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Graham Bishop's Personal Overview.
As another anniversary of the launch of the Euro rolls round, it is timely to step back and consider what the peoples of the Eurozone think of the innovation. The Eurobarometer published last month showed a further decline – to below 50% - of the public feeling that the Euro is “advantageous”. Amongst the disappointments that can be addressed by the financial services industry is the finding that “45% of citizens also mention that they do not believe that the Euro has contributed to a price convergence between the Eurozone countries.”
So the faltering progress of SEPA should be viewed with particular concern as the ability of a citizen to make payments – simply and easily - across borders should be the foundation of the arbitrage process to bring prices into line with underlying costs. ECOFIN has had to recognise that it cannot yet reach agreement, but time is running short for such a vast technical change to be implemented on schedule. With the Consumer Credit Directive also running into such difficulties that starting again is now becoming a serious option, questions may begin to appear about whether the Commission is on the right track with some of these measures that impact on the vast technical issues surrounding consumer protection.
However, capital market reform seems on a better track. This week may well see Euronext shareholders vote in favour of its merger with the NYSE. Already, its college of regulators have declared themselves “not minded to object to the proposals” and Euronext’s lawyers have argued that fears about the spill-over of US regulations are mis-placed. The final stages of the LSE/NASDAQ saga are also coming into sight, with a formal bid and a defence document imminent.
One element of that may be the implications of another down-grade in NASDAQ’s credit rating. It has revealed the scale of the indebtedness that it proposes to undertake and that could be the subject of regulatory enquiry about the financial stability of the proposed combination.
The arguments about clearing and settlement have also built up as the market grapples with the implications of the ECB’s sudden announcement that it is studying the possibility of attaching a securities settlement system to its new TARGET II payment engine. A public speech suggested that the ECB Governing Council is virtually certain to decide in February to take the proposal forward – but only then will it consult formally with the market on the design. In the meantime, market participants seem unaware of what exactly is proposed and indeed there seems to be some confusion within the ECB about the exact scope of the plan. As a result, the late-November meeting of ECOFIN took the unusual step of minuting its invitation to the FSC to examine the situation ready for an ECOFIN discussion prior to that ECB decision.
Outside the Eurozone, the UK Parliament rushed through the “Balls clauses” measure to enable the FSA to “disallow excessive regulatory provision” that stock exchanges might propose. As the ink dried, legal comment began to be heard that the measure might turn out to be a “mixed blessing” as it may look protectionist to outsiders. It will also politicise UK financial services policy so that unpredictable decisions could result, damaging one of the key attributes of London’s open trading environment. Ironically, Open Europe – a euro-sceptic entity – launched a report questioning the benefits of the FSAP, accusing “Brussels” of only having a European perspective. It argued that approach might have the unintended consequence of weakening Europe’s only financial centre with global status.
Across the Atlantic, the US has already started with some concrete measures to tackle its perceived weaknesses: NASD and NYSE merged their regulatory arms and the PCAOB announced a review of the auditing standard that creates the real costs in applying some of the Sarbanes-Oxley provisions.
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Graham Bishop