Announcements of doom and gloom not borne out. The facts are increasingly justifying the idea that the monetary and financial crisis, besides the difficulties everyone is talking about, will have positive effects in the medium and long term: creating political awareness about the inadmissible aspects of the previous situation and a radical improvement in global financial management.
The negative repercussions of the crisis will certainly last and will have to be tackled, but the announcements of doom and gloom from financial pundits should not be taken as read. The effects on growth are not, in Europe, at least, as disastrous as announced; international bodies, including the IMF, were wrong, EU analysts were right. During the first half of the year, Germany's economic performance was its best since 1996. The banks that had not gone beyond a reasonable level of risk or abusive behaviour are managing to limit their losses and gradually balance their books again. When the crisis is overcome, the world economy will have a more fair and efficient financial governance than the one that has just shattered. Those who have perverted the real role of banking will have fewer profits and benefits, and will be better controlled. The real economy will be able to breathe again. Losses endured by financial bodies, which in the past benefited unscrupulously from the fruit of their speculation, should not be confused with losses incurred by the real economy; even if in the statistics the data is mixed up and the credit crunch can create difficulties for everyone (in some of the cases we've seen the central banks, including the ECB, intervene).
An encouraging display. In the EU, despite the difficulties and divergences, a detoxification is underway. The display of new rules and instruments currently being developed is encouraging, and the work of the Eurogroup and the Economic and Finance Council prove it. Our readers have been able to follow these developments and I'll just come back to the subject to underline that the projects retained by the ministers go further than the strictly financial domain (market transparency, monitoring, how the rating agencies work, rules regarding the activities of third countries' sovereign wealth funds, etc) because they also cover other subjects that were previously ignored, such as: a) the EU's new customs strategy (with greater enforcement against counterfeiting and fraud, as well as improved safety of imported goods and trade); b) the goal of introducing “good fiscal governance” into agreements with third countries, not only those that are already linked to the EU through bilateral agreements - Switzerland, Monaco, Liechtenstein, Andorra and Switzerland - but also other third countries, notably those from Asia - Singapore, Macao and Hong Kong - as well as some former European colonies. The Commission's analysis indicates that savings deposited in these countries largely continue to escape European taxation (EUROPE 9659).
The indignation of Jean-Claude Juncker. Differences clearly persist on what regulation and rules should be introduced but the intention of setting up a binding European system on standards (and not only orientations to be introduced by interested parties themselves) appears to be making progress. The tone of Eurogroup President Jean-Claude Juncker with regard to abuses committed in the financial world, bore out the determination to take action. In his 13 May press conference, Juncker did not mince his words when he spoke about the abusive pay packages the big bosses of the financial world sometimes award themselves. He alluded to the “really scandalous slippage” and “social scourge” (EUROPE 9660), explaining that “we are running the risk of not being understood by our citizens when we launch appeals for wage moderation while company bosses do the opposite”. European Commissioner Joaquin Almunia pointed out that a recommendation from the Commission already contained indications on this subject but had obtained no result at all. The Slovenian Presidency of the EcoFin Council announced that measures would be examined in the second half of the year under the French Presidency in an effort to introduce some “morals to capitalism”. This objective raised a number of scandalised reactions in the press (while the reaction of entrepreneurs proved more dignified). Mr Juncker, however, explained that these intentions referred to tax instruments. There is also the question of action to take with regard to golden parachutes (the amounts of which, as we are aware, sometime beggar belief) and the stock option system. Two member states, Germany and the Netherlands, are currently elaborating tough fiscal policies and positive reactions are coming out of France and Italy. The EU's goal is to define orientations at a Community level and then target global levels.
Misgivings remain. Progress has not always been easy. Ministers themselves, are not keen on losing certain national competencies. The idea of the Eurobond to finance major European public works projects (the idea had already been launched by Jacques Delors) will, according to the experts, have no chance of succeeding because several ministers reject the idea of public European debt that escapes their control, but for which their countries would also share responsibility. This project is supported, above all, by member states that are the most in debt or the least rich. The idea of common EU representation in the major international financial institutions, notably the IMF, does not have much of a chance of moving forward in the foreseeable future. Jean-Claude Juncker pointed out, with his usual irony, that several political leaders, after examining the dossier, acknowledged that it would be reasonable and they are in favour of it in principle…until the day when they, in turn, become the respective minister for finance…
Greater understanding. Generalised scepticism has, however, been misplaced; the fact of discussing together, in itself, allows for a greater understanding of a neighbour's point of view and helps facilitate solidarity. Indications emanating from Paris confirm that France has abandoned the idea of reducing the independence of the European Central Bank or amending its mandate. Strengthened dialogue between the Eurogroup and the ECB is now a recognised goal.
Surveillance of the banking system, in all its different aspects, remains at the centre of the discussion, particularly with regard to sharing responsibility between the national and European surveillance authorities. A single European regulator appears unthinkable but it is widely accepted that purely national systems are insufficient and sometimes inefficient because the activities of the major banks go beyond the national framework, as they are active in the whole of the EU. Banking crises cannot be managed by European instruments any longer, a system providing all the necessary information and allowing for rapid decisions is indispensable. Work on this is actively taking place. It is now possible to believe in it. (F.R.)