Issue 21 - December 2013
This newsletter is published by SOMO
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Grand Coalition, Small Ambition
Financial reforms in the new German coalition agreement
By Peter Wahl
After two long months of negotiations Christian Democrats (CDU/CSU) and Social Democrats (SPD) have agreed on a programme for a coalition government. The members of the SPD still have to agree to the document in a referendum by mid December, but there are no doubts that the majority will accept the text. The new government would then be established before Christmas. Looking at the three pages of the chapter on financial reforms - out of 185 - one can find a lot of business as usual and, with one remarkable exception, no innovative impulse.
In the middle of the mainstream
Apart from some strong language against speculation, the concrete proposals for regulation remain modest and in the middle of the mainstream. No concern is voiced over a reform process in the EU, which is stuck in the petty trifles of more than 20 different directives, or over the finance industry and its allies in governments, who try to water down any meaningful reforms. No fresh idea is being proposed by the biggest economy of the continent, thereby missing the opportunity to take a front-runner role in EU financial reforms.
The programme promises to implement Basel III, an accord that aims to regulate capital requirements, and refers to the proposals by the Financial Stability Board regarding shadow banking, that may lead to a draft law - perhaps in 2015. As for rating agencies, previous ideas for a European independent agency are not mentioned anymore. As for the banking structure, the parties declare their support for the Liikanen
report, that suggests a moderate and limited separation of investment banking while sticking to the old model of universal banking. However, it is uncertain whether the Liikanen
proposals will reach the stage of a draft directive. The issue of ‘too big to fail’ is not mentioned at all. The European banking union is welcomed, but the agreement does not go a single millimetre further than what has been negotiated already by the previous government. The document contains nothing on shrinking the finance sector, on closing the big casino and on subordinating finance to real economy.
FTT – the light in the darkness
However, there is one exception where the agreement pokes out of the shadows of grey mediocracy: the Financial Transaction Tax (FTT)
. The agreement sticks to a broad based tax, which explicitly should curb speculative business models. It even goes beyond the draft proposal of the European Commission as it includes currency spot transactions – the old idea of the Tobin Tax - into the tax base. In a currency spot transaction foreign currency is purchased and sold for immediate delivery. Spot trades are settled "on the spot", i.e. within 24 hours at the latest as opposed to at a set date in the future. The Commission had argued, that this would not be possible for legal reasons, as it would touch upon a holy cow of the EU: the free flow of capital.
As substantial negotiations between the eleven countries, willing to participate in the FTT, will start in January 2014, it remains to be seen how much the new government will be able to push through in the end.
Muddling through continues
All in all the agreement will not turn the tide in the sluggish process of financial reforms in the EU. Such a weak programme will not be able to cope with the challenges ahead. Muddling through will continue.
Summaries of the articles
Subsidised attacks on labour
The next tool under development to make member states stick to a course of neoliberal reforms is contracts on economic policy. These contracts enable the European Commission to push member states on reforms to increase competitiveness. They provide the Commission with a new way to indirectly reduce measures that protect labour and as such they can be significant. But, if it is up to the German government, this will be but one step in a much bigger project.
Read the full article >
A Bit of Action – the global and European initiatives against tax evasion and money laundering
Politics at EU and global level is tackling tax evasion and money laundering with ever stronger commitments. To address tax crimes by individuals, automatic information exchange was supported by G20 leaders and a growing group of countries has now decided to commit to the initiative. However, at European level real progress is still not taking place. On corporate tax avoidance, the G20 endorsed an Action Plan that is now implemented by the OECD. On money laundering, the main EU law is now debated in the Parliament and amongst governments. It is not clear yet if the most controversial issue – of public registers on beneficial ownership of companies and the like – will finally be seriously debated or whether a decision will even be reached. Without an active civil society monitoring all these processes, real progress is at risk.
Read the full article >
Brief update: Financial regulation further discussed by EU-US negotiators of a Transatlantic Trade and Investment Partnership (TTIP)
Van Rompuy and ObamaThe TTIP negotiations have continued amongst raising protests from civil society organisations and discussions even at parliamentary levels about the dispute settlement that would also allow banks and financial investors to sue governments over financial regulation. The EU-Canada FTA negotiations (CETA) have agreed that a special panel would have to judge whether financial measures would be ‘prudential’ and therefore exempt, or not, from the dispute settlement system.
The EC also strongly wants to have a financial regulation cooperation framework to be included in TTIP. After resistance by the US and new arguments and documents presented by the EC, there was a special EU-US negotiation session in Brussels on 27 November 2013. The EC clarified that the ultimate goals are that the EU and US laws would be based on ‘interoperability,’ i.e. the financial regulation / measures in one country would automatically be accepted in the other, and on international standards developed cooperatively by the EU and US in international bodies. To achieve this, the TTIP financial regulatory framework would aim at allowing banks and other financial companies with their home in one territory to operate in the other territory based on laws from the home country. Also, before a new law is presented to parliamentary bodies, it would be discussed (behind closed doors) within the TTIP framework. Although the US continued to oppose the EC proposals after the 27 November meeting, the item is again on the agenda on the 16-20 December 2013 negotiation session. For more details, see the SOMO website
Brief update: Final negotiations on Food Price Speculation and High Frequency Trading (MiFID review)
The European Parliament and the Council of Ministers are still negotiating behind closed doors in the ‘trilogue process’ on final compromise texts for a new Markets in Financial Instruments Directive
(MiFID-II/MiFIR) (for more information, see the October 2012 newsletter
, and the December 2012 newsletter
). The Directive’s draft regulation of food price speculation has again been under attack by the UK, who re-opened the debate about position limits for financial speculators. While this attempt is rather unlikely to be fully successful, the resulting discussion might water down the effectiveness of the rules and give national authorities much more leeway in the interest of speculators. By 6 December 2013, the negotiators were still horse trading between the financial sector interests especially of those from the UK and Germany which makes the outcome difficult to predict. Controversial issues are the potentially too weak rules on high frequency trading
, which players and instruments are covered by the new laws, trade transparency, investor protection, regime on third country firms, sanctions, and access to clearing. What was agreed regarding the obligation of current over-the-counter (OTC) derivatives
to be traded on trading platforms, might result in most OTC trade moving to the newly created and lightly regulated platforms called “organized trading facilities” (OTFs).
Brief update: Benchmark index regulation to prevent another Libor scandal
On 18 September 2013, the European Commission (EC) proposed a Regulation on the ‘use of indices serving as benchmarks in financial and other contracts’
. The Proposal is a reaction to the different scandals around benchmarks such as the Libor (the benchmark of the London interbank offered interest rate) and the Euribor (the benchmark of interest rates among European banks in Euro), that serve as the basis for billions of financial products. These benchmarks were manipulated by banks and consequently the banks were fined or a settlement was reached (totaling around 6 billion dollars in total so far
). Some banks still have to be sanctioned. While the EC proposal to prevent such fraud in the future seems a step in the right direction, further improvements are required. (See for example Finance Watch’s submission
to the EC’s consultation in 2012.)
Brief update: European Long Term Investment Funds
In June 2013, the European Commission made a proposal to introduce a new type of fund called the ‘European Long Term Investment Fund’ (ELTIF). The overall aim was to make it easier for investors to put money into companies and projects that need long-term capital. The ECON committee of the European Parliament is currently discussing its position and is likely to vote on 23 January 2014
. As Finance Watch explains, key issues on which amendments are expected include the scope (e.g. limiting investments to infrastructure assets), access of retail investors to ELTIFs, and possibilities for leaving the fund early (‘early redemption’). In a hearing, Finance Watch also warned
that ELTIFs could foster further privatisation of public infrastructure, with negative effects for society. A more detailed assessment will follow in the next newsletter.
The ECON will also vote on a report on long-term financing of the European economy
in January 2014
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.
- 9-13, EP (Strasbourg): Plenary, vote scheduled on Recovery and resolution framework for non-bank institutions
- 12-13 NGOs (Brussels): TTIP strategy meeting
- 16, JURI (Brussels): Vote on Non-financial Reporting, possibly including country-by-country reporting on taxes for large companies
- 16-17, ECON (Brussels): Meeting
- 16-20, TTIP (Washington): Negotiation session
- 19-20, European Council (Brussels): Heads of State Summit, Agenda includes Taxation and contracts for Economic Policy Coordination
- 1, Council (Brussels): Greek Presidency begins
- 1, G8: Russian Presidency begins
- 1, G20 (Canberra): Finance Ministers and Central Bank Deputies meeting
- 9, ECON (Brussels): Meeting
- 13-16, EP (Strasbourg): Plenary, possibly vote on MiFID-II and MiFIR
- 20, ECON (Brussels): Vote scheduled on Long-term financing of the European economy
- 21, ECON (Brussels): Meeting
- 22, ECON (Brussels): Vote scheduled on Money laundering and terrorist financing
- 23, ECON (Brussels): Vote scheduled on the European Long Term Investment Fund
- 27, ECON (Brussels): Meeting
- 27-28, ECOFIN (Brussels): Meeting (also Eurogroup meeting)
- 30, ECON (Brussels): Vote scheduled on Indices used as benchmarks in financial instruments and financial contracts
- 1, ECON (Brussels): Meeting
- 2-3, EP (Strasbourg): Plenary
- 14-17, EP (Strasbourg): Plenary, 1st reading/single reading on Money Market Funds
- 7, ECON (Brussels): Meeting
- 5-6, OECD (Paris): Annual Forum
- 15-16, European Council (Brussels): Meeting
- 22-25, EP (EU member states): Elections
- 5-6, G8 (Sochi): Heads of State Summit
- 17-19, C20 (Melbourne): Summit civil society organisations in the G20 process
- 26-27, European Council (Brussels): Meeting
- 15-16, G20 (Brisbane): Heads of State Summit