After receiving the green light at the European summit last June (EurActiv 19/06/09) to draw up a minimum set of common rules, the EU executive yesterday launched its reform of financial supervision, triggered by the worst financial crisis since the 1930s.
But the Commission neglected to present a far-reaching, ambitious plan on the grounds that this would be watered down later on, preferring instead to wait for member states to give their go-ahead before tabling concrete proposals.
The result is a step forward from the current patchy European oversight system, which is fragmented across national borders and driven by local interests, and proved incapable of anticipating the financial crisis.
However, the solution proposed by Brussels lacks ambition and does not entail the establishment of a single EU supervisor, advocated by many experts as the only system capable of preventing future crises. Neither do the proposals give any indication of how to resolve the thorny issue of burden-sharing for bail-out plans should a cross-border institution fail.
The risk is that member states and the Parliament could even water down the proposals further when they vote on it in the coming months.
The Commission's proposals
The plan launched by the Commission calls for the establishment of two boards for macro- and micro-supervision.
A new European Systemic Risk Board (ESRB), composed of the central bank governors of each member state, will be in charge of spotting (macro)systemic dangers (such as asset bubbles) and issue warnings to the countries likely to be affected by potential crises.
The entire European Council should be alerted when a serious problem arises in a member state, especially if the national authorities in charge have refrained from taking appropriate measures.
However, the ESRB's intelligence-gathering system will rely upon national databases, which local authorities might choose to keep secret in case of trouble. Moreover, the strongest power of the board will be "moral (per)suasion" to push a state to behave. No binding powers are foreseen.
The second arm of the new EU supervisory architecture is the European System of Financial Supervisors (ESFS), which is meant to coordinate actions by national watchdogs and resolve possible cross-border disputes.
However, the plan does not guarantee the actual resolution of disputes about transnational banks or insurance firms in trouble. As it stands now, the proposal foresees the introduction of an appeal mechanism, which member states could turn to if they do not agree with decisions taken by the EU authorities.
In that case, it would ultimately be up to the EU Council to sort out conflicts by qualified majority vote. Many analysts agree that this is a cumbersome procedure whereby national interests are likely to prevail against the common good.
New appeal to G20
"Financial markets are European and global, not only national. Their supervision must also be European and global. Today we are proposing a new European supervisory system. Our aim is to protect European taxpayers from a repeat of the dark days of autumn 2008, when governments had to pour billions of euros into the banks," European Commission President José Manuel Barroso said in a statement.
"This European system can also inspire a global one and we will argue for that in Pittsburgh," he added, speaking ahead of today's beginning of the G20 summit in Pittsburgh, the third such gathering since the financial crisis hit the world in autumn 2008.
Barroso's call echoes an appeal launched by EU leaders last week at an extraordinary European summit in Brussels ahead of the G20. Their common document reads that "the G20 should commit to a globally coordinated system of macro-prudential supervision".
"The quality of cross-border (micro-prudential) supervision needs to be improved and the G20 should commit to work in a coordinated manner on this issue," the paper adds.
