Encouraging. Where does the following quotation come from? “Over the last three months, financial regulation has made more progress in Europe than over the course of the past thirty years”. No, this is not a fairly recent affirmation made in this column. It is in fact, part of an editorial that appeared last week on the front page of “Le Monde”. After highlighting recent results, the illustrious French newspaper, renowned for its critical tone, explained that “these mechanisms do contain shortcomings and it is to be regretted that they have been watered down under pressure from the financial lobbies… nonetheless, it is a gigantic step towards the construction of the single market in financial services and a slap in the face for those who said Europe was getting bogged down in its problems of governance”. In the past, “such an initiative was unthinkable and would have been met with a political veto”.
Obviously, the mechanisms that have just been developed are not yet operational and we should not ignore the following remark by a minister for the economy, “the kings of speculation are still at large and the bulk of toxic derivatives are still in circulation”. Nonetheless, progress is being made. On Wednesday, the European Parliament will ratify, following close-fought negotiations with the Council (which enabled it to obtain several improvements), the structures and principles of financial supervision, and the Commission has begun putting forward the legal drafts for application. It is encouraging to note that the idea of European construction currently going through a creative period is an idea that is beginning to be shared, at least for the priority aspect regarding rules for financial activity.
Progress in getting rid of the abuses. The proposal, which the Commission has just presented for regulating derivatives and short selling (EUROPE 10215) is crucial. Apparently derivatives cannot be totally banned because they enable companies to cover against changes on the currency markets, as well as oil price variations and changes affecting other basic products - the simplistic solution would be unreasonable. Nevertheless, the market in these products has taken on ludicrous proportions and it is impossible that anyone could imagine that the hundreds of billions of dollars wrapped up in this market are invested for protecting the real economy against the risks mentioned above. Michel Barnier indicated that 80% of derivatives are extremely complex and are exchanged without information or control. For the most part, they constitute the purest form of speculation. The Commission draft enhances transparency and introduces traceability. It also allows new control bodies to ban dangerous derivatives during certain periods of upheaval.
The speculative nature of short selling is becoming increasingly obvious. Selling goods or shares, which no one owns, by betting on variations to their prices, brings nothing to the real economy and encourages operators to push the market in a direction that benefits them. According to the experts, in certain circumstances and with effective controls, some of these kinds of operations could become useful or at least tolerable but transparency must be ensured and the Commission has proposed that the control bodies can ban them temporarily if needs be.
Our publication, EUROPE 10216 provided a report on the decidedly favourable reception to the Commission proposals and not only looked at the opinions in this respect from MEPs (with one exception) but also illustrated the views of economic operators and, with a number of reservations, those expressed by the banking communities. One observes that even the banking world is far from being unanimous in its support for speculative finance: there are many banks which would like to get back to their real job -supporting the economy.
In an effort to complete the picture, I would like to point out that on 7 September the Economy/Finance Council announced that it would re-examine the draft on bank taxes, on the basis of a Commission communication and the tax on financial transactions, while recalling the positive orientation given by the European Council on 17 June.
A positive trend. In my opinion, the positive development in this phase of Europe also covers: a) the area of foreign policy, in the light of the gradual implementation of the European diplomatic service and the orientations outlined last Friday by the heads of state and government; b) the sensitive and controversial dossier involving the Roma and illegal immigration. This column will return to both of these subjects tomorrow.
(F.R./transl.fl)