The Time for Innovative Policy Action

With the current European sovereign debt crisis roiling the markets and the recent US subprime crisis, bank failure, and debt ceiling debacle still in the minds of countries and investors, critical attention has been refocused on credit rating agencies and institutional mechanisms in abetting the crises and the steps needed to recover. The Bertelsmann Foundation – Financial TImes Conference provided a stimulating environment for policymakers from around the globe to compare national labor market reforms and a platform to present a forward-looking vision for an international nonprofit credit rating agency.

It was the latter proposal that garnered the most excitement from the audience. Steve Young, Global Executive Director of Caux Round Table, opined that it was the most significant step since the crisis. For Young, the crisis solidified the conclusions that the current credit rating agencies were unable to properly assess risk and the markets cannot be relied upon to assess prices.

In addition, the differing responses of European countries to the sovereign debt crisis highlighted the need for additional indicators in the traditional ratings system, to take into account not just the government’s capacity to serve debt but its willingness. The influence of civil society is especially important in this regard. But adding indicators alone won’t solve the current crisis Europe and the world is in.

The EU needs a “dramatic and overwhelming” response, according to Canadian Finance Minister James Flaherty. Jörg Asmussen, Executive Board Member of the European Central Bank, sees “no room for complacency” as nations tackle the two overriding themes of the conference: (1) fiscal consolidation and (2) growth and jobs. Whether through rethinking local education and skills training or the international credit rating and sovereign risk system, the Bertelsmann Foundation – Financial Times Conference provided the intellectual fodder for innovative action by policymakers in DC and abroad.