Is the root-and-branch reform of the way the world of finance operates in Europe happening as fast as desired and in line with the planned timetable? EU institutions and other EU bodies have been working very hard on this and new advances will be made this very week. After the G20 Summit, I pointed out that: a) Europe had had a very strong, positive impact on the outcome (see newsletter 9877); and b) the EU itself has clearly committed itself to reforming the world of finance (see newsletter 9878). These two facts are encouraging but do not mean that there is no resistance. The devil is in the detail and the problems and disagreements arise when it comes to turning the broad principles and guidelines into draft operational legislation, as we see in the following three examples.
Macroeconomic supervision. The first meeting of EU finance ministers after the G20 London summit confirmed that there is a fundamental disagreement over how macroeconomic supervision should operate. The Larosière Report says the supervision should be carried out by a body chaired by the European Central Bank (ECB). Most ministers agreed but the British finance minister strongly opposed the idea. This is understandable - the United Kingdom is not in the eurozone and not represented at the ECB! How could macroeconomic surveillance work if the country that is the second strongest financial centre in the world is not included? Jean-Claude Trichet responded that all EU central banks would be represented in the mooted new committee. London, however, is challenging the idea of the ECB being given a key role in financial supervision. Reservations have also been made in other bodies, like the European Parliament, arguing that it is better not to mix the work of the ECB with the supervision of banks, and the ECB cannot monitor the insurance work that increasing numbers of banks are involved in. What will the European Commission suggest this autumn? There is also disagreement over the microeconomic aspects of the supervision system recommended in the Larosière Report, with a number of member states arguing that responsibility in their domain should remain with the individual member states.
Rating agencies. The credit rating agencies set-up is just as controversial. Nobody challenges the call for transparency and strong regulation to stamp out conflicts of interest - how could they after what has happened? But the authorisation procedure for rating agencies is controversial. The compromise discussed by the European Parliament in plenary this week (see newsletter 9881) makes the competent national authority responsible for making the final decision about the draft agreement. The Larosière Report recommends a greater role for the EU that some member states reject. The compromise would be a temporary measure and would be reviewed in the very near future. The European Commission would be invited to publish a report by July 2010 on whether a more European system should be introduced but some observers say the initial temporary system is not strong enough and therefore will not work effectively.
Tax havens. The third controversial area is tax havens. Pressure from Nicolas Sarkozy and other politicians led to a spectacular outcome, of course, but certain shortcomings and gaps were slammed. Over and above the comments from people too closely involved to be objective, it is striking that Jean-Claude Juncker, the chair of Eurogroup, sarcastically commented that there are three countries from the eurozone on the OECD's “grey list” (Luxembourg, Belgium and Austria) but the list does not include some of the United States (Delaware, Wyoming and Nevada), the Channel Islands, Hong Kong and Macao. “These gaps are probably because everything was done in a rush,” commented Juncker, echoing the statement by OECD Secretary General Angel Gurria, who said “more progress had been made in a fortnight than over the past ten years.” The general impression is that the attitude of the G20 and some countries of Europe (particularly France and Germany) will make it possible to tackle tax evasion and other tax issues more effectively.
Time is of the essence. Overall, the financial revolution in the EU is moving faster than anyone would have thought possible 12 months ago. But EU Commissioner Charlie McCreevy points out that the devil is in the detail, which is where member states batten the hatches and defend their own country's interests. It will not be easy to put the Commission's advice of sticking as closely as possible to the conclusions of the Larosière Report into practice. The European Parliament has an important role to play but only has a few weeks left. Time is of the essence.
(F.R./transl.fl)