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Issue 15 - 7 December 2012
This newsletter is published by SOMO and WEED. It is part of a common project on EU regulation of financial markets. Other project partners that contribute to the newsletter series are: AITEC, Glopolis, New Economics Foundation, Vedegylet.

You can download this newsletter as a PDF here.

Subscribe to the EU Financial Reforms newsletter here.


Editorial
While the EU seems to be in a mood about ‘more regulation’, these magical words still await implementation and fail to fundamentally tackle the risky financial sector. Worse, important reforms are being delayed. Decisions on a European level are swiftly made that undermine democracy in EU member states on how they can decide about their own public budgets. At the same time, severe cuts in public spending are imposed after huge money was spent to save the unregulated financial sector. So far, changes in decision-making processes on financial reforms have not been made, leaving the financial sector free to organize an aggressive lobby.

This newsletter reports about several financial reforms that are ongoing. The reform regarding credit rating agencies is already decided upon, as explained in this newsletter. The new EU directive however, leaves out the fundamental reforms that were called for. This is of importance not only to EU member states, but also to developing countries since CRAs affect creditworthiness of developing countries.

In this newsletter:

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New proposals and discussions are plenty, e.g about shadow banking. An important discussion about the issue that many banks are too big to fail, and about the structure of banks, was stimulated by the report of a group of experts, chaired by the Finnish central bank governor Liikanen. This newsletter reveals what the ‘Liikanen report’ proposes, and what is still lacking, leaving societies still vulnerable to many financial stability risks.

Finally a discussion has started in Brussels about how free trade agreements, that include agreements on financial services, are being negotiated by the EU. These agreements lead to limitation of regulatory power and can contradict, and even undermine, crucial financial reforms.

Summaries of the articles in this issue

Regulation of food speculation delayed
The European Decision Makers have not made any real progress in regulating food speculation and high-speed trading in the MiFID review. The European Parliament’s plenary approved the position proposed by its responsible committee. However, the Council of Ministers did not manage to make a decision. Therefore, a delay until at least February 2013 is likely and the end of the whole process might not be reached before Summer 2013. Meanwhile, the implementation of the Regulation covering over-the-counter derivatives trading (EMIR), which came into force in August this year, moves forward. The EU’s responsible authority ESMA has released its draft technical standards which will now have to be approved by the European Commission.

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EU institutions agree on credit rating agency regulation
EU flag
The European Institutions have agreed on a political compromise involving a new EU law on credit rating agencies (CRAs), after previous reforms were being criticised of being too weak and unduly worsening the credit status of countries. The presently agreed compromise for a new Directive will bring some important changes to the business of the agencies. However, many really strong measures have not survived the EU law making process. The political compromise between the Council and members of the European Parliament (EP) will have to be finalised on the technical level before being voted on during the Parliament’s plenary in January 2013.

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Shadow banking: $ 67 trillion coming out of the shadows
Euro in the shade
Shadow banking, which contains all bank-like activities not fully covered by banking rules, remains high on the political agenda. The European Parliament (EP) has now set its own position following the Green Paper published by the European Commission earlier this year (see also previous newsletter). In the meantime, on an international level, the G20’s Financial Stability Report has proceeded with its attempts to regulate shadow banks.

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New free trade agreements threaten financial reforms
IFSC Dublin
Promoting exports in financial services is considered a way out of the financial crisis by the EC. Therefore, the EU is negotiating free trade agreements in the WTO and with different countries or regions around the world that liberalise financial services. However, there is no consideration whether sufficient regulation and supervision is in place. Nor is there a revision of the free trade rules that restrict financial regulation and contradict current and future financial reforms. Worse, the EU is expanding its mandate and requires that prudential measures that undermine the protection of foreign investors in financial services can be disputed by investors and can be made subject to investor-to-state dispute settlement.

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Liikanen Report: Half-hearted attempt to solve the “too big to fail” problem
office buildingsProposals how to deal with banks that are “too big to fail” were presented by an expert group, appointed by the European Commission (EC) and lead by the president of the Finnish central bank, Mr. Liikanen, who submitted a report in October 2012. The report’s core proposal is that there should be a mandatory separation in banks between their major risky activities and their commercial banking activities, while being allowed to stick to the European model of universal banking. However, these proposals are not really capable of solving the problem but are a step towards more stability, writes Peter Wahl. A consultation by the EC on the ‘Liikanen report’, in which criticism could be expressed, was closed on 13 November 2012. At the same time, many bank reforms are being delayed.

Read more >

Calendar
For background to the official agenda of European institutions, see the following websites:
December
  • 7, Paris (ESMA): Consultation closes on Guidelines on remuneration policies and practices (MiFID)
  • 11-12, Moscow (G8 and G20): CSO/NGO strategy meeting
  • 10-13, Brussels (EP): Plenary meeting, with vote on the EU-Colombia/Peru trade agreement and EU-Central America association agreement.
  • 13-14, Brussels (European Council): Summit meeting of heads of state
  • 13-14, Brussels (NGOs): Strategy meeting ALTER-SUMMIT (info@altersummit.eu)
  • 15, Brussels (NGOs): preparing action ALTER SUMMIT (kenneth@attac.dk)
  • 17-18, Brussels (ECON): Meeting
  • 20, Frankfurt (ECB): Governing Council and General Council meeting
  • 28, Brussels (EC, DG Internal market): consultation closes on a possible framework for the recovery and resolution of nonbank financial institutions

2012
January
  • 1, Brussels (EU): Irish presidency starts
  • 4, Brussels (EC, DG Taxation): Consultation closes on review of existing legislation on VAT reduced rates
  • 10, Brussels (ECON): Meeting
  • 14-17, Brussels (EP): Plenary meeting, expected vote on CRD IV and CRAs
  • 21-22, Brussels (ECON): Meeting
  • 22, Brussels (ECOFIN): Meeting
  • 30-2 (Feb), Davos (Switzerland): World Economic Forum Annual Meeting
February
  • 7,8, Brussels (European Council): Summit meeting of heads of state
  • 12, Brussels (ECOFIN): Meeting (potential agreement on MiFD)
  • 18-19, Brussels (ECON): Meeting
  • 25-26, Brussels (ECON): Meeting
March
  • 5, Brussels (ECOFIN): Meeting
  • 11-14, Brussels (EP): Plenary meeting, expected vote on MiFID report
  • 14,15, Brussels (European Council): Summit meeting of heads of state
  • ca. 15, (NGOs): ALTER Summit
  • 20-21, Brussels (ECON): Meeting
  • 21, Frankfurt (ECB): Governing Council and General Council meeting
  • 26, Brussels (ECON): Meeting
  • 26-30, Tunis (World Social Forum): Annual meeting
  • 30, South Africa (BRICS): The 5th BRICS Summit