Barroso rejects bold ideas for EU financial reform [fr] [de]

Background

Financial markets across the globe went into a tailspin following the US sub-prime mortgage crisis in early August 2007, forcing central banks to make massive cash injections to keep the system rolling and fend off a possible liquidity crisis. The situation became critical as the trouble spread across wider financial markets, affecting some of Wall Street's best-rated investments and plunging the US into recession. 

While Europe was initially not too badly affected by the turmoil, the crisis stormed into the continent at the end of September 2008. A number of EU countries were forced to apply emergency measures to salvage their banking institutions and avoid a collapse of the financial system, with the European Commission fast-tracking the approval of bank bailout plans to avoid a further collapse of confidence (EurActiv 2/10/08). 

Europe-wide guidelines on how individual countries should salvage troubled banks were hastily agreed during the crisis to prevent nations from adopting 'beggar thy neighbour' policies (EurActiv 7/10/08).

More on this topic

Despite positive signals by EU Economic Commissioner Joaquin Almunia earlier this week (EurActiv 04/03/09), Barroso vigorously dismissed the idea of issuing joint EU bonds, or EU-backed government debt, to raise money for troubled member states.

"I don't think it is useful to make speculations over ideas that have no chance at all of being decided," he told reporters yesterday (4 March) as he presented the Commission's proposals for an upcoming EU summit on 19-20 March.

Reacting to requests by some Eastern European member states and to mounting pressure in the media, Barroso also dismissed the idea of fast-tracking some EU member states into the euro zone (EurActiv 01/03/09).

"The revision of the accession criteria is out of the question. It is not at all on the agenda," he said, arguing that such a revision might provoke a destabilisation of the eurozone.

As widely expected, the Commission did not propose a single European financial watchdog to address the supervision shortcomings of an internal market dominated by cross-border banks and insurance firms, which are now monitored only at national level.

"It would not be realistic to think of a unique supervisor in Europe," Barroso said, echoing the conclusions of the high-level group on financial supervision chaired by Jacques de Larosière.

Commission to follow up on De Larosière report in May

The so-called De Larosière report last week (25 February) suggested creating a double-layer system, in which macro-supervision would be the competence of a new body under the auspices of the European Central Bank (ECB). Micro-supervision would instead be left up to ad hoc colleges of supervisors for each cross-border group, monitored by three new EU authorities and ultimately allowed to enforce decisions in the event of controversy (EurActiv 26/02/09).

"The Commission broadly endorsed the De Larosière recommendations," underlined Barroso. He also committed himself to presenting, by the end of May, proposals to immediately establish the new authorities, rather than waiting for a three-year transition period as suggested in the report.

However, the establishment of the new authorities is a long way from representing a revolution in the European supervisory architecture, since the new bodies will be enhanced versions of the existing EU committees for the oversight of banks (CEBS), insurance firms (CEIOPS) and securities (CESR).

Moreover, it is still unclear how far they will be able to go in imposing decisions on colleges of supervisors of specific multinational groups. In many cases, such colleges have not even been set up yet.

In the document endorsing the De Larosière report, the Commission also confirmed its commitment to present in April a "comprehensive legislative instrument" for hedge funds and private equity, and a strengthened recommendation to review financial managers' fees.

The document also announces further measures for the coming months on derivatives, retail investment products, protection of bank depositors and improving the quality and quantity of the capital held by financial institutions to prevent insolvency.

Meanwhile, an initial agreement was sealed yesterday between EU diplomats on the revision of the rules governing rating agencies, as proposed by the Commission last November (EurActiv 13/11/08).

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