Banks, Economics, EU – Baltic States, Financial Services, Forum

Present crisis, said the Commission President has shown with dramatic clarity the consequences of member states’ action (and inaction) in tackling threats of reckless macroeconomic policies, as well as regulators’ overlooking risky new practices and traders irresponsible betting on ever higher bonuses. The price of failure was paid by all the EU member states.

Recently organised Eurofi Financial Forum in Brussels, during present EU Belgian Presidency (Brussels, 28 September 2010) brought together Europe’s key financial market leaders, regulators and supervisors; the Commission’s President revealed his views on the European financial issues.

New regulatory approach

The EU’s response takes into account the member states’ interdependence. Thus, the EU is delivering a fundamental overhaul of regulation, governance in Europe's economies and a holistic approach that allows stabilising, consolidating and reforming.

First, the EU takes immediate actions to support banks, when the EU member states are struggling with sovereign debt; the EU actions prevented a meltdown.

The Commission is now fixing the fundamental gaps and weaknesses in regulation and supervision, highlighted in the invaluable report Jacques De Larosière delivered last year at the Commission President’s invitation.

Many measures, e.g. including those on credit rating agencies, protection of depositors, and improved bank capital – are already in place. Others, like rules on hedge funds and private equity, are awaiting final approval.

It is a huge achievement that Mr. Jacques de Larosière’s ideas for a new supervisory architecture for Europe will soon be realized, after a year sins inception.

The 2011 reform

By the start of next year, the EU will have in place a European Systemic Risk Board and a European System of Supervision aimed at bringing together national supervisors with three new European supervisory authorities.

These arrangements are the bedrock for the EU reform and setting up the global standard. The EU intends to use the potential of the new authorities to the full in order to complete the reform. The Commission is committed to making all outstanding proposals by spring next year, and Commissioner Michel Barnier is working hard to that end, argued the President.

Another key challenge is that of getting the right rules in place for dealing with systemically relevant institutions – those that are “too big to fail”. The Commission will set out a crisis management and resolution framework next October.

Next EU step is to ensure that the new prudential rules agreed in Basel are properly reflected in the member states’ legal framework. The EU is conscious of the need to maintain this sector's international competitiveness with a view to strong European financial markets, competing fairly and winning on a global level playing field.

The EU has become a driving force behind international reform efforts, through the G-20; it has pressed for internationally consistent solutions, designed and calibrated in dialogue with European partners. Commission will insist that all partners deliver on their promises at the G-20 Summit in Seoul next November.

The Commission’s work programme is clear and predictable, said the President, with the EU strategy on smart regulation principles: transparency, extensive consultations with stakeholders and detailed impact assessments.

The EU is determined to deliver this reform with a sense of responsibly in ensuring appropriate phasing-in of some reforms, to avoid choking off the recovery process.

New proposals

The sovereign debt crisis at the start of 2010, exposed gaps and weaknesses in macroeconomic surveillance, in particular in the Stability and Growth Pact, which cannot continue in its present form, underlined the President.

For example, the time has come to complete the EU monetary union with the economic union. Alongside regulatory reform, we need an overhaul of our economic governance tools.

The Commission is planning new proposals in these directions, which will build on the consensus fostered in the Task Force, chaired by the President of the European Council, to better monitor and address imbalances, improve budgetary surveillance, look at government debt in a more sustained way, and give real teeth to the Stability and Growth Pact.

Greater stability at macroeconomic and market level is an essential foundation for the major structural changes needed in the EU economies. The EU-2020 Strategy is aimed at guiding Union’s economy towards new sources of growth and cohesion, in order to achieve smart, sustainable and inclusive growth.

Financial services must make a positive contribution to this, argued the President. “I want to see growth in new seed funds, and private equity or venture capital funds. We need to offer young, innovative companies alternative ways to raise capital. We should look at how we can release the potential of private investment through properly regulated retail products. We will return to these issues in our proposal for an innovation union – a flagship of Europe 2020 – ahead of the December European Council”, he cintinued.

The European Commission does not intend to restrict the bankers or fund managers’ activity; the EU’s aim is a thriving and sustainable European financial services sector, e.g. in London, in Paris, in Frankfurt and beyond. “But no-one should underestimate the sense of injustice that Europe's citizens feel today”, said the President.

Thus, the financial industry is engaged in a very positive activity, i.e. the broad direction of reform over the past months. But now bankers need to put money in the perspective directions.

The situation is to show that the culture of excessive bonuses is over – not just for a few months but forever, added the President.  

The bankers have to prove that they can develop products that are sustainable and innovative, i.e. to put financial services back at the service of the economy.

That also means that banking sector shall assist citizens through access to basic banking services, responsible lending, and transparency of bank fees. These are the Commission’s priorities in the coming months, added the President.

At the same time it means, concluded the President, making a fair contribution to cover the costs the sector has incurred for the tax-payer. In the coming weeks the Commission will present ideas for taxing financial activities. In parallel, the Commission will continue to discuss a global financial transactions tax with international partners.

Together with the EU member states and the other institutions, i.e. the European Parliament and the Council, the Commission is implementing balanced solutions to get Europe out of crisis and back to growth.