Moving towards a tactical answer to three questions. Leaving technical aspects to one side, the question of EU supervision of the behaviour of individuals in the world of finance can be summarised in three questions. Should binding rules be introduced? Should there be tough and genuine monitoring that the rules are being applied? Given that the European financial market is united as part of the EU and the euro applies to most countries, should the surveillance have an essentially European character or should it remain essentially national? These questions will have to be answered by the European Council next week (see my column in yesterday's newsletter).
The need for rules and discipline is recognised everywhere in the EU and around the world (apart from a few tax havens) and new rules are being drawn up. Significant progress has already been achieved but it will take a long time to gradually decide on a world system. At their summit, EU heads of state will focus on financial market surveillance.
US banks want to return to the old days. Meanwhile, some banks are asserting their autonomy over how they are managed and are shaking off the constraints imposed on them by government in return for the massive bailouts they negotiated when they ran the risk of going under. In the United States, moves in this direction are official because the Treasury has to authorise the reimbursements. Treasury Secretary Timothy Geithner announced this week that he has given the go-ahead for $68 billion of reimbursements, and the press cited the banks concerned - Morgan Chase, Goldman Sachs, Morgan Stanley and so on. Smaller banks have already paid back around $2 billion. The important issue here is why the banks have paid back these sums so quickly. According to a recent debate in Congress, the banks' aim is to avoid strict regulation of the markets and want to shrug off measures restricting salaries and bonuses (limits were introduced for banks receiving public funding). Basically, the banks want to return to their old freedom to run their businesses for purely financial gain - in other words, to return to the days of market manipulation and massive bubbles that created the huge piles of wealth in the past, out-of-kilter with funding of the real economy.
A strong call for strict surveillance in the EU. In Europe, banks are not being open about such aims, even in the United Kingdom, despite the importance of the City of London in the country's economy. The British government is not against introducing rules but it does give the clear impression that it wants to keep powers in its own hands rather than having to submit to monitoring by the EU and control by EU authorities. Some politicians are expressing their views openly. Italian Finance Minister Giulio Tremonti, for example, when asked about the way most banks have returned to liquidity but are still not investing in the real economy, answered: “Perhaps the banks prefer investments of a financial nature,” adding that the bailouts were “not being transferred, the way they should, from the financial economy to the real economy”. Talking of the funding provided by the European Central Bank, Tremonti said it was “circulating in closed systems”.
It is now the turn of heads of state and the president of the European Commission to speak. Some sources suggest that Angela Merkel and Nicolas Sarkozy are planning to take a hard line and call opening for binding rules and even stricter surveillance than the European Commission is suggesting. In France, the chair of the French Financial Markets' Authority, Jean-Pierre Jouyet, has openly called for tight EU discipline and EU monitoring with the power to enforce rules. I quote: “In the long-term, we need EU agencies with wide powers to ensure the same rules are applied in the same way by everyone.”
It should be noted that in Europe at any rate, the banking world itself is not unanimous in calling for a return to the old rules and surveillance methods. Some banks, explained Etienne de Callataÿ, Chief Economist at Belgium's Degroof Bank, want “root-and-branch reform; even within the financial sector, and some no longer want to suffer because of their colleagues' bad behaviour”. I hope that his views are widely held in the financial world. Whether or not that is the case, it is time now for political leaders to speak out.
(F.R./transl.fl)