Est. 4min 01-10-2008 (updated: 28-05-2012 ) US_house_of_representatives.jpg Euractiv is part of the Trust Project >>> Languages: Français | DeutschPrint Email Facebook X LinkedIn WhatsApp Telegram The European Commission yesterday (30 September) strongly condemned the US House of Representatives’ rejection of a $700 billion rescue plan, calling on Washington to assume responsibility for the global financial crisis that originated in the States. Meanwhile in Europe, calls for a coordinated EU approach to the turmoil are growing. Commission spokesperson Johannes Laitenberger described the vote as a “disappointment” and stressed that the US had a “special responsibility” to manage the global crisis because “the turmoil that we are facing originated in the United States”. Indeed, it was the collapse of several top US financial institutions in recent weeks – among which Lehman Brothers (EURACTIV 15/09/08), Washington Mutual and American International Group (AIG) – that shook European financial markets, prompting a range of emergency rescue measures this week. The European response has so far been carried out at national level for national financial institutions, such as Hypo Real Estate in Germany and B&B in Britain. For groups with a significant cross-border presence, a transnational approach has been favoured, as was the case this weekend for Fortis (EURACTIV 29/09/08) and Dexia, which yesterday received a €6.4 billion cash injection from the Belgian, French and Luxembourg governments. Amid criticism that the EU lacks the tools to respond to the crisis in swift and coordinated manner, the Commission stressed that the above examples demonstrated European authorities’ ability to respond effectively to the turmoil. Nevertheless, the fact remains that a truly comprehensive European approach is still lacking in the event of widespread failure of the banking system. If the crisis deepens, other large transnational banks may find themselves in need of rescue. Yet there is no agreement over who should pay for the bail-out in such collapses and it is far from certain whether EU governments are in a position to save everybody. Without a coordinated European approach agreed in advance, many fear that a crisis similar to that which emerged in the US following the government’s refusal to bail out Lehman Brothers could be looming, and that a ‘new Fortis’ could be left to collapse. To address the issue, French President and EU presidency holder Nicolas Sarkozy on Monday called for a meeting to be held in Paris before the end of the week, bringing together European leaders from the G8 countries (Germany, France, Italy and Britain), Commission President José Manuel Barroso, Eurogroup President Jean-Claude Juncker and the European Central Bank (ECB) President Jean-Claude Trichet. The meeting should precede a special G8 conference in the autumn to address the crisis, as called for by Sarkozy. In any case, European leaders will meet in Brussels on 16-17 October for the scheduled autumn European Council, while EU finance ministers will gather in Luxembourg next week for the monthly Eurogroup and Ecofin meetings. Barroso confirmed the need for a “structured European response” to the crisis, but details are still missing. All that is certain is that today (1 October), the Commission will go ahead with its long foreseen plan to strengthen the rules on banks’ capital requirements. The main aim of this is to ensure that banks have sufficient capital to cover risky operations in the future, especially in light of the current turmoil. Subsequently, and likely in November, the Commission will also propose tighter rules for credit rating agencies, considered to be among those most responsible for the crisis (EURACTIV 31/07/08). European banks have also reiterated their call for a “coordinated supervisory approach,” which was the main issue dealt with at the last informal Ecofin meeting in Nice, but any agreement is still a long way off (EURACTIV 15/09/08). European insurers echoed these comments and called for group supervision in the insurance sector (EURACTIV 17/09/08).The Socialists are calling for the ECB’s role to be beefed up to that of a common European supervisory body. In the meantime, eurozone inflation fell for the second month in a row to 3.6%, according to Eurostat estimates, confirming hopes that a peak was reached in July when it hit 4%. Nevertheless, many fear that the heavy injection of fresh money into the market, decided upon by the ECB on Monday, could have an inflationary effect in October. Read more with Euractiv Credit crunch hits European banks Top officials from Belgium, the Netherlands, Luxembourg and the EU held emergency meetings over the weekend to prevent bank and insurance giant Fortis from becoming the eurozone's first major victim of the global financial crisis. Subscribe now to our newsletter EU Elections Decoded Email Address * Politics Newsletters Positions"The United States must take its responsibility in this situation. They must show statesmanship for the sake of their own country and for the sake of the world," stressed Commission spokesman Johannes Laitenberger, reacting to the House of Representatives' vote. "The Commission expects that a decision will go through soon. US must take its responsibilities," he underlined during a press briefing. French Socialist MEP Pervenche Beres, who chairs the European Parliament's Committee on Economic and Monetary Affairs, stressed the need for Europe "to set up a policing mechanism to control our financial markets," pointing to the ECB. "The supervisory role of the European Central Bank needs to be beefed up. You can't ask the ECB to be the lender of last resort and to refuse to let it have an overall view of the accounts of the banks." "We will only be heard if we have an integrated European authority, based on the European Central Bank's model, representing the interests of the euro area. This would enable us to talk with the United States as an equal partner," she added. The European Banking Federation (EBF) also demanded the urgent establishment of a coordinated supervisory approach, while welcoming the swift cross-border response so far. "The recent and swift crisis management resolutions taken by three members states when a large cross-border financial group came under severe pressure is an encouraging demonstration that decisive intervention is possible," a statement reads, referring to the Belgian, Dutch and Luxembourg rescue plan arranged for Fortis. The EBF also attempted to reassure European savers, stressing that "in EU countries generally speaking, retail deposits are insured. In all member states they are covered by the domestic deposit guarantee scheme which forms an integral part of the prudential safety net". Michaela Koller, director general of the CEA, the European insurance and reinsurance federation, said: "While it is obviously still too early to learn definitive lessons from the current problems in the world’s financial markets, one message is clear: a piecemeal approach to the supervision of large financial groups does not work. Regulatory and supervisory regimes must reflect the risk and capital management of the entities they oversee. The future Solvency II regulatory regime must be able to identify the consolidated posures of insurance groups and, in this context, supervisors should be able to act in cooperation. If Europe’s insurers are to be encouraged to develop internationally, European regulatory and supervisory approaches cannot lag behind", insisted Koller. Germany, whose banking system is considered one of the world's most secure, looks ready to oppose any EU-wide solution, with a spokeswoman for the federal finance ministry yesterday stressing: "It's clear that all European countries affected by the crisis need to communicate with each other but it is also clear at the moment that in each national case, the individual governments are the ones best suited to finding the correct solution." In an analysis of the current situation, FT commentator Wolfgang Münchau stressed that while the US bail-out plan may not be perfect, notably because it would have addressed all banks indiscriminately regardless of whether their balance sheets contain toxic assests, risking a "debt explosion", he stressed: "While the Americans need a better rescue plan, the Europeans need a lot more: a system that could produce a rescue plan in the first place." BackgroundIn what came as a surprise to many, the US House of Representatives on Monday (29 September) voted against the $700 billion financial rescue package promoted by the White House. Supported by both presidential candidates, it was intended to support the strained American financial sector and attempt to avert a collapse of the whole banking system. The bill received 228 votes against and just 205 in favour. The main opposition came from the Republican party, which feared the measure could change the fundamentals of American capitalism. But many Democrats also voted against the bill, which is seen by many as requiring an unfair sacrifice by small savers to rescue "rich and greedy" Wall Street managers. The proximity of the presidential elections (4 November) is also likely to have played a key role in the House's decision. While Europe had already got a taste of the crisis imported from the US as early as last year with the rescue of the British mortgage lender Northern Rock (EURACTIV 10/10/07), the turmoil had largely remained contained in the UK, with no large continental groups affected. But the crisis knocked loudly on Europe's door this week, forcing EU and national authorities to rush to salvage giant Belgian-Dutch bank and insurer Fortis (EURACTIV 29/09/08), German lender Hypo, British lender Bradford & Bingley (B&B), Franco-Belgian bank Dexia and the main Irish banks (EURACTIV 30/09/08). Further ReadingEuropean Union European Commission:Recorded daily briefing(30 september 2008) European Parliament - PSE:Reaction to turmoil(30 september 2008) Eurostat:Flash estimate on September inflation(30 september 2008) European Central Bank:Refinancing operation(29 september 2008) Business & Industry European Banking Federation:Reaction to turmoil(30 September 2008) Blogs BlogActiv:"Have US legislators been touched by genius or madness?"(30 September 2008)
