Two political texts. EU action to improve the management of financial markets, by introducing transparency and beefing-up monitoring, has entered a new phase. Since the summer, there has been revelation after revelation of gaps and abuses, and for non-specialists (quorum ego), these have been astonishing. No transparency, no monitoring, sometimes mind-boggling conflicts of interest, scarcely imaginable profits. In the United States, when fraud is discovered, long jail sentences are the order of the day. In Europe, the trend towards greater transparency and monitoring is clear, but the transition from analysis to decision-making is not an easy one. A general banking system crisis, with all the foreseeable knock-on effects that that would have on the economy as a whole, must be avoided. Such effects, it has to be acknowledged however, are not all negative. For example, investors constantly seeking returns of 15%, or even more, is ruinous for the real economy (producers, employees, researchers, etc): so much the better if this habit were to cease, and if those who have become hugely enriched by speculation now suffer a few losses.
Within the context of the EU, the new phase comes as a result of two political texts: a) Paragraph 38 of the Conclusions of last week's European Council (see Sunday's Special edition); b) the results of the Economy/Finance Council of 4 December (see our newsletter No 9557). Ahead of setting out the general guidelines, those responsible have set up meetings: 28 February and the Ecofin Council April session; the heads of government Spring summit.
Prospect of European powers? Italian Minister Toimmaso Padoa-Schioppa, we know, sent his suggestions to his colleagues and the European Commission on 26 November, the main innovation being to make market control European in nature, when today they are national.
Press analyses of the Council debate have been many and varied: we go from “way open for Italian proposals” to “Padoa-Schioppa plan rejected”. It all depends on the minister who is speaking. According to the Chancellor of the Exchequer Alistair Darling, the Council firmly rejected the Italian plan; others say that only the United Kingdom and Germany opposed it. A less superficial look would indicate that reservations were expressed also by Spain, the Netherlands, Belgium, Austria, Ireland and Finland. The plan's author said he was “moderately satisfied” (or “satisfied, but not entirely so”, depending on the sources quoted), believing that the conclusions adopted by the Council went beyond what he had proposed, since the debate has been launched and his plan is among Council acts.
The Padoa-Schioppa plan proposes a “single European rule-book” and “a single bank supervisory authority”. At the present moment, the European directive on these issues is applied differently from one member state to another and, for supranational banking groups, the situation is absurd: their subsidiaries have to comply with different rules depending on which member state they operate in; the process needed to rectify the situation is long and complex; but it has to be started, opines the minister.
The British radically oppose the plan. This does not mean that the United Kingdom does not intend to act or that it is against increased transparency and supervision, but it believes that it is up to national authorities, acting autonomously, to take the necessary action. Germany's position is partly ambiguous: international banks, led by the Deutsche Bank, support an enhanced European role, while regional banks are against it. Other member states' reservations go from a reluctance in principle to one-off, sometimes technical, sometimes mainly political, points. The position of the president of the European Central Bank (ECB) seems to be generally in favour, but with reservations. There is the impression that Mr Trichet supports enhanced cooperation at European level, while noting that the responsibility for financial stability lies at national level, and geographical proximity and experience of national markets are significant elements.
The process has begun, with unanimous agreement in principle in favour of increased transparency and supervision. I would refer you to our Newsletters Nos 9557, and 9556 (the latter also setting out the institutional objections to the Padoa-Schioppa plan) for the roadmap to be followed until the end of 2008.
(F.R.)