Brussels, 18/01/2008 (Agence Europe) - Intergovernmental and Community work to shore up financial stability following the crisis on the financial markets is following a common agenda. Following a meeting in Paris on Thursday 17 January of the finance ministers of Germany, the United Kingdom, France and Italy to look at how to respond to the turbulence on the money markets, a diplomat who had attended the meeting commented that it had looked at the same issues as discussed at the ECOFIN Council rather than inventing a whole new debate. The diplomat commented that it was the Commission, represented at the meeting by EU Economic and Monetary Affairs Commissioner Joaquin Almunia, that would be liaising with the Slovenian Presidency of the EU and the participating member states, adding that it was perfectly logical for several bodies to look at the same issues.
In Paris, the above-mentioned four member states that are in the G7 reaffirmed the solid nature of the EU's economic fundamentals. The crisis is not impacting on the real economy, said French finance minister Christine Lagarde. Almunia admitted that the risks bearing down on the economy had increased and could lead to a review of the EU's growth prospects. The ministers expressed their satisfaction at the attitude of the central banks, which have injected vast sums of liquidity into the inter-bank markets since the summer to enable lending agencies to continue funding their activity. They called on the banks affected by the credit crunch to rapidly reveal the extent of their losses generated by the financial crisis, which might total between USD 300 and 500 billion. A bill which banks should be able to meet from the mega-profits they accumulated in recent years.
The four finance ministers did not announce any real new measures. At this stage, it is question of making recommendations to their heads of state ahead of their meeting in London on 29 January 2008. Action suggested includes strengthening cooperation between financial market watchdogs to avert future crises. At international level, the International Monetary Fund might play a greater role and, as suggested by Alistair Darling, the British Chancellor of the Exchequer, a surveillance mechanism might be set up at the Financial Stability Forum. At EU level, cooperation between the national control authorities might be ameliorated at European committees (CESR, CEIOPS and CEBS). The need for better management of liquidity risks may be discussed, perhaps through work along the lines of that carried out on bank solvability that led to the Basel II Directive. The Paris meeting showed that the ministers were not unanimous in their attitude to financial rating agencies. Lagarde called for greater surveillance
of the ratings agencies, and German finance minister Peer Steinbrück said legislation was not required in this domain.
In terms of the EU, the Slovenian Presidency put financial stability at the top of its priorities for financial services (see separate article). In an annex to its six-month work programme, the Presidency details the work it is planning as part of an EU financial stability agenda. It notes that three roadmaps were adopted by the ECOFIN Council last year in the following domains: - the European response to the financial crisis (see EUROPE 9519); - reviewing the Lamfalussy Process to improve surveillance in the domain of financial services (see EUROPE 9557); - crisis management measures in the event of bankruptcy of a bank with cross-border activities (see EUROPE 9503). The ECOFIN Council in March 2008 will adopt an interim report on financial stability before the Spring Economic Council takes any necessary decisions. At its meeting in April, the ECOFIN Council is expected to sign a Memorandum of Understanding (MoU) on the management of financial crises to give more teeth to the first MoU (dating back to 2005) and to assess progress in cooperation between national control authorities. (M.B.)