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Issue 32 - 11 May 2016
This newsletter is published by SOMO and WEED.

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Editorial
As announced in our last issue from December 2015, SOMO and WEED will continue to edit this newsletter and comment on the major trends in the EU with regard to finance – though the newsletter will appear less frequently.

The EU continues to be stuck in multiple crises, and these crises are deepening. We are not fans of ruin, downfall, doom and pessimism, but looking back on the last five months, we cannot but state again that the overall crisis has further sharpened. The refugee issue has brought deep contradictions to the surface among member states, and these still remain unresolved. With the victory of the PIS nationalist party in the Polish elections, another extremist right wing and authoritarian force is now in government, and in most other countries, the wave of right populist forces continues to rise. In Germany, the Alternative for Germany (AfD) party has suddenly achieved high numbers in all recent elections. The Dutch referendum, which rejected the EU association agreement with Ukraine based on anti-EU rhetoric, is – together with all opinion polls – a further signal that the citizens’ acceptance of the EU is constantly shrinking in almost all member countries. “Today we have to admit that this dream of one European state with one common interest, with one vision... one European nation, this was an illusion.” It was not a Eurosceptic who said this, but Donald Tusk, President of the European Council, in a panel discussion recently held in Rome. Tusk is right. Nevertheless, mass signs of emancipatory resistance are also emerging, such as the Nuit Debout movement, in the tradition of the Occupy movement and the Spanish Indignados. This started in Paris and is spreading throughout France and other countries, along with other EU-wide platforms for alternatives for Europe.

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The economic and social situation is an integral part of the problem. Three decades of neoliberal dominance, austerity, dismantling of social welfare and an ever widening gap between the rich and the poor have created a general feeling of uncertainty and dissatisfaction. People increasingly believe that EU benefits and the type of globalisation which the EU promoted, e.g. through trade agreements, are unequally distributed. This is increasingly being translated into political instability. Moreover, the Greek crisis is back in full force, with a general strike as a response. Nevertheless, the EU continues to do business as usual. Jonathan Hill, the EU’s commissioner for financial regulation, continues to be the best lobbyist for the financial sector and The City of London in particular. In spite of rising concerns about financial stability, his design for the Capital Market Union (CMU) project is part of the attempt to roll back the modest financial reforms of the previous Commission, as Julian Müller examines in this newsletter. EU laws (MiFID II-MiFIR) that would limit (food) commodity price speculation are being delayed and weakened due to the demands of the finance and energy lobbyists.

The leaked documents from the TTIP and TISA negotiations and the CETA text confirm all the concerns and criticisms about how the Commission is negotiating trade agreements, including on financial services (see update below). Nevertheless, Chancellor Merkel and President Obama have declared that they want an agreement by the end of 2016. Although the leaked "Panama Papers" on tax evasion reveal that European politicians, firms and celebrities are deeply mired in this swamp of corruption, political action is too weak and lacklustre to stop tax avoidance and evasion once and for all, as Indra Römgens explores in this issue. 

Further issues in this newsletter show that the role of the ECB in dealing with the economic crisis is increasingly being criticised, and that discussions concerning "green finance" and climate-related financial issues are being discussed in the G20, ECOFIN and FSB without public debate, but in cooperation with business.

We hope that this issue on EU financial reform will provide you with an interesting update on the state of affairs. 

Your editorial team: Myriam Vander Stichele, Peter Wahl

The Capital Markets Union (CMU): Where it’s at and what is worrying
By Julian Müller, SOMO

Summary: The European Commission (EC) is quickly moving forward with its plan to create a Capital Markets Union (CMU). The proposal to regulate for “simple, transparent and standardised” (STS) securitisation was given priority, but has met some opposition. Other regulations have also been introduced, aiming for more non-bank business financing. The proposals expose a serious bias in favour of the financial industry, which has requested more and more deregulation.

Read the full article >

If Quantitative Easing is the Only Game in Town
By Peter Wahl, WEED

Summary: The ECB has considerably expanded its Quantitative Easing programme, in order to trigger growth and prevent deflation in the Eurozone. It is doubtful whether the programme will reach its goals, but Draghi is buying time by preventing a bankruptcy of the highly indebted member states. However, as long as austerity is imposed, growth will remain sluggish. The side effects of the programme, in particular the zero interest rate, create new problems and will provoke conflicts, first and foremost with the biggest player, Germany. In the meantime, no long-term solutions have been worked out, leading to potentially chaotic developments in the future.

Read the full article >

A new topic at the G20: “Green finance”
By Myriam Vander Stichele, SOMO

Summary: After China, which holds the Presidency of the G20, has introduced a “Green Finance Study Group” (GFSG), the issues on the agenda have already been reduced. The GFSG has focused on environmental issues, so that finance and investment are oriented on greener economic activities. This has led to the EU Ministers of Finance discussing the issue of “sustainable finance” for the first time, although the follow-up has not been transparent. At the same time, the financial sector is getting involved since it sees green finance as a new profit-making opportunity. It is also taking the lead in an initiative to disclose how much of its financing and assets are climate-related and at risk due to climate change.

Read the full article >

From BEPS to ATAP - the current EU state of tax affairs
By Indra Römgens, SOMO
 

Summary: Initiatives from the G20 to deal with tax evasion and avoidance have continued to be finalised through the OECD’s Base Erosion and Profit Shifting (BEPS) project. The European Commission (EC) launched an anti tax avoidance package (ATAP) in order to implement several BEPS agreements. In addition, the EC presented a proposal for country-by-country reporting that would require companies to break down certain financial data (such as tax payments) per country. Besides such policy developments, the biggest tax-related news is the release of the Panama Papers. The International Consortium of Investigative Journalists (ICIJ) – who were behind other major tax leaks such as #LuxLeaks and #OffshoreLeaks – presented the results of their analysis of 2.6 terabytes of data that expose “a system that enables crime, corruption and wrongdoing, hidden by secretive offshore companies”.

Read the full article >

Brief Updates

Contradictions in financial services negotiations under TTIP, TISA and CETA
While the debate over Transatlantic Trade and Investment Partnership (TTIP) makes headlines after Greenpeace leaked documents containing the current status of the negotiations, talks for a Trade in Services Agreement (TISA, involving the EU, US, Canada, some developing countries, etc.) are advancing with the aim of being concluded by the end of the year, without much public or political debate. Compromises are being reached on controversial issues, such as domestic regulations on licensing, qualification and technical standards for financial services, as well as the scope for allowing countries to take financial stability and other financial prudential measures. “Transparency” TISA rules will allow lobbies and others to comment on draft financial regulations. References to the implementation of international financial standards, including reliance on third-country regulations, supervision of non-EU financial services (providers) as well as provisions for dealing with tax evasion, are also being considered without strict obligations. All kinds of measures that are considered to prevent market access for financial services and their providers are to be broadly curtailed, without consideration given to non-trade concerns. New proposals allowing more market entry are to be submitted by TISA negotiators by 6 May, but it is unclear whether the EU will offer more openness on financial services.  

The EC claims that TISA financial services negotiators are also involved in the TTIP, and some TISA rules will form the basis for their TTIP counterparts, but there are many distinctions and contradictions. Before presenting its market access proposals for the US financial services industry, the EU continues to demand that cooperation on financial regulation be part of the TTIP – which the US still refuses to incorporate in TTIP. The leaked TTIP texts reveal that TTIP will contain a separate financial services chapter. The EC is proposing a necessity test before the introduction of state/national/EU financial prudential regulation, while the US wants to be able to legally challenge new financial prudential regulation if it is considered a breach of TTIP treaty rules (close to GATS and TISA formulations), both positions being different from that contained in the Canada-EU trade agreement (CETA). The EU wants CETA to be ratified in 2016 and to become operational in 2017, while the future of TTIP remains unclear. Perhaps a “TTIP light” will be concluded, allowing both sides to keep face before Obama leaves office. If not, there are too many imponderables, among them the possible BREXIT and the question of who will be the next president of the US.

Interestingly, the European Parliament’s trade committee has been discussing a draft report that exposes how trade agreements can increase money laundering and tax avoidance or evasion.

EU law on food speculation modified due to strong lobbying
The implementation of the EU law that includes limiting food price speculation via derivatives - MiFID II and MiFIR - has been subject to intense lobbying by the financial sector, commodity traders (especially energy multinationals) and NGOs. In a barely precedented move, a procedure is currently underway to change some elements of these EU laws, and to delay the implementation of most of the standards by one year compared to the original timeline, although only one standard (reporting) was considered problematic by businesses and supervisors.

The standards how to apply limits to speculative trading (“position limits”) with commodity derivatives had been proposed by the European Securities and Markets Authority (ESMA), under major influence by corporate lobbyists. This had been done in such a way that they would hardly have limited price speculation. NGOs raised concerns at the European Parliament, but many corporate lobbies also wrote to parliamentarians (MEPs) with their (opposing) concerns. The MEPs then decided to write the European Commission (EC) that the proposed standards were unacceptable. The EC asked ESMA to redraft the position limit standards, resulting in new proposals, which do not take most NGO concerns on-board (e.g. to take volatility into account). In May 2016,  ESMA will also have to propose new, most likely weaker, standards on how much speculative trading can be undertaken by non-financial actors such as oil multinationals (as an “ancillary activity”). The implementation delay, legal changes and new standards are likely to be agreed upon by the EC, EP and Council by mid-June 2016, without much public debate.

Calendar
For background to the official agenda of European institutions, see the following websites: The issues mentioned in the calendar are explained in this Newsletter.
 
May 2016

17, EC (Brussels): Public hearing about the EC call for evidence related to the regulatory framework for Financial services

23-24, ECON (Brussels): Debate on STS securitisaton and amendments of prospectus regulation; vote on delay and changes MiFID II and MiFIR

24, Eurogroup: Ministers meeting

25, ECOFIN: Minsters meeting

31, (London/New York): Deadline for submitting to  report for public consultation of FSB Task Force on Climate-related Financial Disclosures

May-June, EC: Expected delivery Regulatory Technical Standards on MiFID II Level 2


June 2016

1, EC (Briussels): Deadline for responses to the consultation on a proposal for a mandatory Transparency Register

13, ECON: Vote on prospectus regulation, debate on retail financial services

13-14, ECON: Hearing on STS securitisation
 
14, EC: Deadline public consultation on business insolvency framework within the EU

15, ECON: Workshop on sustainable aspects for the CMU

16, Eurogroup: Ministers meeting

17, ECOFIN: Ministers meeting

21, ECON: Scrutiny debate scheduled on  MiFID II

22, ECON: Scheduled publication of second  ECON draft report on STs securitisation
    

July 2016

11, Eurogroup: Ministers meeting

12, ECOFIN: Ministers meeting

13-14, G20,(Chengdu, China): Global Partnership on Financial Inclusion (GPFI)

23-24, G20 (Chengdu, China): Ministers of Finance and Central Banks’ meeting


Augustus 2016

31, G20 (Hangzhou): Deputies of Finance Ministers and Central Banks meeting


September 2016

1, G20 (Hangzhou, China): Deputies of Finance Ministers and Central Banks meeting

4-5, G20 (Hangzhou, China): Heads of State Summit

9, Eurogroup: Ministers meeting


October 2016

10, Eurogroup: Ministers meeting

11, ECOFIN: Ministers meeting

26-27, (Basel, Switzerland): Third GPFI Standard-Setting Bodies (SSBs) Conference at the Financial Stability Institute at the Bank for International Settlements on inclusive finance


November 2016

7, Eurogroup: Ministers meeting

8, ECOFIN: Ministers meeting

16, ECOFIN: Ministers meeting


December 2016

1, G20: Germany takes over G20 presidency from China

5, Eurogroup: Ministers meeting

6, ECOFIN: Ministers meeting