Brussels, 24/09/2008 (Agence Europe) - On Tuesday 23 September, the European Parliament endorsed without amendment the own-initiative reports by Poul Nyrup Rasmussen (PES, Denmark) and Klaus-Heiner Lehne (EPP-ED, Germany) on hedge funds and private equity (see EUROPE 9745). The reports call on the European Commission to take legislative measures by the end of 2008 with a view to ensuring greater transparency in the activity of financial operators. Going beyond the framework of hedge funds and private equity, the Rasmussen report sets out the main measures being prepared at European level in order to ensure financial stability. These are a review of European rules setting out capital obligations for banks and registration of credit rating agencies. The Greens/EFA Group, whose amendments were all rejected by MEPs, voted against the final report denouncing the fact that Mr Rasmussen's praiseworthy attempt had been torpedoed by Christian Democrats and Liberals. In early October, the EP will adopt another own-initiative report on development of the framework for overseeing the financial sector (see EUROPE 9738).
“The EP leads reflection on whether there should be better regulation of financial markets”, Mr Rasmussen said after the vote, welcoming the fact that most MEPs had supported his report. Of course, he said, they had not obtained everything that they wanted but the message is clear: - regulation must affect all financial players. The EP therefore requests that regulation make it an obligation for financial players to hold own funds for investment made by them. It also limits the possibility of disproportionate indebtedness, attacks remuneration systems that favour excessive risk-taking, and ensures that employees of companies acquired by financial institutions are informed, including hedge funds and private equity. According to the rapporteur, Commissioner McCreevy responsible for the internal market, promised that he would respond by the end of 2008. The dossier could even be on the European Council table in October. Was the United States right to use public money to save its banking system? If a problem of this dimension takes place in Europe, society should intervene in order to avoid devastating effects in the real economy, Mr Rasmussen said. He hoped that, one day, a European surveillance authority of transnational financial groups would be created, although the political will for this does not exist today. The first step towards a European supervision culture will be through increased cooperation on the part of European committees of national regulators.
Although they acknowledge the need for greater transparency of financial markets, Christian Democrats and Liberals want to avoid at all cost a disproportionate reaction that encompasses an over-large range of financial players all in one go, including hedge funds and private equity. “While we must ensure full transparency and openness, a one-size-fits-all knee-jerk reaction at the European level should be resisted”, said John Purvis (EPP-ED, UK) during the plenary debate. Kurt Joachim Lauk (EPP-ED, Germany) took the view that one should not simply stick to American standards but rather find “European solutions” to the financial crisis. Speaking for the Liberals, Sharon Bowles of the UK said that “to target hedge funds and private equity specifically for regulation is not the right approach”. In her view, time should be given to “codes of conduct” recently adopted by hedge funds. Nonetheless, Mr Lehne himself denounced the fact that, in this crisis, gains are privatised but losses are nationalised. US Secretary of State for the Treasury Henry Paulson uses billions of dollars to repair the damage caused by his own sector, he said ironically (Ed: during the early 2000s, Paulson headed the US investment bank, Goldman Sachs). “Salaried workers should not have to pay up twice, Mr McCreevy!”, said Harald Ettl (PES, Austria), convinced of the markets' inability to self regulate. Pierre Jonckheer (Greens/EFA, Belgium) accused Mr McCreevy of having defended the laissez-faire attitude. “The EP asks you to have a change of heart: hedge funds and private equity are not adequate for the long term investment that the economy needs”, he stressed.
Mr McCreevy spoke of the European work underway as part of the roadmap adopted by the Ecofin Council in October 2007 (see EUROPE 9744). He is expected, among other things, to present a legislative proposal on 1 October amending the European Basel II directive on capital requirements applying to banks. He maintained his usual position hostile to any European regulation of hedge fund and private equity activity, as these are already regulated at national level. He said: “I don't believe it is necessary at this stage to tar hedge funds and private equity with the same brush as we use for the regulated sector. We should not make the mistake of perceiving all activities of hedge funds as a threat to the market but we should also be aware of the positive effects that their activities have. Let me be clear, the EU economy is going to need massive investment in the time ahead: without SWF (sovereign wealth funds), private equity and the like, Europe's recovery from today's turmoil will be all the slower”. (M.B./transl.jl)