ECON held an exchange of views with the Slovenian Finance Minister, Andrej Bajuk, and had a first discussion on the draft report on the Lamfalussy follow-up. The regular Monetary Dialogue with ECB President Trichet was also on the agenda.
ECON held an exchange of views with the Slovenian Finance Minister Andrej Bajuk, and had a first discussion on the draft report on the Lamfalussy follow-up. The regular Monetary Dialogue with ECB President Trichet was also on the agenda.
Issues discussed:
Exchange of views with Andrej Bajuk
Lamfalussy follow up - Future Structure of Supervision
Monetary Dialogue with Jean-Claude Trichet
EXCHANGE OF VIEWS with Andrej BAJUK, Slovenian Finance Minister
Slovenian Finance Minister Andrej Bajuk began the meeting by placing the Slovenian Presidency in the context of the current economic situation, since the economy of the EU Member States and the Euro zone face a number of risks, including the negative impact of the financial shake-up, inflationary pressures mainly due to high food and oil prices, and protectionist measures influencing world trade.
Minister Bajuk especially underlined the important progress made in implementing three roadmaps:
- on responses to current financial market developments,
- on improved supervision within the financial system, and
- on providing financial stability and crisis management in the EU.
Regarding the roadmap on providing financial stability in the EU we concluded an agreement on the Memorandum of Understanding between financial supervisory authorities, central banks and finance ministers on cross-border financial stability. The Memorandum determines procedures and practical guidelines on participation by all relevant actors involved in a crisis situation and preparations for such a situation.
Important steps have also been taken in respect of financial supervision in the EU by adopting five objectives for enhancing the responsibility of financial supervisors: strengthening the European mandate of national supervisors, improved functioning of EU-level supervisory committees, cooperation of supervisors within colleges of supervisors for individual cross-border financial groups, agreement on speeding up work relating to the convergence of regulatory and financial reporting, and committing to continuing work on sharing burdens in the event of a financial crisis.
Important progress was also made in implementing the four main objectives of the roadmap in response to financial shake-ups: reinforcing transparency, improving valuation standards, reinforcing the existing prudential framework and improving market functioning, including the work of credit rating agencies.
Mr Bajuk emphasised the successful work on the proposal of the Solvency II Directive, which will regulate the method of implementation of insurance and reinsurance companies and up-date provisions regarding their capital adequacy. "I am pleased to note that we have found acceptable solutions in almost all areas. The two open questions are the prudential supervision of insurance undertakings and the Commission's proposals for innovative arrangement of the cross-border assistance by the groups.
In the following discussion Piia-Noora Kauppi (EPP/FIN) welcomed the MoU between supervisory authorities, but criticized that this lacks of ambition and called for more ‘hard regulation’. Mr Bajuk shared her concern about the speed on all issues of supervision. Nevertheless, the MoU is a significant progress and is a right step in the right direction, he said. “Everybody agreed at domestic and cross-border level to work together”, he underlined.
Pervenche Beres (PSE/FR) noted the lacking co-ordination among the 3L3 Committees and asked for the Council position on this issue. She also wondered about some kind of deposit guarantee schemes for the insurance sector as the forthcoming Solvency II directive introduces a risk-based regime. Further questions related to the role of CESR when it comes to the registration of CRAs in Europe and Code of Conduct on Clearing and Settlement. Mr Bajuk noted that the 3L3 Committees might not feel that they necessarily have to coordinate their work as much as it might be desirable. However, he said, reality will put pressure on them in the future. He was very reluctant concerning the question for deposit guarantee schemes for insurances as this is a difficult and long term issue which can only be solved if there is consensus among the member states. CRA’s on the other hand should be subject to a very in-depth revision, he said and underlined that these companies “did not do their job in the right way”. Also, the Code of Conduct did not progress in the way as expected. However, one should wait for the final report which is due in September.
Forthcoming issues:
September 2008: Commission report on savings taxation
September 2008: Commission final report on code of conduct on clearing and settlement
Full speech Mr Bajuk
Lamfalussy follow up - Future Structure of Supervision – Rule 39
Rapporteurs Ieke van den Burg and Daniel Dăianu presented their report in ECON Committee (see here for a summary). Mrs van den Burg made clear that in contrast to Councils’ and Commissions’ voluntary set of rules and procedures this report intends to introduce a mandatory structure.
The report was criticized from both the Liberal and the Conservative party. Wolf Klinz (LIBE/DE) concentrated on supervisory issues and outlined that the turmoil was a global phenomenon. He wondered in particular about if the US can be incorporated into that kind of system. He also criticized the number of new Committees and coordinating bodies foreseen in the draft report and recommended to concentrate on strengthening the role of the 3L3 Committees rather than establishing new structures.
Sharon Bowles (LIBE/UK) was concerned about the level of details provided in the Annex. Some of the recommendations are too exploratory, she said noting that there are no necessary impact assessments available. Furthermore, many issues are already under discussion, such as on Solvency II and the review of the Capital Adequacy Directive.
John Purvis (EPP/UK), recommended waiting for the conclusions from the FSF and other international institutions as the turmoil is a global problem, not just a European one. He also warned against the multi-layer of regulatory bodies with unclear responsibilities, and harshly criticised the proposed new institutional structure, in particular the ‘presidium’ which he said ‘sounds somewhat very sovjet’ to him.
Respondents from the PES group supported the draft report. Robert Goebbels (PES/LUX) said that Europe needs more regulation if it wants to have efficient markets. Pervenche Beres (PES/FR) reminded that ‘one cannot allow staying with the status quo’ and a response from the European Parliament is needed well before the election campaign starts. She also noted that the structure to be established must not privilege bigger companies. Ieke van den Burg explained that the new institutional structure is not too complicated, but will in particular help to solve the conflicts on the home/host supervisory issues.
Martin Merlin, speaking for the European Commission, objected that the crisis is the result of poor supervision as stated in the report is not correct. Also, several Commission initiatives, such as the revision of the CRD, are already under way. The impression that the Commission is acting too slow is wrong, he said. He also announced a Commission report to be expected by October this year on the revision of the 3L3 Committees. However, it is not planned that this will be voted in co-decision procedure in Parliament, he said.
Timeline:
9 July: Deadline for amendments
15 July: Consideration of amendments
10 September: Vote in ECON Committee
Monetary Dialogue with Mr. Jean-Claude TRICHET, President of the ECB
Uncertainty surrounding growth prospects remains high, with downside risks mainly relating to a potentially more negative impact of financial market developments than anticipated and further unanticipated increases in energy and food prices, ECB president Trichet said. High inflation above 3% mainly owes to strong increases in energy and food prices, he noted.
Moreover, upside risks to price stability over the medium term have intensified further over the past few months, in a context of very vigorous money and credit growth. Looking ahead, the Governing Council expects inflation in the euro area to remain high for some time to come, before moderating only gradually in 2009.
Questions of MEP mainly related to the reasons for the recent price increases.
Responding to Ieke van den Burg (PES/NL) about her report on the Future Structure of Supervision in Europe, Mr Trichet reminded that as the financial turmoil is a global phenomenon and that the FSF is the relevant 'informal institution' at the global level. He therefore recommended to implement the (67) recommendations made by the FSF and agreed internationally.
On EU level he recommends to concentrate on the proper implementation of currently existing regulation and legislation and on what has been decided in principle. However, he did not rule out that this does not go far enough. Trichet also very much welcomed the proposal of very close links between Central Banks and Supervisory Authorities and underlined that this has been the position from the ECB for a long time.
However, he was quite firm on his denial of the proposed introduction of a ‘Tobin’ tax underlining that there are other ways to guarantee well functioning markets.
Questioned about how to avoid high fluctuations, Trichet demanded in accordance with the FSF recommendations to "review all functions of global finance to eliminate 'extra' fluctuations that we made ourselves or are responsible for in order to avoid or eliminate procyclical behavior", he said. Therefore, the accounting rules as well as banking and insurance surveillance rules must be reviewed.
Speech Trichet
© Graham Bishop
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