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05 October 2015

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

The presentation of the Action Plan for building a Capital Markets Union and the State of the Union debate were the main events in the European Parliament. The ECB's efforts as the single supervisor clash with national laws: Draghi called for a common approach in the EU to writing off bank debt.



September was marked by the presentation of the Action Plan for building a Capital Markets Union by Commissioner Jonathan Hill, who also wrote a comment in the FT explaining why a stronger capital markets union for Europe is needed. For those seeking a comprehensive view on the CMU, Graham Bishop shared his vision in several articles published by Financial World (“What is CMU?” and “It’s time for a 29th regime”) and some comments in Open Markets (“Europe’s search for capital”).

ECB's Mersch enumerated the medium to long-term priorities of CMU for the ECB and the Eurosystem at the Eurofi conference , stating that union needs to be pursued through a higher level of ambition to achieve deeper financial integration. Commissioner Hill had previously wooed the banking sector at the EBF annual conference, saying that the CMU didn’t represent a challenge for European banks but “a complement”: the EBF welcomed the presentation of the CMU Action Plan, arguing that it “puts Europe on track towards growth.” Nevertheless, the ACCA was more prudent and warned against “hasty design or poor implementation.”

ESMA readied some of the most important pieces of post-crisis financial regulation: MiFID II, MAR, and CSDR. Its Chair -Steven Maijoor- also delivered a statement on ESMA's achievementsover the last year to the European Parliament’s ECON.



ECB President Mario Draghi discussed the latest economic developments in the EU and the proposals presented in the Five Presidents’ Report at the ECON meeting, and revealed that most big euro zone banks have capital way above requirement, as the ECB’s Single Supervisory Mechanism found out after taking over the supervision of large eurozone banks late last year. Draghi dismissed concerns from some national central banks were asking institutions to set aside too much capital to cover potential losses risks so strangling lending and hampering the eurozone's economic recovery. However, research from JPMorgan showed that “harmonisation” efforts could result in a need for €26bn in extra capital by 35 of Europe’s biggest banks.

The efforts towards Banking Union clash with national banking laws as shown in an opinion issued by the ECB, in which it claimed that national laws hamper ECB's work as the single supervisor and called for a common approach in the European Union to writing off bank debt so creditors like senior bondholders - and not taxpayers - were called on to shore up the banks in the event of a bail-out. But these new rules, which come into effect on January 1st next year, are making EU regulators rush to complete Greek’s bank restructuring in less than four months to keep their promise of not touching deposits.



Commission President Juncker marked the resumption of the European institutions’ activity with a speech on the State of the Union debate stating that "our European Union is not in a good state," and called for a stronger union. Juncker also talked about the Greek bailout and the Five President’s report, and said that he would seek a fair deal for Britain because he believes that “the EU is better with Britain in it and that Britain is better within the EU.”

The debate in/out of the EU is becoming more and more intense for British and European regulators, with Britain and Spain’s prime ministers making a joint call for EU reform in the first days of September and increasing British business organizations calling on Cameron to push forward his plans for an EU Treaty revamp.

The British PM has put his campaign into high gear and his ‘renegotiations’ with the EU are seen by CEPS as a Russian roulette - in a new interim assessment published by the European think tank. UK’s Chancellor George Osborne has made shielding The City his central mission in the renegotiation of Britain’s EU membership, while the newly elected Labour party leader Jeremy Corbyn calls for EU reform focusing on social gains and worker’s rights.


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© Graham Bishop

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