A minimum of restraint is necessary in order to provide a balanced assessment of a text that is as diverse and dense as last Saturday's mini-summit declaration on the financial crisis and orientations to tackle it. The immediate reports emphasised one or other aspect, according to the priorities of the commentator and public expectations, to the detriment of a global overview. An overview, in my opinion, should take into account the following aspects:
1. Distinguish immediate strategy from medium and long term aspects. Urgent measures to tackle risks of the banking system collapsing and to re-establish confidence by reassuring customers of its immediate application, while the strategy to create a new financial and monetary system requires time and represents a long term objective consisting of two aspects: deepening and revising European legislation and the definition of a new world system, which is now generally called a new Bretton Woods.
2. Immediate strategy applied and is seen by all. Measures and initiatives to control the situation continue, sometimes resoundingly, in the different member states, according to each of their specific demands, together with Community level coordination, the active participation of European financial instruments and in respect of certain common principles. This respect is often denied or barely known and certain slippages have effectively been observed but in general there is a double point of view, as indicated in point 7 of the Paris Declaration:
a) the validity of the Stability and Growth Pact is confirmed, with, nonetheless, the observation made that its application must reflect the exceptional circumstances of the moment in time. The notion of “exceptional circumstances” is in the pact itself and the declaration affirms that everything must be done in accordance with pact application rules;
b) the Commission will be flexible in state aid decisions, given the exceptional circumstances but will maintain the principle of the single market and systems in force. The Commission defined a few internal orientations on the action of the commissioner for competition, Neelie Kroes, and her directorate general.
3. Community financial instruments involved. The European Central Bank (ECB) has already injected €420bn into the banking system to ensure liquidity, and the European Investment Bank (EIB) will make €30bn available in loans to small and medium-sized enterprises (SMEs) and enhance its intervention capacity in infrastructure projects. The EIB increasingly appears to be a precious and effective instrument for Community economic policies; this column will return to this subject.
The project for a new colossal Community fund to finance and prevent the bankruptcy of banks experiencing difficulties had no chance of getting through because it would have involved the risk of financing member states that do not respect the rules of the stability pact, as well as those that do. It would also have been outside any efficient European procedures. An initiative of this kind will only come into being once the norms of the stability pact are respected by all and the institutions function more effectively. The Community financial instruments mentioned are there and they are efficient. It should not be forgotten that they are managed by the competent national authorities (the Council of governors at the EIB consists of finance ministers, and the decisions by the ECB are taken by the governors of the euro zone central banks but in a European context that guarantees the spirit and awareness of the common interest.
4. New European legislation in the making but will need time. The strengthening and revision of Community rules on financial questions has been going on for a long time in accordance with the well-known road map. Only last week, the Commission presented significant proposals; others will follow (including those on ratings agencies). The Paris declaration affirms the determination to speed up implementation of the road map by indicating the priority of transparency and security of “derivatives” operations. Approval, however and the entry into force of the new panoply of instruments cannot simply be improvised. The European Parliament intends to play an active role, and it is right to strive and work out compromises that will in several areas be necessary but which are difficult to define, given the political and national differences. Extreme or excessive positions taken will not help the enterprise and all parliamentary groups should be aware of this and take the political reality at the European Parliament into account. The need to improve and strengthen rules is acknowledged by all. Everyone, therefore, should work together to get it to succeed as soon as possible. Some positions give more of an impression of the polemic in the future election campaigns than taking into account Parliament's current situation.
5. Second medium and long term aspect involves possible new Bretton Woods to define strengthened rules at a world level.
This column has already looked at and resumed a few of the orientations on this subject of the acting president of the European Council, Nicolas Sarkozy, and the minister who will be presiding over next year's finance minister level G8, Giulio Tremonti (EUROPE 9753). The Paris declaration was more modest and limited itself to outlining a “real and comprehensive reform of the international financial system based on principles of transparency, banking solidity, responsibility, integrity of global governance. It also launched an appeal for a world summit as soon as possible (paragraph 14 of the declaration).
This cautiousness undoubtedly indicates that opinions are not unanimous on the principle and modalities of such an initiative, as well as the determination of establishing what the US position is (which implies waiting until the new US president is appointed) and that of Japan, which has been hesitating. DominiqueStrauss-Kahn, the director general of the International Monetary Fund (IMF), already took a position at the end of September in favour of radically reforming the global financial system by underlining the IMF's role in setting up a system based on transparency and control. The IMF should be the architect of this and then its major regulator.
That said, the idea of expanding the G8 to major emerging countries, was not mentioned in the declaration. It is known that several figures are dreaming about transforming it into the G14 by inviting the six major emerging countries to join it. This column mentioned five of them: China, India, South Africa, Brazil and Mexico. For the sixth, two names, to my knowledge, have been mentioned: Indonesia or Egypt.
The enlargement of the G8 and the new Bretton Woods, are obviously colossal questions that require time and patience and on which opinions diverge. They should not, however, be left out.
6. Ethical aspect not forgotten. Integrity figures in the principles of the new world financial system stipulated in the Paris declaration (see previous point). In addition to this reference, however, all of paragraph 16 focuses on the responsibility and integrity of senior directors, with a reference to how they are paid.
Attempts to reintroduce financial market management behaviour criteria have been emphasised on many occasions. Excesses exceeded the imagination and were denounced by figures from all political camps (this section described the reactions of Valéry Giscard D'Estaing and Jean-Claude Juncker). In a letter addressed to José Manuel Barosso on 10 September, Nicolas Sarkozy wrote: “Financial Europe cannot be abstract with ethical rules, morality or responsibility”. He has said this on several occasions.
7. Manufacturing goods must become priority again. Cleaning up the financial system must at the same time lead to economic transformation and in Europe re-establish the priority of producing goods over financial activity in itself. This is not a new debate. In 2002, there were particularly lively exchanges made in the Community institutions and conclusions for making the manufacturing sector into the basis of the EU economy. The president of the Prodi Commission concluded: “I am pleased that the real economy swept away some erroneous opinions…Industry is the source of European prosperity”. According to some financiers in London, Europe should have left a large part of the task of producing goods to other continents but conserve the noble aspects of industrial activity such as devising financial products and management. In effect, Tony Blair signed the final document alongside Mr Schröder and Mr Chirac. So far, the position of the British authorities still appears unclear.
8. Respect Community procedures. The Paris mini-summit, to a certain extent, represented a break with Community procedures because only four member states were there. This was justified on the basis that it involved the four European countries in the G8, as well as the Community institutions (Commission, Eurogroup, European Central Bank). Spain and the Netherlands did not hide their dissatisfaction. This is why it is important that the Eurogroup and Economy/Finance Council have been organised on Monday and Tuesday, so that each member state is able to express itself and the conclusions become common conclusions.
(F.R./transl.rh)