After a long year of negotiations between member states on how to insulate the EU against another crash in financial markets, the onus is now on Parliament to scrutinise draft financial regulation.
On the whole, MEPs agree they either want to preserve or strengthen the European Commission’s proposals and reject their dilution by the EU Council of Ministers, which represents the EU’s 27 member states.
MEPs also predict fractious 'trialogue' meetings to take place in May 2010 when all three EU institutions will convene to hash out compromise agreements.
Babysitting supervisors
MEPs have and will continue to voice their most vocal opposition to the Council’s amendments to new bodies intended to beef up EU powers on financial supervision.
A European Systemic Risk Board, which will hold a "moral power" over unruly financial institutions, and three European Supervisory Authorities – for banking, securities and pensions - have according to MEPs, been considerably diluted by member states.
The UK stalled negotiations on the supervisors as the country’s Treasury argued it would lose fiscal sovereignty (EurActiv 21/10/09). Specifically, Britain managed to obtain the deletion of two articles which would allow the EU to directly supervise certain financial institutions" (EurActiv 03/12/09).
Investment funds in the spotlight
The second most contentious proposal is the hotly debated law to regulate hedge funds, private equity houses and venture capital associations, funds that have been barely scraped by EU regulation in the past.
The Swedish Presidency, which has been actively redrafting the Commission’s April draft, also stands accused of capitulating to a London-based lobby of investment managers and conservative politicians (EurActiv 09/11/09).
The Presidency has handed its successors, the incoming Spanish Presidency, a largely unfinished version with question marks hanging over depositaries, valuation, remuneration and non-EU funds.
The Parliament’s Economic and Monetary affairs committee will probably produce a radically different text to the Commission and the Council Presidency, say Parliament insiders, suggesting MEPs will push for stricter borrowing limits and pay restrictions.
Credit rating agencies
The only proposal to get a swift agreement from all parties was the supervision of credit rating agencies, whose over-valuation of toxic assets is believed to have inflated asset bubbles.
Rating agencies, like Moody’s and Standard & Poor’s, will now have to register with the EU and will be closely watched by an EU regulator.
Redirecting derivatives
The regulation of derivatives, assets that get their value from underlying assets, have also been castigated for allowing companies to trade bad debt and inflate asset bubbles.
Instead of being exchanged privately ('over the counter'), a commission proposal wants to establish central clearing houses to act as an intermediary.
MEPs say derivatives are not part of a live proposal yet. The Commission is expected to produce a draft law in July (EurActiv 24/11/09).
This is one of the least contentious proposals as on the whole, Parliament, Council and the Commission agree that derivatives should be traded publicly.
Resurrection of the Tobin tax
On the subject of a financial transactions tax, the Parliament appears to be ahead of its executive Commission by hosting hearings on how such a levy could move from idea to policy (EurActiv 03/12/09).
Policymakers warn caution though as the US is firmly against a so-called Tobin tax despite European bigwigs France and Germany being firmly in favour and Britain only loosely following behind.
Without the US treasury on side, a Tobin tax in the EU or the European Economic Area (the EU plus Norway, Iceland and Liechtenstein) would push investment away from the EU at a time when GDP has already fallen a record 4%, say its opponents.
The future of the tax is uncertain as the Commission is in the very early stages of examining its benefits and will await a report from the International Monetary Fund due in mid-2010 on measures to rescue public finances, including a Tobin tax.
Dominic Strauss Kahn, the head of the IMF, recently said he could support a one-off tax on a small share of financial transactions.
Monti to relaunch single market
To round off a year of talks, parliamentarians also met with an old hand who raised an age-old single market paradigm likely to divide opinion.
In October, Barroso asked former Italian Competition Commissioner Mario Monti to suggest a way forward to address protectionism and complete the Union’s internal market.
The former commissioner’s report is intended to inform policy in next year’s internal market portfolio led by French politician Michel Barnier.
At a meeting with the European Parliament’s committee on internal market and consumer protection last week, Monti echoed earlier sentiments that the single market depended on lowering tax rates and doing so in a co-ordinated way.
France and Britain’s new tax on banker’s bonuses has set an example to the rest of Europe that cooperation is possible, said Monti.
Lowering tax competition between EU countries, would allow governments to pay for social policies endangered by dwindling public finances. This could mean agreed minimum tax rates, he suggested, notably on capital and corporate profits.
But opposition from the low corporate-tax dependant Anglo-Saxon and Central Eastern European countries of the EU renders tax-coordination impossible, argue observers. The European Parliament is split into two camps on tax – those that want co-ordination, a minority, and those that want competition, the majority.
