Brussels, 02/12/2009 (Agence Europe) - One of the big achievements of the Swedish Presidency of the Council of the EU in the second half of 2009 is the fact that they were able to get EU finance ministers to reach agreement in principle on Wednesday 2 December 2009 on the macroprudential aspects of the new package of legislation changing the way EU financial supervision operates (see EUROPE 10029 and 10026). The ministers also confirmed their October 2009 agreement on the macroeconomic aspects of the financial supervision system whereby a new European Crisis Management Committee will be set up. The agreement on the overall package comes less than three months after the European Commission unveiled its initial proposals, based on recommendations by the Larosière Group (see EUROPE 9983 and 10002). The final sticking points were the safeguard clause whereby decisions by an EU supervision authority (ESA) cannot impinge on a Member State's budget powers; and how ESAs will reach decisions. It is hoped that the system will be in place in the early months of 2011 but first it will have to be endorsed by the European Parliament, which is co-legislator here and has decided to have its views heard.
Sweden's finance minister, Anders Borg, said that a way had been found to deal with an settle conflicts between national supervision authorities. He said that the compromise was a major step forward despite no compromise ever being perfect. He said it was the willingness to compromise among all Member States that had made it possible to reach unanimous agreement on the latest deal put forward by the Swedish Presidency. Describing the task achieved by the Presidency as 'Herculean,' the EU Internal Market Commissioner, Charlie McCreevy, said that the finance ministers had sent a 'clear signal' that they wanted 'major changes' in the EU financial supervision set-up. He said that obviously he would have preferred it if the ministers had not made any changes to the initial proposals, but that never happens. He said the important thing was that the system being prepared made huge progress on the current situation. Speaking earlier in the day, French finance minister Christine Lagarde said that the ministers had agreed that the new EU supervision authorities would have teeth rather than being watered down. 'I strongly believe that the responsibility for regulating institutions in our country lies with our regulators, but there have been cases in the past year, Iceland is an example, where it would have been extremely useful to us to have had cross-border agencies within Europe,' commented the British Chancellor of the Exchequer, Alistair Darling.
In terms of microeconomics, the European financial supervision system will take the form of a network comprising national supervisory authorities with responsibility for monitoring financial institutions on a daily basis; colleges of national supervisors to facilitate supervision of the fifty-odd financial institutions in the EU active in more than one country; and the three ESAs replacing the existing EU committees for securities (CESR), banking (CEBS) and insurance (CEIOPS), which will have the power to issue binding decisions.
Ever since the unveiling of the Larosière Report, political debate has focussed on the powers of the new EU supervision agencies. Anxious to keep control of the City of London, which accounts for 40% of the EU's financial markets, the United Kingdom has tried to water down the ESAs' powers and has been partially successful. The safeguard clause on national sovereignty has been beefed up and the UK is talking about a triple-padlock system for countries to assert their powers. In addition, the ESA decisions will now only apply directly to financial institutions in terms of interpreting how they apply EU law and will no longer apply to emergency situations or to disputes between national authorities. For the time being, ratings agencies are the only pan-Europe bodies that the relevant ESA will supervise.
Safeguard clause. Negotiated by the UK at the June 2009 European Council (see EUROPE 9925), a safeguard clause ensures that ESA decisions will not impinge on Member States' powers over their own budget in the event of crisis or disagreement among national authorities. The most frequently quoted example of how the safeguard clause would work is a government deciding to bail out a struggling financial institution. A) In the event of disagreements among national governments, the mechanism decided upon stipulates that a Member State shall inform the ECOFIN Council of the decision its ESA is sticking to. The Council would have two months to decide on a simple majority of votes (in other words, abstentions would not count) on whether the ESA decision shall stand. B) In crisis situations, the Council will have a fortnight to decide by a simple majority vote among its members whether to revoke the ESA's decision. This is the first 'padlock' introduced under pressure from the British. In the event of a crisis, when the ECOFIN Council confirms an ESA's decision, if the Member State that raised the issue still believes that the decision impinges on its budgetary powers, it can request that the Council re-examine the decision. The ECOFIN Council would then have four weeks (eight weeks in certain circumstances) to reach a new decision. This is the second British 'padlock'. Annexed to the legislation is a Council statement recognising that any Member State feeling itself to be adversely affected by an ESA decision taken in a crisis situation and confirmed by the Council will have the option of taking the issue to the European Council (the third British 'padlock').
Decision-making. When ESAs take decisions, the general rule is that they decide on a simple majority vote. In the event of disagreements between national supervisors, a balanced panel of supervisors will prepare a decision. The relevant ESA's management board would then endorse the panel's suggested decision by a simple majority vote with each Member State having a single vote, unless there is a veto in the form of a minority constituted by weighted qualified majority voting (temporarily applying the old weighting rules for votes on the Council). This mechanism would only apply in the event of disagreement arising over a decision taken by the supervisor of the country of origin ('consolidated supervisor' in the jargon) of a cross-border financial institution. In all other cases, simple majority voting will apply.
As far as some diplomats are concerned, the ESA decision-making arrangements cobbling together of the desire expressed by France and Germany that it should not be possible for the supervisor of a bank or financial institutions' country of origin to be outnumbered by the supervisors of the countries where the same company's subsidiaries are located, along with the fact that Member States where subsidiaries of cross-border financial institutions are based want their own national supervisor to have the power of scrutiny over the subsidiaries in their country.
EP. The ECOFIN Council's agreement in principle gives the upcoming Spanish Presidency of the Council of the EU a mandate for exploratory talks with the European Parliament, which is only now beginning to examine the draft legislation. The European Parliament will not agree to any watering down of the new supervisory bodies, explained the four main political parties' coordinators at the EP: Jean-Paul Gauzès (EPP, France), Udo Bullmann (S&D, Germany), Sylvie Goulard (ALDE) and Sven Giegold (Greens/EFA) on Wednesday in a joint statement. They argue that the Single European Market requires EU supervision and point out that the Larosière Report was itself a compromise. The Report foresees a connection being made between the macroeconomic and microeconomic financial supervision, and 'independent' ESAs with 'binding and proportionate powers'. (M.B. trans fl)