Developments in the economic crisis and EU action to revolutionise governance of the financial world are sending out contradictory messages. The conclusions document of the most recent European Council calls for reform, but at the same time there is increasing alarm about banks going back to their old ways.
Important guidelines. There has been little reaction to the EU's summit at the end of October 2009, which is not surprising in that EU heads of state basically endorsed the work of their finance ministers. This confirmation at the highest level, accompanied by guidelines covering areas not yet decided upon, was significant in itself, however. A few weeks ago when all that anyone talked about was the high level of disagreement, who could have imagined such progress being made? At the European Council, the EU: 1) broadly defined the criteria and conditions for its exit strategy; 2) confirmed the agreement on the macroeconomic aspects of the new financial supervision rules; 3) set a December deadline for reaching agreement on the full surveillance architecture, including microeconomic issues; 4) reaffirmed EU support for an international deal on pay and bonuses and the establishment of global accounting rules; and 5) called for appropriate procedures to be decided upon for coping with any future collapse of too-big-to-fail cross-border banks. On Tuesday of this week, finance ministers will be getting down to work on various aspects of this.
I should add that the EU's three biggest financial powers- Germany, the United Kingdom and France - urged the European Commission to look into the 'Tobin Tax' idea of a tax on financial transactions when examining innovative funding options at global level. At the G20 finance summit on Saturday, the British prime minister issued a formal invitation to this effect (although the other finance ministers avoided the issue in the absence of agreement in advance at EU level) and the US Treasury Secretary formally opposed the idea (see below). Some observers see Gordon Brown's statement as a firm UK commitment, whereas others see it as electioneering.
Either way, even ignoring the tax suggestion, a few months ago nobody would have ventured to predict any such progress for fear of being accused of being a dreamer. A broad brush picture has been agreed upon and if there is sufficient political will at the highest level (in a substantial number of member states), then this will be followed by results. Two areas require some clarification:
1. Clarifying the idea of an “exit strategy”. The question of an exit strategy (to withdraw from the state-backed economic recovery measures) was misunderstood at the start when much of the media in the non-English-speaking world, even the financial pages, described it as a strategy to get out of the crisis. Clearly aiming to avoid future misunderstandings, the European Council described the exit strategy in paragraph 27 of the conclusions document as “exit from general recovery policies”, explaining that the aim was to return as quickly as possible to respect of the Stability and Growth Pact public deficit rules. The exit strategy timing is cautious but the idea of sticking to an exit strategy has been confirmed. The demagogy of some political movements and the tendency of some civil servants to want to hang on to their privileges and wasteful behaviour were not able to quash the call for uncontrolled public debt not to be passed on to future generations.
2. The European Parliament must take its responsibilities on board. The European summit's conclusions document explicitly mentions the opening of the formal consultation procedure at the European Parliament on the legislation that the Commission is devising on the new rules for the world of finance. The EP's economic and financial affairs committee and the EP's temporary committee on the economic crisis will be called upon to express their views, ahead of negotiations with the EU Council of Ministers to find a compromise solution to settle any differences that might arise. This is a huge responsibility and will be a real test for the EP. I hope it is able to meet the challenge and rise above any demagogy and rivalry among MEPs.
Tomorrow, I will examine the second development mentioned at the start - indications that much of the financial world in the United States in particular (and elsewhere) is planning to return to the bad old ways of the past.
(F.R./transl.fl)