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05 July 2015

Deepening EMU – Round-up of Key Events – June 2015

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Greece and European institutions broke the negotiations off and Greek PM Tsipras called for a referendum with results that may cause a political tsunami in the EU. The European Commission presented the Five President's Report, and the European Council and Parliament updated the PSD2.


On Greece, Graham Bishop wondered “would a referendum cut the Gordian knot?”, anticipating the ballot Alexis Tsipras set for yesterday the 5thJuly, on the latest proposals from the European institutions to save Greece from the economic and financial abyss. He analyses the outcome of the polls here. Professor Tsoukalis -President of the Hellenic Foundation for European and Foreign Policy – explained in an OMFIF commentary why Greeks must say ‘Yes’ to a European future. That’s the option European Council’s President Jean-Claude Juncker asked for during a press conference where he explained the proposed package for Greece – rejected by Tsipras - which he thought to be “demanding and comprehensive but fair”. He also made clear that that voting "yes" in the forthcoming referendum would be a "yes" to Europe.

How did the Greek government and European institutions get themselves in such a dramatic tangle? Negotiations between both sides proceeded without significant progress over June until the Euro Summit on 25-26 June, when European Council President Tusk urged the Eurogroup to “conclude the process” on theEurogroup meeting on the 27th. The talks were broken during this meeting, with European institutions accusing Greece of “unilaterally” leaving the table. Eurogroup’s President Jeroen Dijsselbloem noted that the programme expired on 30thJune, although they would do "whatever is necessary to ensure financial stability of the euro area".

Greek Minister of Finances Yanis Varoufakis explained in a post published on his blog that the reason why the negotiations had broken down was that EU "Ministers turned down the Greek government’s request that the Greek people should be granted a single week" for a referendum of the latest proposals; Greek PM Tsipras then called for a referendum on whether his government should accept or not the EC, ECB and IMF's latest draft proposals, which were due to be presented to him before the rupture of negotiations - and were no more on the table.

The last talks between the Greek government and the European institutions took place on the 1stJuly, after the default on the payment to the IMF by Greece. Eurogroup’s Dijsselboem talked to Tsipras on a conference call and concluded that the old programme will not be extended, and that the European institutions would "simply await the outcome of the referendum".

The long-awaited “Five President’s Report” was presented to the European Council meeting of 25thJune. Its mission consisted of “ambitious plans on how to deepen the Economic and Monetary Union and how to complete it by latest 2025, with measures including creating a future euro area treasury”. The College of Commissioners had a first debate on the next steps of the Report, which marked Stage 1 of the programme on 1stJuly.

Bruegel discussed the key elements of the document, while an article on EurActive explained what the Five President’s Report means for Britain.

ECON MEPs voted a resolution aimed at making economic governance rules for the euro area ‘work’, saying they are too complex, lack ownership and are not consistently enforced. The text is the European Parliament's input to the discussions on the Five Presidents Report.

Key private institutions and economic actors have continued to present reports and opinions against a Brexit: TheCityUK launched its EU reform agenda at its Annual Conference, calling for a renewed focus on completing a deep and strong Single Market. POLITICO reported that London-based bankers and financiers had warned that if The City was taken out of Europe, “there wouldn't be much left of its current global luster”. That’s what a report from Standard & Poor's said, warning that a Brexit could "significantly dent" UK financial services and insurance sectors. The FT went further, arguing that “Britain would not survive a vote for Brexit” – after the UK separating from Europe, Scotland would do so, breaking up the United Kingdom.



Graham Bishop has always argued that the true revolution for the citizens of Europe will flow once the Single Market is genuinely functioning. This requires an effective payment system - underlining the political importance of the Payments Services Directive  (see forthcoming article). The European Council confirmed an agreement with EP on updated rules on Electronic payment services, presenting a revised directive whichadapts existing rules to emerging and innovative payment services, including internet and mobile payments. The EPC published its opinion on the PSD2 and on instant payments. ECB’s Mersch gave a speech  focusing on digitalisation of the retail payments industry and the resulting users’ changing expectations, and made some suggestions on the responses needed from the industry and the regulators.

The EBF issued a discussion paper on the digital transformation of banks and the Digital Single Market. This is crucial for them to compete against innovative non-bank organizations that take advantage of the banking sector’s many problems related to old and complex systems, David Rowe discussed this in his article ‘Geeks at the gates’ in Risk Magazine.  The Bank of England published an excellent guide on Banking sector interconnectedness, showing how this can be measured and explores the implications for financial stability.

EFAMA commented on the EBA’s Consultation Paper on sound remuneration policies, highlighting that bank‐owned asset management companies may now have to comply with four overlapping pieces of EU legislation on remuneration. The European Banking Authority presented an advice– requested by the Commission - on criteria and capital treatment for securitisation, an opinion it will deliver in July.

The Basel Committee issued a consultative document on risk management, capital treatment and supervision of interest rate risk in the banking book (IRRBB).

On Shadow Banking, the EBF presented its opinion on the consultation paper by the EBA, which focused on the limits on exposures to shadow banking entities. The European Parliament and EU member states are increasingly concerned about this - shown in the deal they reached to improve transparency and mitigate risks in the so-called "shadow banking" sector.


The ECOFIN published its conclusions on a Capital Markets Union. The European Parliament issued a resolution concluding that the CMU should mean more investment across the EU and more funds for SMEs. That’s precisely what ECB’s Mersch outlined: the governance principles that are most conducive to achieving the main benefits of CMU.

During the Brussels Conference on CMU, Commissioner Hill delivered a speech on the next steps to build a Capital Markets Union. He also described the contribution of the audit to help the efforts deepen the single market in capital. FCA’s David Lawton outlined in a speech those parts of CMU where regulation will be an important element, recognising the macroeconomic context, investor protection and competition.

Pensions should have a significant role in building a CMU, and so PensionsEurope made this clear in its annual conference on 24thJune, presenting the discussion paper ‘How pension funds contribute to jobs and growth in Europe – and how to strengthen their participation in the Capital Markets Union’.

CMU will have global consequences on the economy and finances across the European Union: Netherlands Bank President Knot explained how Capital Markets Union can bolster Monetary Union, during the 47th International Capital Markets Association conference. It will also have an impact on covered bond label issuers: the Covered Bond Label Committee and the ECBC Steering Committee decided to implement a Common Harmonised Template across jurisdictions.

The ECB successfully launched the TARGET2-Securities platform, an important step towards greater integration of European capital markets. Despite the beneficial effects, ECB's Noyer warned increased financial regulations may be triggering a retreat from market making, hitting the ability of companies and households to access funds. The EU will try to tackle this problem with plans to stimulate economic growth by tapping markets - kicked off by banking regulators proposing to cut the cost of raising funds from bundled debt.

ESMA published its Final Report on draft technical standards on MiFID II and MiFIR;  ESMA directorRoss explained ESMA’s regulatory outlook at CISI 2015 annual conference, where she spoke on CMU, investor protection - both under the MiFID II framework, the work ESMA is doing together with the other European Supervisory Authorities, and the digitalisation of financial services.  

Clearing houses occupy a central position in the financial infrastructure, acting to insulate the system from the kinds of shocks that triggered the financial crisis. The FT qualified this affirmation, noting that clearing houses reduce risk, they do not eliminate it: if clearing houses falter, they may become new sources of contagion — the very problem they are meant to eliminate.

Asset management

IOSCO launched a consultation on international standards on fees and expenses of investment funds, and published a report on good practices for reducing over-reliance on CRAs in the asset management industry.

Onpension funds, IPE published that Commissioner Hill was not opposed to solvency rules for pensions: he noted that funds had to be “managed responsibly”, and that they were possibly one of the largest sources of investment, notably for infrastructure projects. IPE also revealed that EIOPA is to launch a consultation paper setting out a common European approach on personal pensions.

The International Accounting Standards Board issued two proposed amendments to IAS 19 and its related asset-ceiling recognition guidance, warning DB pension sponsors to pay close heed to IAS 19 changes. The OECD reported in its 2015 Business and Finance Outlook that low interest rates threaten solvency of pension funds and insurers as they seek to generate sufficient returns to meet promises.


The European Commission welcomed a deal to improve consumer protection for insurance products- the Insurance Distribution Directive (IDD)– which will improve the way insurance products are sold and will bring real benefits to consumers and retail investors.  But Insurance Europe warned that insurers remain extremely concerned about several aspects of proposed EU data protection rules and asked MEPs to accept these concerns to avoid unintended consequences. EIOPA’s Bernardino delivered a speech updating some key topics for EIOPA: how the IDD is shaping up, the work on the Key Information Documents (KID) and its vision on Conduct of Business Supervision.

The Bank of England published an article on the prudential regulation of insurers under Solvency II, in which it examines the business model of an insurer, gives a condensed history of insurance regulation to date and draws out the key features and benefits of the new legislation.

Corporate governance / accounting

The European Commission adopted a report on the application of IFRSs to the consolidated financial statements of listed companies in the EU since 2005. FEE’s President Petr Kriz supported the EC’s positive assessment of IFRS at a major international conference on 10 years of IFRS in the EU.

Hans Hoogervorst, Chairman of the IASB, delivered a speech on what he calls one of the most difficult topics in accounting—how assets and liabilities should be measured. He presented high-level, general observations on when historical cost and current value measurement could be most appropriate.


The European Commission presented an Action Plan for Fair and Efficient Corporate Taxation in the EU: its intentions are to tackle tax avoidance, secure sustainable revenues and strengthen the Single Market for businesses. It also launched a public consultation on corporate tax transparency. EP's TAXE Committee Chair Lamassoure declared that “the Single Market is the best chance the old continent has to remain competitive; this is why European competition and tax policies can no longer be drawn up separately” in a Fondation Robert Schuman interview.

The ACCA released an opinion in which it broadly endorses the proposals in the new EU “tax fairness” package, but emphasised the need to be realistic about its implementation in a globalised world.


© Graham Bishop

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