EU Split over Lessons of Crisis UK, Ireland Resist Push for More Financial Regulation
The European Union is split over how best to apply the lessons of the global downturn to the regulation of financial markets. Countries like Germany want tighter controls on risky deals and exotic securities, but the UK, Ireland and parts of Eastern Europe are fighting for free markets.
Peer Steinbrück's face always darkens when he is asked how much more taxpayers' money he will need to bail out the banks. "I don't know," says the German finance minister. "I won't know until after the fact." And when he is asked how he feels, late in the evening after a cabinet meeting in Berlin or a meeting of European Union finance ministers in Brussels, Steinbrück sometimes grumbles in response: "Lousy!"
Stockbrokers in London: The UK is resisting a bid for more EU regulation of financial markets.
Europe's finance ministers are not in an enviable position these days. Washington is constantly putting pressure on them to inject additional billions into the economy. Meanwhile Brussels threatens to take them to court for incurring too much government debt.
And in times of so much uncertainty, they are also expected to provide answers to the big questions on everyone's mind: How can we jump-start the economy without completely destroying government budgets? Can banks be relieved of their toxic assets without unloading all the risk onto the shoulders of taxpayers?
At their next summit in June, "the European Council will take first decisions (sic) to strengthen EU financial sector regulation and supervision," as it is phrased in Brussels bureaucratese. The G-20 summit of the world's leading heads of state and government also vowed to proceed in the same direction. But what happens to the summit visions when attempts are made to put the lofty ideas into practice?
There has admittedly been some progress. The European Commission has made some preliminary proposals and the parliament has passed a law under which the amount that one bank can lend to another will be limited in future to 25 percent of the bank's own capital. And banks will be required to retain at least 5 percent of any high-risk securities that they sell.
But that was the extent of it, at least for the time being. Moreover, it is highly unlikely that further concrete measures will follow the politicians' bold announcements.
There is a crack running straight through the EU, says Werner Langen, a member of the European Parliament for Germany's conservative Christian Democratic Union. Sources close to the EU's finance ministers have expressed similar sentiments, saying that the traditional, continental core of Europe is once more facing off against the British, the Irish and some of the organization's new Eastern European members.
London and Dublin, in particular, are blocking anything that could create problems in their respective financial industries. This is understandable, given the fact that Great Britain and Ireland have very few other future-proof industrial sectors. But this path is immensely dangerous for Europe.
"We have absolutely no risk management today," says David Wright, deputy director general of the European Commission. According to Wright, there were no warning signals before the financial meltdown because "the necessary mechanisms simply do not exist." Wright believes that it is high time for change.
Almost everyone agrees, at least in theory. Even Britain's Prime Minister Gordon Brown had come out clearly in favor of "a strong step in the direction of regulation" at the meeting of EU leaders, a satisfied Chancellor Angela Merkel said after the March summit. "Complex products like banking derivatives which were supposed to disperse risk around the world have instead spread contagion," Brown said in a speech at the European Parliament in Strasbourg in March, where he called for the creation of "global standards" to respond to "global problems."
But in expressing these sentiments, Brown apparently neglected to inform his own ministers, undersecretaries and officials of his change of course. They continue to block the creation of substantial regulations for financial institutions at the negotiations in Brussels.
- Part 1: UK, Ireland Resist Push for More Financial Regulation
- Part 2: 'More Holes than a Swiss Cheese'