Strasbourg, 05/09/2007 (Agence Europe) - On Wednesday 5 September, MEPs looked at the consequences of the financial upheavals that took place in the world of international finance in August. They underlined the responsibility of brokers, the lack of market transparency, the opacity of accounting regulations and the sophistication of financial products. Many wonder whether concrete initiatives should be envisaged.
It is “still too early to quantify the possible impact” that the serious market turbulence caused by the high-risk mortgage market will have on the “real economy”, Joaquin Almunia told the Parliament. According to first estimates, there will be an impact on growth and employment in 2007 but it will be very limited, the Commissioner for economic and monetary affairs said, taking the view, however, that “risks will perhaps be more obvious for 2008”. Everything will depend on how the confidence of economic actors evolves, he said. In his view, there elements must be taken into account: (a) the impact of the deterioration of the housing sector on the whole of the US economy; (b) the impact of financing conditions for companies and households, and, perhaps the most important (c) the impact on confidence. At this stage, “the economic fundamentals of Europe are solid” and “should be significantly affected by the recent turbulences”, Mr Almunia went on to say, adding that a more detailed analysis of the impact for 2008 and 2009 should only be made once the Commission's economic autumn forecast is published on 9 November.
Charlie McCreevy, responsible for the internal market, felt it was “too early to draw firm conclusions” while markets still remain uncertain. Albeit cautious, Mr McCreevy set out several roads for reflection. Above all, he felt it is of prime importance to educate consumers about the use of credit and to analyse the mechanisms used for securitisation. “Investment fund rules (UCITS) have held up. Our prudential framework and bank risk controls have -as we expected - prevented hedge fund failures from triggering wider systemic disruption”, he added, saying that hedge funds are therefore not the main cause of the market's troubles. Mr McCreevy wondered, however, about the role played by financing rating agencies, blamed because they did not warn investors sufficiently early of the risks entailed by certain financial establishments affected by the US real estate crisis (EUROPE 9483). “I had already expressed certain criticism about how slow they were in downgrading” these financial establishments, he said, adding: “The scope for conflicts of interest to influence ratings must be firmly addressed”.
Manuel Lobo-Antunes, Portugal's Secretary of State for European Affairs, sought to be reassuring by repeating the words of the Luxembourg prime minister and president of the Eurogroup, Jean-Claude Juncker, who feels that, on the whole, there is “no visible impact on the growth prospects of the eurozone”. The question will naturally be tackled and looked at in detail at the Informal Ecofin Council on 14 and 15 September in Porto.
John Purvis (EPP-ED, UK) felt there was perhaps some naivety when it comes to hedge funds. He mainly urged for market transparency. Financial markets are “too opaque and extremely dangerous for the real economy”, said Robert Goebbels (PES, Luxembourg), who protests more than his colleague. The cost of the financial upheavals has not yet been calculated and losses will become apparent when annual accounts close. It is salutary that those who took over-high risks should pay the cost, but one must not forget the victims behind them - the small savers - said Mr Goebbels. Margarita Starkeviciute (ALDE, Lithuania) said “the mechanisms for evaluating (Ed. risks) are visibly not the right ones” and there is a need for “harmonisation”. And, when it comes to rating agencies, these cannot be trusted at 100%. Brian Crowley (UEN, Ireland) also slammed the rating agencies saying indignantly that their excuses, even when they do give them, do not repair the damage done. Alain Lipietz (Greens-EFA, France) foresees other crises coming from the United States and deplores the lack of reaction in Europe. The crisis took place in March, it was spread by the hedge funds the first two of which became bankrupt in June, and spread to Europe in August; “We had time to act”, he said. This crisis is a “wake-up call for everyone, including Commissioner McCreevy”, said Poul Nyrup Rasmussen (PES, Denmark), calling for action. Recognising the need for better supervision, Mr McCreevy will give preference to means other than regulation. “More regulation would be the worst thing that we could do for the financial markets”, he said. (ab)