view online | send to a friend
Issue 31 - 02 December 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.

Dear readers,
As you will have realised, the release of the previous issue of this newsletter dates back to July 2015. There are two linked reasons why it took five months to edit the current issue: first, the funding for our work on financial market reforms has expired, and second, there are no real financial reforms taking place any more at the EU level. The momentum has run out. On the contrary, with the Capital Market Union project, counter-reform has been launched and the voice of the financial industry lobby dominates EU financial policies.
However, SOMO and WEED will continue to issue this newsletter. Because in contrast to the EU’s official opinion that most financial reforms have been achieved and that the system is now safe, we are convinced that the basic problems have not been solved. The financial system is still too big and too complex, and the financial sector is too interconnected to be efficiently regulated and controlled by democratic politics. In the event of a new financial crash, which will inevitably come sooner or later, the backstops of the reforms will not be sufficient.
In addition to inadequate reforms comes the pressure of further critical factors, such as the unresolved debt crisis in Greece, Italy, Spain, Portugal and other countries, economic growth rates in the Euro-zone which are hardly above stagnation, a currency that is structurally hampering a substantial improvement to the economic situation and a crisis management that, at best, can buy some time, as the rescue package for Greece from last summer has shown. Although the European Central Bank is desperately trying to trigger growth by flooding the financial markets with money while protecting indebted countries through interest rates close to zero, it has not been possible to turn the tide. Except for bubbles on the stock markets and some real estate markets, there has been no real result. It seems that even the instruments of the central bank are failing to keep the challenges under control.
Even if the UK does not exit the EU, centrifugal tendencies and decline will be accelerated. As a condition to remain in the EU, the UK intends to block all financial reforms that threaten the profitability of London as a financial centre.
The problem-solving capacity of the EU in general is already totally overstretched. With terrorism, war and civil war in its immediate neighbourhood, as well as migration and rising right wing forces in almost all member countries, governments will be even more absorbed by managing chaos. In other words, we have to prepare ourselves for a long period of multiple crises in Europe.
We shall continue to accompany the political economy of the EU with short background information and critical comments about ongoing financial decisions at EU and G20 level. We think that civil society has to continue to warn about the continuing risks and deficiencies in financial policies, something that this newsletter intends to be instrumental in. We plan to edit at least one edition of this newsletter per trimester. In extraordinary situations, we shall increase the output.
We hope that we can continue to provide a useful publication to you, and donations to SOMO or WEED are welcome.
Your editorial team: Myriam Vander Stichele, Markus Henn, Peter Wahl

Share this email

Tackling too-big-to fail banks and other measures: are banks being reformed?
By Myriam Vander Stichele, SOMO

Summary: The European Parliament still has not made a decision on a new law that would prevent exceedingly risky activities from being undertaken by too-big-to-fail banks. Many attempts are being undertaken to make new bank reforms as weak as possible. Some other measures to deal with unstable banks are being implemented or proposed at EU level. At the international level, extra standards have been agreed that would prevent taxpayer money from being used for saving systemically important banks.  In the meantime, shadow banking is growing and becoming more acceptable, but is only very slowly being regulated. According to the European Banking Authority, all these measures still have not resulted in very stable European banks, nor in a stable financial system, according to UNCTAD. Interestingly, the G20 has requested that more work be done on the impact on climate change on the financial sector, e.g. on investments in real estate that can be destroyed by heavier storms, or investments in the coal industry.

Read the full article>

Capital Markets Union – now it's serious!

By Julian Müller, SOMO

Summary: With the recent release of the Capital Market Union (CMU) Action Plan, an ambitious and detailed work agenda for the next four years, the European Commission’s “flagship project” creating a Capital Markets Union, has entered the phase of serious and detailed work. Some legislative proposals are already on the table and three consultations have been launched. The Commission is clearly intent on wasting no time and feels empowered by what it says is “universal support” for CMU. However, civil society has already voiced disagreement and will have to try hard in the coming weeks and months to bring its concerns to the public’s attention in order to undermine the Commission’s claim of universal support and open up space for discussion at the EU and national levels.

Read the full article>

G20's measures against corporate tax avoidance raise doubts
By Markus Henn, WEED

By London Summit The G20 have agreed on a large package of measures against corporate tax avoidance. The final measures include the refining of how transnational corporations are required to price their internal business transactions (like payments for goods, intellectual property or loans), an abolishment of some very harmful tax breaks, several anti-avoidance rules and more transparency, particularly for country-by-country reporting of business and tax figures. While the package has some real merits, the G20 have not effectively abolished all important tax avoidance channels, transparency is limited to authorities, and an important systematic solution to the problem was neglected. There are also some open issues which need to be resolved in the next year or even beyond.

Read the full article>

Brief updates

Brief update: FTT: Light at the end of the tunnel
As reported in our last newsletter, negotiations on the Financial Transaction Tax among the eleven EU countries under the Enhanced Cooperation Procedure had entered the decision-making phase. Coordinated by Austria, solutions have been found on the so-called “core engine”. There is cautious optimism that the cornerstones of an agreement can be announced at the 8 December 2015 ECOFIN meeting. This would also fit into the strategy of French President Hollande to announce a result at the current UN Climate Summit in Paris. France wants a share of the revenues of the FTT to be channelled into climate and development finance.
The major conflicts have been settled. As for the FTT on derivatives trading transactions, there will only be one minor exemption: Derivatives whose underlying bases are 100% public bonds will not be taxed. Ideas such as exempting intra-day trade are off the table.
As regards taxing trading for market making, the consensus is that only shares will be exempted. But there are still different opinions on the definition of market making. The goal is to find a compromise which allows for taxing proprietary trading while exempting market making for really illiquid markets. One final issue yet to be settled is whether to only tax shares issued in the 11 EU countries rather than all shares traded by EU11 resident institutions. A possible compromise might be to allow for country-specific approaches.
Once the decision on this “core engine”, as negotiators call the overall package, has been made, technical and legal work will have to be completed, which could take until summer 2016.
If there is no bad last-minute surprise, the agreement would lead to a tax, which, of course, will be watered down to a certain extent. However, the current compromises will not lead to a catastrophically weak FTT, as they seemed to be heading for a while, and which would have been totally unacceptable for civil society. If the final result reflects the current state of negotiations, the deal would also be acceptable for civil society.

Brief update: EU regulators weaken EU law to limit food speculation (MiFIDII-MiFIR)
The implementation of the new MiFID II / MiFIR law that imposes limits on derivatives contracts that speculate on food or other commodities, including energy (for background, see February 2015 Newsletter), is being weakened in different ways by the European regulators, who published proposals to set the technical standards for applying the laws on 28 September 2015.
Firstly, the European Securities Markets Authority (ESMA) proposed that speculative contracts held by one person/company can consist of up to 35% of the derivatives trade on a commodity exchange. In general, national authorities should have the choice to impose position limits per person/company and per commodity exchange of between 5% to 35%, even though 5% in the hands of one speculator can already have a significant effect on some exchanges. Secondly, ESMA did not propose how market and price volatility on financial commodity exchanges should be taken into account when deciding on position limits, even though this is part of the legal text and a major reason why position limits were being called for after spikes in food prices had caused hunger and food riots. Thirdly, there is a weak regulatory standard on how to assess whether a non-financial company or person that is very active in speculative commodity derivatives trading should be subject to stricter regulation and even be required to hold capital reserves (i.e. a weak definition of “ancillary activity” for large commodity traders). Fourthly, ESMA is asking for a one-year delay in the application of MiFID II-MiFIR, arguing that all required data collection and reporting instruments cannot be in place by 1 January 2017.
The ESMA position has been very much influenced by the financial and the energy industries, which have been lobbying heavily, as can be seen in position papers and the media. The European Parliament has protested these developments and is negotiating with the European Commission to improve and/or find compromises on the ESMA proposals.

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


  • 1, G20: China takes over G20 Presidency
  • 1, ECON (Brussels): Meeting
  • 2, EP (Brussels): Plenary
  • 7, ECON (Brussels): Meeting
  • 7, Eurogroup (Brussels): Meeting
  • 14-17, EP (Strasbourg): Plenary
  • 17-18, European Council (Brussels): Meeting
  • 31, G7: End of German Presidency