Beating the crisis
May 27, 2009
Based on a recent report by former International Monetary Fund chief, Jacques de Larosiere, one of the key proposals envisages creating a new European Systemic Risk Council (ESRC) to identify risks to financial stability in Europe and avoid a repeat of the worst economic slump in decades.
The ESRC will be chaired by the European Central Bank president and issue early warnings and recommendations to EU member states.
The EU Commission hopes that the plans will help Europe deal with future financial disasters with one voice.
The plan also suggests setting up extra safeguards through a European System of Financial Supervisors (ESFS), consisting of three new EU bodies with legal authority to supervise the banking, insurance and securities sectors across the bloc.
Attempt to monitor cross-border institutions
The system is meant to ensure national regulators make the best possible decisions for cross-border financial institutions rather than act nationally in the interests of their own locally-based financial institutions.
It's hoped the new regulatory framework will avoid a repeat of the haphazard response last year to the financial troubles of Fortis, a European banking and insurance giant whose operations are spread across Belgium, the Netherlands and Luxembourg.
"The crisis has shown that the current system is not sufficiently responsive and not appropriate for a single financial services market," Internal Market and Services Commissioner Charlie McCreevy said.
"This new system will combine the expertise of all those responsible for safeguarding financial stability, with strong European bodies to coordinate their work," he said.
Concerns about ceding too much power to Brussels
The new plans, however, are expected to run up against national resistance because they could entail some loss of regulatory control by the 27 EU capitals.
Britain, Europe's main financial center, which remains outside the eurozone, is against beefing up the powers of the European Central Bank (ECB) and has already signaled concern about the European Commission's plans.
News agency AFP quoted an unnamed diplomatic source as saying the question London is asking is "how far is it legal for an EU authority to countermand the decision of a national supervisor without the authority of the courts?"
Resistance is also expected in Germany, Europe's largest economy.
The dpa news agency cited the EU's monetary and economic affairs commissioner, Joaquin Almunia, as saying Germany had so far not championed a stronger pan-European financial supervisory authority.
"On this particular topic, Germany has always been reticent," Almunia said.
Opposition to the Commission's plans is also strong in eastern Europe where the banking system is often dominated by banks belonging to larger EU nations.
Barroso urges member states to back plans
The EU Commission, however, is hoping the new plans can help lift Europe out of its worst economic crisis in decades.
Most major European economies are now in deep recession, unemployment has soared and governments are spending billions to prop up banks and reassure panicked investors.
Commission President Jose Manuel Barroso on Wednesday urged EU states to endorse the new plans so that the new regulatory architecture is in place by 2010.
"Better supervision of cross-border financial markets is crucial for ethical and economic reasons.The new system will help the EU and its member states to tackle both problems with cross-border firms and the build up of overall systemic risk," Barroso said.
EU finance ministers are set to discuss the proposals in early June and EU leaders will debate them at an EU summit on June 18.
The 27 EU nations and the European Parliament will have to approve the measures before they can become law.
sp/dpa/afp
Editor: Susan Houlton