What supervision means. Institutional questions have dominated Community affairs over the last few days: elections, composition of the new Parliament, appointment of the new European Commission and so forth. Yet at the same time the EU is deep in dossiers of the utmost economic and political importance. Next week, the European Council will have to give its verdict on a sensitive aspect of energy policy and relations with Russia (involving the stability of Russian gas supplies transiting the Ukraine, EUROPE 9911). It will, above all, have to give its view on a crucial aspect of financial reform: supervisory mechanisms and the behaviour of the actors in this sphere. I would like to focus on some aspects of the latter.
The importance of supervision is obvious. The best rules and regulations would be pretty meaningless in the absence of any efficient supervision of their application. The European Commission reaffirmed the importance of this dossier by presenting the guidelines during a press conference attended by President Barroso and the two commissioners directly responsible for the issue (EUROPE 9909). Its guidelines largely follow the conclusions of the Larosière group that it had previously set up, and consolidate certain aspects of the timetable, as well as some European competencies. The Commission is calling on the European Council to endorse its guidelines, which would enable it to transform them into legislative proposals next autumn, with a view to their entry into force before the end of 2010. President Barroso again reaffirmed this on Tuesday by appealing to the heads of state and government to endorse and define a work programme for the swift adoption of the legislative proposals for defining the supervisory architecture.
A contested presidency? Our readers are familiar with the main contents of the project and the major reactions it has produced, as well as the detailed results of the preparatory debate that has just taken place at the Ecofin Council (yesterday our bulletin provided a comprehensive report on the issue). Ministers observed a fairly broad agreement on the general orientations but a few important aspects still have to be decided on by the heads of state and government. According to the Commission's draft, the body responsible for macro-economic supervision would be presided over by the president of the European Central Bank (ECB). This has provoked a number of misgivings among the British and other member states which are not in the eurozone or the ECB, and which believe that the president of this body should be appointed by the Ecofin Council. The European Commission issued a two-fold response: a) all central banks, including those of member states not in the eurozone, would be part of the structure in question (ESRB, the European Systemic Risk Board) and they would decide by simple majority voting, without any vote-weighting; b) the ESRB will not have any binding powers and will mainly be a body for raising the alarm and issuing warnings and recommendations. The Ecofin Council, on which all member states have a seat, will be its main interlocutor. The European Council will have to decide between these two positions.
Binding decisions? As for the body in charge of micro-economic supervision on a daily basis, the ESFS (European System of Financial Supervisors) will be able to impose its decisions on the cross-border activities of a few major banks that are active in several member states, following attempts at arbitration among the national supervisors. The United Kingdom and a few other member states oppose decisions being made binding, as indicated in yesterday's bulletin. Most micro-supervision will, in any case, be within the remit of national supervisors, given the fact that 99% of financial establishments work at a local level and a single European supervisor would be too remote from these establishments to supervise them.
The key question. It is normal that the Commission's draft was criticised from the opposing side too. Some quarters believe it is too weak and does not give European supervision any real powers of a binding nature like decisions made by the ESRB and ESFS or the power to impose sanctions. Others, led by the United Kingdom, believe that this project excessively encroaches upon national autonomy. The divergences sometimes assume a very technical appearance but actually underpin the key questions, of which the main one can be summarised thus: To what extent can financial self-regulation continue? This will be this column's subject tomorrow.
(F.R./transl.rh)