view online | send to a friend
Issue 28 - 11 February 2015
This newsletter is published by SOMO and WEED.

You can download this newsletter as a PDF (346KB) here.

Subscribe to the EU Financial Reforms newsletter.

Summary of the Articles

Capital Markets Union: A new EU policy to look out for
By Julian Müller, SOMO

The Capital Markets Union (CMU) is a new Commission project that aims to integrate and deepen capital markets in the EU28 in order to stimulate investment and diversify funding sources for European businesses. It is still in the initial stage, but public consultation will begin soon, leading to an action plan in the third quarter of 2015. Whether CMU will stimulate growth and jobs in the short term is doubtful, since its long-term structural goal is to shift Europe’s financial system away from heavy reliance on banks towards capital markets. This might even increase problems with financing the real economy and lessen financial stability.

Read the full article >

Share this email

No Happy New Year for the EU
By Peter Wahl, WEED

The economic and political pro-spects of the EU for 2015 are gloomy. Besides sluggish growth, deflation is looming, the Euro is depreciating considerably and the Greek cri-sis is leading to a lot of uncertainties. The massive intervention of the ECB could prove to be ineffective as demand remains weak, and the investment programme of the EU Commis-sion is too small. Political challenges such as the potential breaking away of the UK from the EU and the war in Ukraine are leading to a complex knot of crises for which EU structures lack the necessary problem-solving capacity. Hence, the EU in 2016 will not be the same as it is today.

Read the full article >

Brief Updates

Little restructuring of too-big-to-fail banks by the European Parliament and Council of Ministers
On 22 December 2014, Gunnar Hökmark, the European Parliament's rapporteur for the EU’s reform to restructure too-big-to-fail banks, released his draft report.  The report will amend the Commission’s proposal (for details on the reform see Newsletter December 2014). The Parliament's responsible committee (ECON) will vote on the report on 23 March 2015 and a plenary vote is indicated for 28 April.
According to Finance Watch, the Hökmark amendments would prevent separation between basic banking and speculative banking activities because they would “make bank structure reform ineffective” and “substantially weaken the objectives, scope, definitions, mechanism and sanctions in the Commission’s original proposal.”
The amendments would have the following effects, amongst others:
  • The bank restructuring law will not be applied equally in all EU countries because national authorities will be allowed to decide on important differences.
  • Many fewer banks would be covered by the law, possibly only five in the entire EU.
  • A separation of a bank would only be required in cases in which the resolvability of a particular bank is threatened, but not if there is a general threat to financial stability.
  • The risky relations between banks and investment funds, including speculative hedge funds, would be relaxed.
  • Derivative trading would be separated less from basic banking, which would mean higher risks for the part of the bank that is to be bailed out in times of crisis.
  • Rules reducing the risks from large credits to other banks would be significantly weakened.
  • Prohibition of trading and speculation at the bank’s own risk (“proprietary trading”) would be significantly weakened.
The ECON committee is under heavy pressure from the financial lobby. Therefore, the Hökmark draft raises concern that the committee will buckle under this pressure. The parallel deliberations at the Council of Finance Ministers might weaken the proposed law further, as different governments have openly voiced opposition to the further restructuring of banks. The entire law is even at risk of being withdrawn.

New momentum for the Financial Transaction Tax
In the December 2014 issue of this newsletter, we reported that the negotiations on the Financial Transaction Tax (FTT) among the eleven countries participating in the project (the “coalition of the willing”) had been stalled due to the resistance of France to include derivatives in the tax base.
However, on 5 January 2015, French President François Hollande announced a U-turn, stating that France would accept taxing derivatives under the condition of lower tax rates than the EU Commission had proposed (0.01%).
The change in the French position is the result of pressure both from civil society in December 2014, which was widely covered by French media, and from the Social Democrats in Austria and Germany on their French sister party.
In the meantime, the “Coalition” has set up an informal structure, with Austria as a political facilitator and Portugal as a facilitator for technical issues. Such a structure, which had been missing until now, is meant to dynamise the process and should lead to a decision point by the end of the year.
The French concessions are a clear success for the supporters of the FTT, while the banking lobby is disappointed. In a leaked letter to the Latvian finance minister – Latvia holds the EU Presidency in the first half of 2015 – they lament: “Given the clear evidence of the potential damage of an FTT to investment, growth and jobs, we urge you to withdraw the proposal.”
Apart from the fact that the Presidency does not have the right to withdraw the proposal, the informal structure of the “Coalition” makes negotiations independent from any influence of any non-participating government.

Proposed standards for commodity derivatives weaken the law (MiFIDII-MiFIR)
After the new EU laws on commodity derivatives – MiFIDII and MiFIR (see Newsletter February 2014) – started to come into force in July 2014, still quite some technical details to implement these laws needed to be decided on. The European Securities and Markets Authority (ESMA) has proposed the first part of the technical standards at the end of December 2014, that need to be confirmed or amended by the European Commission and approved by the European Parliament and Council – a cumbersome process.
Technical details can strengthen or weaken the laws on (food) commodity derivatives (see for instance here). The current ESMA proposals are enhancing loopholes in the law, for instance by extending the definition of oil derivatives that get many exemptions from the regulations. The proposals also undermine transparency by preventing weekly public reporting of trade in a particular derivative. ESMA proposes to stop public reporting 3 months after  there are less than 30 participants having an open contract in a derivative, which is a situation that is, or might be, the case for many derivatives contracts e.g. for cocoa.
ESMA is consulting on its website on the second part of technical standards to be decided on, such as how to concretely limit the speculation in commodity derivatives (detailed standards for position limits), detailing transparency requirements for all trading (shares, derivatives), and defining when a commodity company is to be treated as a speculator. The deadline for the written consultation is 2nd March 2015. A hearing on the same issues will be held on 19th February 2015 in Paris.

Ownership register agreed in EU Anti-Money Laundering Law
The European Institutions reached a final agreement on the reform of the EU’s anti-money laundering law end of last year which was formally endorsed by the two responsible Parliament committees on 27 January (for background Newsletter March 2014). Now only some last technical details need to be settled and the final text needs to be officially published. The law will then be directly valid throughout the EU as it is a regulation.
The revised law will bring several enforcements of anti-money laundering policy. The most important is a duty for all member states to set up a register indicating the natural persons owning, controlling or benefitting from a company, foundation or trust. However, the register will not be fully public, as has been called for before and criticized afterwards by civil society during the negotiations: Instead, the information on companies and foundations is only available to persons that can prove a “legitimate interest”. And, the information on trusts will be only available to authorities. Finally, there is also the risk that the coverage of trusts is not sufficient due to a clause that there needs to "generate a tax consequence". This loophole was even officially criticized by Austria.
The new law will also bring various other improvements such as a better sanctioning, the better tracing of transfers of funds, and the stricter dealing with “Politically Exposed Persons”, i.e. high ranking politicians or other powerful people committing a money laundering crime. However, there are also other shortcomings, for example sanctions will not be regularly published.

EU Regulation on how to calculate important price indicators in the financial markets
A new legislation in the EU attempts to prevent scandalous behaviour by the financial industry, which was exposed after the financial crisis. Banks had been manipulating the indicators of the interest rate which they were paying when they were borrowing themselves. Not only these so-called ‘benchmarks’ or ‘indices’, such as the LIBOR and EURIBOR for interest rates, but also some benchmarks for foreign exchange rates and even commodity prices were being manipulated (see also December 2014 Newsletter). These benchmarks are used in financial instruments and financial contracts, including mortgages and derivatives, so that millions of clients paid higher prices than would have been needed while banks, amongst others, were profiting.
In order to avoid manipulation due to conflicts of interest as well as badly and non-regulated processes, contributors and governance to decide on the daily indices, the European Parliament is deciding on a Regulation ‘on indices used as benchmarks in financial instruments and financial contracts’ and will vote on the report by the European Parliament’s ECON committee on 5 March 2015 after a hearing was held on 11 November 2014. In the meantime, decision making in the Council of Finance Ministers is also progressing according to a compromise text on 21st January 2015.

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
February March  April
  • 14, ECON (Brussels): Meeting
  • 15, EP (Strasbourg): Plenary
  • 17-19, WB/IMF (Washington): Spring meetings
  • 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
  • 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
  • 16, Eurogroup (Luxembourg): Meeting
  • 19, ECOFIN (Brussels): Meeting
  • 24, EP (Strasbourg): Plenary
  • 25-26, European Council (Brussels): Meeting
July September
  • 7-10, EP (Strasbourg): Plenary
  • 16, EP (Brussels): Plenary
  • 5-8, EP (Strasbourg): Plenary
  • 9-11, World Bank/IMF (Lima, Peru): Annual meetings
  • 14, EP (Brussels): Plenary
  • 14-16, European Council (Brussels): Meeting
  • 26-29, EP (Strasbourg): Plenary
  • 11, EP (Strasbourg): Plenary
  • 15-16, G20 (Antalya): Summit
  • 23-26, EP (Strasbourg): Plenary
  • 25, EBA (London): Public Hearing on simplified obligations
  • 1, G20 (Chima): China takes over G20 Presidency
  • 2, EP (Brussels): Plenary
  • 14-17, EP (Strasbourg): Plenary
  • 17-18, European Council (Brussels): Meeting
  • 31, G7: End of German Presidency