A competitive and open internal market has always been Europe’s ace in the sleeve. Tapping the growth prospects offered by the Single Market has become even more important now that we must lead our economies out of the crisis.
To help realise the full growth potential of the internal market, there is European legislation. The Commission, the European Parliament and the Council can agree rules to tear down the remaining barriers. Financial markets remain fragmented across Europe, which prevents the optimal allocation of capital across national borders. As to the state of competition in capital markets, I have to say that it’s quite good in certain areas and not so good in others. Equity markets, for instance, were opened up in 2007 the Markets in Financial Instruments Directive – or MiFID. Thanks to the Directive, these markets have become more transparent, the costs of financial transactions have fallen, and new technologies have been introduced to offer investors and savers more attractive products. The picture is different if we look at derivatives markets. Here regulatory action is ongoing. Another European law, Markets in Financial Instruments Regulation – or MiFIR – proposed by the Commission in 2011 is being debated by the European Parliament and the Council, and will be finally adopted soon.
In 2012, the Commission proposed the Banking Union as a comprehensive solution to these problems. In June last year the 28 Heads of State and Government endorsed this ambitious project which – once implemented – will strengthen the architecture of the EMU and restart adequate lending flows to the real economy. The main goal of the Banking Union is breaking the vicious link between banks and sovereigns. And the best way to break the circle is by adopting a EU-wide approach to the extent of the possible. The European Central Bank is getting ready to take on its new task next autumn as central supervisor of all significant banks in the euro area. In addition, as of 2015, we will have a common set of tools to tackle potential banking crises at three stages: preventive, early intervention, and resolution. Finally, last December the ECOFIN Council agreed on how to progressively set up a Single Resolution Mechanism and a single fund to support resolution decisions. But this is not to say that the debate is over. For instance, much remains to be discussed with the European Parliament on what to do in case a bank should fail.
In the meantime, to complete the regulatory overhaul of Europe’s banking system, last week the Commission proposed the separation of a bank’s riskiest activities from retail banking. The proposal also gives banking supervisors the power to split potentially risky trading from deposit-taking business if financial stability is at risk. Finally, certain transactions in the shadow banking sector would be made more transparent.
I would like to close with an overall assessment of the state of competition in banking and financial services. As many commentators say, the financial world needs a profound culture change. This is all very well, but what does it mean exactly? In my opinion, it mainly means that every player in this sector should recognise that they too have a corporate social responsibility. This is perhaps the goal that brings together the many efforts taken by public authorities around the world to discipline the sector and give it more stringent rules. Taken together, these measures should put enough pressure on companies to persuade them to put the common interest on top of their corporate interests or even of the interests of individual managers and traders.
Opening a Path for Recovery: Competition in Financial Markets, 6.2.14
In a further speech at the European Competition Forum on 11 February, Almunia also addressed taxation from the perspective of State aid control, and said that anti-European messages should be tackled 'with great determination'.
"Governments and international bodies around the world are showing a renewed interest in corporate-tax regimes, in particular the G20 and the OECD – represented here by Ángel Gurría. Because of the gaps in national tax laws, many of the largest multinational companies pay very low taxes, and they don’t need to break the law to do it. The present state of affairs undermines the fairness and integrity of tax systems and – in the European context – it has several undesirable implications. Among other things, it is socially untenable. How can governments ask ordinary citizens to accept adjustments and pay their fair share of taxes if big companies don’t?
But here I am talking from the competition policy perspective. The reason to tackle taxation from the State aid standpoint is simple. Selective taxation is economically inefficient, because it distorts the level playing field for the allocation of capital within the internal market. This is particularly the case for the digital, creative, and other industries based on intellectual property. In these sectors, it is easier for companies to push activities from one country to another and take advantage of the gaps that exist within the EU.
And this is where competition policy gets into the picture. Because aggressive tax planning is contrary to the principles of the Single Market, even under the present distribution of competences between the EU and its Member States. A limited number of companies actually manage to avoid paying their proper share of taxes by reaching out to certain countries and shifting their profits there. In those cases where national laws or tax-administration decisions permit or encourage these practices, there might be a State aid component involved and I intend to go to the bottom of it. This is why in the last few months we have been sending requests for information to some Member States where we have doubts about the consistency of some aspects of their legal framework or of their administrative practices.
Let me conclude with a political consideration. In just over three months, Europe’s citizens will vote to elect the new European Parliament, and a new Commission will be in place before the end of the year. We know that a growing proportion of voters across the EU are dissatisfied after this long crisis and some of them may be tempted by anti-European messages. This is a real challenge for those who believe in the European project, and one that we should tackle with great determination.
The way forward is to show how we intend to put in practice our democratic values and guarantee the future of our social model through proactive policies, not defensive ones, both domestically and on the global stage. This is the time to explain to the people the arguments behind our firm belief that the way forward is more integration, not a beggar-thy-neighbour attitude.
More integration of markets and robust competition control is part of this proactive approach to tackle the challenges of our times. Because experience shows that competition enhances competitiveness and innovation, creates jobs and drives economic expansion. Fair and vibrant competition in an open internal market is a crucial element of the policy mix that can boost Europe’s growth and bring it up to speed with the rest of the world. If Europe is to shift gear, it must regain confidence in a well-regulated and well-functioning Single Market and in its power to generate growth and employment and offer our people brighter prospects for the future."
Fighting for the Single Market, 11.2.14
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