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Issue 29 - 27 March 2015
This newsletter is published by SOMO and WEED.

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Summaries of the Articles

Shadow banking: G20 taking their time, EU financial lobby acts
By Markus Henn, WEED

Shadow banking remains a big open issue of financial reform, both at international and EU level. While the G20 and the Financial Stability board are still shaping the last regulatory recommendations, the EU's law proposals on two shadow banking aspects - a specific type of fund and certain lending activities - are being negotiated. However, the European Commission's law proposals were watered down in the European Parliament, and the Council will probably not strengthen the regulation either. Thus it seems that shadow banks will not be strictly regulated in the EU.

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Greek drama before final showdown?
By Peter Wahl, WEED

The conflict between the Greek government and the Berlin-Troika bloc over the solution to the crisis is becoming more and more dramatic. If there is no rapid solution, Greece will be insolvent in April. But a Grexit would be a disaster for the EU, too. There is a chance that the protagonists will continue to muddle through. In the long run, this will deepen the crisis.

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Brief Updates

Brief Update: Too-big-to-fail banks: will they be restructured, and if so, how much?

The legislative proposal to restructure banks that are too risky for the financial system and would have to be bailed out if they fell into crisis is still highly disputed in the European Parliament (EP) and the Council of Finance Ministers (ECOFIN) (see also previous Newsletter). The EP’s ECON committee did not vote on a compromise text in March due to very divergent opinions. While left-leaning parties want a benchmark that would lead to automatic separation of the riskiest parts of a bank into a different legal entity than the part responsible for basic banking functions, right-leaning parties want a far less automatic separation and have given supervisors the mandate to assess each bank separately. A compromise text is not expected before late March 2015, and a vote in the ECON not before mid-April.

Progress in the ECOFIN is also proceeding at a slower pace than planned. German and French government amendments foresee minimum reforms, e.g. merely separating and not banning betting on own account (proprietary trading), and providing a good deal of discretion to national supervisors, in line with their national reforms. In contrast, the UK has introduced a much stricter separation, or “ringfencing”, based on the Vickers Commission, and is looking to opt out of any weaker EU law. The Netherlands has been in favour of automatic separation and in its 2014 annual report, the Dutch Central Bank just proposed capping the size of European Banks. There are not many national debates about this issue, but FW blogs expressed some critical views (see here, for instance).


Brief Update: Tackling tax avoidance: EU Commission wants a bit more transparency
The debate about reforming corporate taxation in the EU (for background, see December 2014 Newsletter) led the European Commission (EC) to propose a “tax transparency package” on 18 March 2015. At its core is a draft law requiring all EU states to inform all other EU states about their cross-border tax rulings, i.e. decisions taken in advance by tax authorities regarding the taxation of a particular company. However, EU states already had the duty to inform other states in the case of tax impacts, pursuant to a law from 1977. As this law was not taken seriously by Luxembourg and the likes, it is not clear yet how well the new proposal will work – and if it will be endorsed by the member states. Furthermore, the EC’s package includes checking the economic effects of financial reporting for large companies on a country-by-country basis. The effects (e.g. on investment) of this reporting by banks was already checked last year and the EC concluded that they were positive. Finally, the EC’s package includes reviewing the EU’s “Code of Conduct on Business Taxation” and collecting more data on tax evasion and avoidance in the EU. The EC announced a second package with rules against tax avoidance and for tax harmonisation by summer 2015. To push for a strong reform, 30 European NGOs wrote a letter to the President of the Commission Juncker in March 2015. A response is pending.

The European Parliament is also active on its own, with a new special committee TAXE on corporate taxation, accompanied by the "annual tax report", a report on "Tax avoidance and tax evasion as challenges for governance, social protection and development in developing countries" and a legislative initiative on “bringing transparency, coordination and convergence to corporate tax policies in the Union.”

Meanwhile, the OECD and the G20 are continuing work on their Action Plan against “base erosion and profit shifting”, with many draft texts in the last months and critical replies from the “BEPS monitoring group”. The OECD will release further draft texts to complete the Plan in upcoming months.

International civil society work is also supported by a new “Independent Commission for the Reform of International Corporate Taxation”, which aims for a wider and more inclusive discussion on international tax rules.

Brief Update: Capital Markets Union
On 28 January 2015, the Commission announced that it had started work on its “flagship project” to integrate and deepen European capital markets (for background and a critique, see previous Newsletter). A few weeks later, on 18 February, it presented its Green Paper “Building a Capital Markets Union” together with a more technical Staff Working Document that explains the thinking behind the project in greater detail. Both papers contain no surprises, but they clarify the agenda for the future as well as the thinking and discourse behind the project. The Green Paper, in particular, identifies five priority areas for short-term action:
  • High-quality securitisation, probably the most controversial part of the project, and the prospectus regime for investment funds;
  • Standardisation of credit information about SMEs in order to make them investable for non-bank investors who traditionally have little access to such information;
  • Measures to boost long-term investment;
  • Inclusion of the European Long-term Investment Funds (ELTIF, see February 2014 Newsletter);
  • Supporting the development of a European market for privately issued corporate debt (private placement).
Furthermore, the Paper also lists a number of regulatory and legal areas in which national frameworks would have to be harmonised to create an integrated capital market (the “single rulebook”). Among them, insolvency laws, corporate governance regimes and diverging tax treatments for financial instruments. There are no concrete proposals yet, as these have to develop out of the consultation phase.
 
The release of the Paper initiates a phase of public consultation that will last until 13 May 2015. Alongside this consultation, two parallel discussions have been launched that focus specifically on two CMU-related areas: “simple, transparent and standardised” securitisation and the review of the Prospectus Directive.

Calendar
For background to the official agenda of European institutions, see the following websites: The links below give the website with updates and overviews of documents and dates related to the EU decision making process

March April
  • 14, ECON (Brussels): Meeting, vote scheduled on Structural measures improving the resilience of EU credit institutions
  • 15, EP (Strasbourg): Plenary
  • 17, G20 (Washington): Finance Ministers and Central Bank Governors meeting
  • 17-19, WB/IMF (Washington): Spring meetings
  • 18 (NGO): Global TTIP action day
  • 20, ECON (Brussels): Meeting
  • 22, UN (New York): ECOSOC meeting on international cooperation in tax matters
  • 24-25, ECOFIN (Brussels): Informal Meeting
  • 27-30, EP (Strasbourg): Plenary, debate scheduled on Money Market Funds
  • 29-30, LATINDADD-GATJ (Lima): Conference International Tax Justice & Human Rights
May June
  • 7-8, G7 (Schloss Elmau, Germany): Heads of State Summit
  • 8-11, EP (Strasbourg): Plenary
  • 8, EC (Brussels): presenting consultation results
  • 15-16, ECON (Brussels): Meeting
  • 16, Eurogroup (Luxembourg): Meeting
  • 19, ECOFIN (Brussels): Meeting
  • 24, EP (Strasbourg): Plenary, indicative sitting on European Fund for Strategic Investments
  • 25, ECON (Brussels): Meeting
  • 25-26, European Council (Brussels): Meeting
July  September October November December
  • 1, G20: China takes over G20 Presidency
  • 1, ECON (Brussels): Meeting
  • 2, EP (Brussels): Plenary
  • 7, ECON (Brussels): Meeting
  • 14-17, EP (Strasbourg): Plenary
  • 17-18, European Council (Brussels): Meeting
  • 31, G7: End of German Presidency