In light of the financial crisis, which according to Lannoo revealed "important shortcomings in the regulatory framework," EU finance ministers agreed on a new supervisory structure for the bloc. These reforms "broadly implement" earlier proposals made by an expert group on financial supervision in the EU (chaired by Jacques de Larosière), believes the CEPS analyst.
The new structure is comprised of four new regulatory bodies: the European Systemic Risk Board (ESRB) and three authorities under the umbrella of the European System for Financial Supervisors (ESFS). The ESFS comprises three "functional authorities," Lannoo writes: the European Banking Authority, European Insurance and Occupational Pensions Authority, and European Securities Authority, supervised by a steering committee.
The CEPS chief notes that the ESRB will be "at the centre of the new system," despite only being a consultative body. It will be positioned in the European Central Bank (ECB), by which it will be "controlled" because it will rely on its analytical and administrative skills. This puts central bankers, rather than finance ministers, "in the driver's seat," Lannoo reckons.
Furthermore, Lannoo argues that the ESRB will strengthen the ECB in another sense, because through the ESRB it will have access to micro-information and analysis on the European economy from the ESFS.
However, establishing the ESFS remains a "daunting task," declares the brief's author. He emphasises that, compared with the ESRB, the authorities can "hardly rely on an existing structure" to build upon, but notes that the Lisbon Treaty, if passed, should "facilitate" the implementation of the overall framework.
But Lannoo is concerned that the regulatory workload will be "magnified significantly," while the new "extensive supervisory tasks" of the ESFS could clash with member states and "raise the question of the powers of the agency".
The paper calls for other elements of the economy to be reformed to "get consumers back on board" regarding the single market project, which he says the recent economic turmoil has "called into question".
The CEPS researcher predicts a tough time ahead for the European Parliament, which faces the "dual challenge" of the regulatory agenda and pushing through legislation to adapt the institutional structure as required.
Lannoo stresses the need for a "forceful and credible commissioner in charge," which he deems a "prerequisite to a credible European agenda". Outgoing Internal Market Commissioner Charlie McCreevy had "lost all credibility" by the end of his term, the analyst laments.
The paper raises the prospect of "re-distributing" the internal market portfolio, arguing that financial services deserve a commissioner in their own right during the coming period of systemic reform.
Lannoo calls on the European Commission should present draft legislation "by early autumn 2009 at the latest," clearly setting out the all the details for the "new entities", and balance this with existing consultations, such as those resulting from G20 commitments.
He concludes by warning that due to "the financial crisis and […] large state aid packages," "market integration is declining and competition diminishing" and it will be no easy task to restore the single market.
