Europe’s harmony overdose

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

EU harmonisation does not make sense for every aspect of financial regulation, argues Mojmír Hampl, vice-governor of the Czech National Bank and a member of the EU's Economic and Financial Committee (EFC).

The following contribution is authored by Mojmír Hampl, vice-governor of the Czech National Bank and a member of the EU's Economic and Financial Committee (EFC).

"One pillar of the European Union's single market is harmonisation. At first sight, that makes a lot of sense. Harmonised systems of rules make it easier for capital and labour to move around in search of their best use.

Alas, some Europhiles' unifying zeal has all too often spilled beyond the bounds of economic reason, even common sense. More unification and harmonisation does not necessarily lead to effective – or even reasonable – solutions to the EU's troubles.

The main point of the new European regulatory measures under consideration (apart from the so-called new Basel III rules) is to bring more stability to the financial system. The indirect effect will be to reduce the financial sector's size – in absolute terms and relative to the economy – and to hinder its growth in the future.

But these effects will also occur in EU countries whose financial sectors have maintained a high degree of stability in the current crisis. Delivery of financial services will be made more difficult and expensive everywhere, even though some countries' banks are financed by stable long-term deposits rather than short-term interbank loans, with few toxic assets and local loans that are more than comfortably covered by local deposits.

This is why one can hear many voices opposing the idea of a harmonised EU-wide bank levy or tax. This levy, strongly backed by those countries whose financial sectors are in tatters after the crisis, is hard to swallow for EU states that did not intervene to bail out their banks.

The levy is an easy way to spread the political and financial costs of the crisis from some to all EU members. If applied, bank capital will be scarcer, the flow of credit slower, and bank fees higher in countries with pretty stable financial sectors, simply because others have spent a fortune to support their financial systems – and because the European Commission never misses an opportunity to unify rules across the EU."

To read the op-ed in full, please click here.

(Published in partnership with Project Syndicate.)

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