that actually want a financial product being graded pay the agencies, and it's not the investor paying. So what I like about that idea is that the investor pays, but that' the main difference between the three and this one - it's not regions.

DW-TV: You say don't put too much emphasis on America vs. Europe, but that's exactly what's been happening. Those three big US-agencies have been accused of pouring oil onto the fire and worsening the Eurozone debt crisis. You don't agree with that?

Henrik Enderlein: I think financial markets have all the information available. We're talking about sovereign debt, not corporate debt. No investor is capable of knowing exactly what's going on in this or that small company. We're talking about 50, 60 sovereign countries that issue sovereign debt, so it should be possible for investors in New York or London or Frankfurt to know exactly the state of the US financial and debt position. So when a rating agency comes along and says, 'Oh, we don't think it's triple-A anymore, it's double-A or double-A-plus, that's sending an additional signal into the markets, but it's by no way the initial trigger of a significant market movement.

DW-TV: Now what you're saying is that ratings agencies base their ratings on the mountains of debt. In that case, Germany should be downgraded too. Aren't there any other factors playing into it?

Henrik Enderlein: Sure, it's quite subjective, which is why if you're an investor, you should think about, 'Do I want to invest my money in Japan, or in the US, or in Germany. Then you look at what party is in power, how's the political stability, can there be natural disasters... we've seen that in Japan something of the kind can happen. So I think that rating agencies simply provide good information, just like a newspaper or other people, and ultimately it's up to the bank or the investor to know exactly what kind of paper they're buying.

DW-TV: Let's say there would be a European ratings agency. How much influence would it have, given that the American agencies are so powerful already?

Henrik Enderlein: That depends on market players. You can develop credibility and trust only over a period of time, you can't buy it from one day to the next. So I would expect it to take five years, ten years, before really becoming established in the market. You have to have a track record to be able to say to investors that we're better than Standard & Poor's or Moody's. And for now there is no such track record. So I wish them a lot of luck, but I'm rather skeptical that it's going to fly.

DW-TV: So you don't seem optimistic about a European rating agency being able to calm markets, are you?

Henrik Enderlein: Calming the markets is not something that should be coming from the rating agencies. We have the European Central Bank, we have the European Rescue Fund the EFSF, which is in the market right now... so those are the players. I would want to look at, not some company, regardless of whether it's in New York or Frankfurt.

DW-TV: Henrik Enderlein, thank you very much for joining us.

Interview: Monica Jones