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Momentum is building for the creation of an EU-wide "Super Regulator" to oversee financial markets and clamp down on short-term speculators. This could emasculate the Financial Services Authority and bring the City under the direct control of
The European Commission as well as key EU finance ministers and leading politicians have seized on failings exposed by the credit crunch to press for a pan-European gendarme to police the banking system and cross-border flows of capital.
Tommaso Padoa-Schioppa, Italy's finance minister and a former board member of the European Central Bank, has sent a letter to EU colleagues calling for a plan to be discussed urgently at today's meeting of finance ministers. Mr Padoa-Schioppa said the Commission and the ECB had come through the crisis with flying colours, but the supervisors had failed - chiefly because they are scattered across the EU and answerable only to capitals.
"The recent financial turmoil was a revealing test of the shortcomings of the present system. It is now necessary and urgent to act decisively to enhance the European supervisory system," he wrote. He called for a "single rule book that will be enforced uniformly all over the EU", a warning to
"It is disappointing that no sharing of confidential information on potential systemic risks to the European financial system appears to have taken place among EU supervisors. In crisis situations, European supervisors can be expected to act based on a narrow national perspective."
Economics commissioner Joaquin Almunia made similar comments to Euro-MPs yesterday, suggesting that the campaign has been well co-ordinated by EU insiders. "Pressure is mounting for European supervisory arrangements. Financial institutions should be subject to essentially the same rules irrespective of where they operate in the Single Market." Specifically, he called for "qualified majority voting on all decisions" in certain areas, leaving
British officials said Chancellor Alistair Darling would oppose the plans at the meeting in
German chancellor Angela Merkel yesterday called for "intelligent regulation of international financial markets so that highly speculative and short-term financial movements do not cause a crisis." The comments appear to put her in the same camp as French president Nicolas Sarkozy, who has called for a clamp-down on hedge funds, private equity groups and speculators in a bid to "remoralise" finance.
British governments have fought to prevent
Mr Almunia revealed his contempt for the
Any move by the EU to curtail "short-term financial movements" would probably have to involve some form of exchange controls - a severe blow to the City. A European Commission study concluded four years ago that the EU treaties allow
Any decision would be renewable each six months, and passed by majority vote. The document appeared far-fetched at the time but this year's credit crunch has brought matters to a head. EU experts say a key motive behind the latest drive for an EU Super- Regulator is concern that the eurozone's vulnerable "Club Med" countries may find themselves in trouble next year as their housing booms deflate.