Brussels, 06/04/2009 (Agence Europe) - Meeting in Prague on Friday 3 April 2009, EU finance ministers and European Union central bankers stressed the importance of a coordinated budget consolidation policy as soon as the economic situations permits. On Saturday, they reached agreement in principle on the need to strengthen the EU's financial supervision system despite strong resistance from the United Kingdom over the powers of the bodies mooted by the Larosiere Group (see EUROPE 9876).
Respecting the Stability and Growth Pact. The ECOFIN Council examined the excess deficits noted by the European Commission in four Member States (Spain, France, Ireland and Greece) and the different timescales suggested by the Commission for these countries to bring their public finances back within the upper limits set by the Stability and Growth Pact (SGP) (see EUROPE 9868). The Council examined Cyprus' revised programme, over which a formal decision will be taken in May 2009. Czech finance minister Miroslav Kalousek said it was important for the EU to be credible in terms of respect of the SGP and this required budget consolidation as a priority, along with the introduction of a coordinated strategy for solving excess deficits. EU Economic and Monetary Affairs Commissioner Joaquin Almunia said the economic recovery and stimulus strategies had to be coordinated. The President of the European Central Bank (ECB), Jean-Claude Trichet, said the EU had to have a credible medium-term strategy for getting gout of the economic crisis with stable roadmaps. He explained that unity of diagnosis and unity in action would be essential.
The ministers discussed the question of how to value toxic assets. Kalousek said that the cleanup of banks and other financial institutions' balance sheets was the work of national governments, which would work according to their own timetables while avoiding too much heterogeneity and making nonsense statements. The decisions to be taken were in the hands of national governments but all the same, this is an area where coordination is necessary at EU level, added Almunia, mentioning the special guidelines issued by the Commission at the end of February 2009 (see EUROPE 9848).
IFRS standards. The United States' IASB, responsible for accounting standards, is in the process of drawing up new standards to make the evaluation of illiquid assets more flexible, which may give US financial institutions a competitive edge over their EU counterparts, which use IFRS standards. In a statement, the ministers called “on the IASB to cooperate closely with the FASB in order to immediately address these issues, with the aim of achieving equivalent treatment and application of parallel standards in the IFRS and US GAAP systems, in order to avoid risks of competitive distortions emerging.” Describing the FASB's decision as “regrettable,” EU Internal Market Commissioner Charlie McCreevy said that if the EU did nothing, there would be an unfair playing field between what US companies are allowed to do and what EU companies are allowed to do. The decision highlights the problems in establishing genuine cooperation over financial regulation at global level.
Supervision. The ministers and central bankers held a preliminary discussion on the Larosiere Report that recommends a two-stage EU financial supervision system (see EUROPE 9876). The ministers recognised the need to strengthen the macro prudential side of the system, explained Kalousek, by setting up a European Systemic Risk Council under the aegis of the ECB, as an early warning system for macroeconomic risks jeopardising financial stability. The specific details of the new system will have to be negotiated in detail, acknowledge Kalousek. Trichet said that the ECB was prepared to take such macro-prudential responsibilities on board, pointing out that this would cover all Member States (whether in the euro or not). He said the recommendations for a new body should be taken seriously by those they were aimed at, who would have explain themselves if they did not follow the recommendations. Agreeing with the idea of setting up a body responsible for systemic risks, the United Kingdom does not want such a body to be chaired by the ECB. Reuters reports that French finance minister Christine Lagarde called for a 'united front' in the talks because the UK could not be left out of the system.
In order to improve supervision of the fifty-odd pan-European banks and financial institutions, the Larosiere Report recommends turning the three committees of national regulators (CESR, CEBS and CEIOPS) into EU authorities with coercive powers. McCreevy forecast that the devil would be in the detail of how things were implemented on the micro level. Opinion is far more divided over micro-prudential issues, he explained. Kalousek said he had asked the European Commission to come up with ideas in May 2009, to be discussed at ECOFIN in June and the first decisions taken by the European Council in June this year. The idea is for details of the changes to be decided upon this year, in order for them to come into force in 2010. (M.B. trans fl)