Authors Iain Begg | Gabriel GlÃ¶ckler | Anke Hassel ... - The Europaeum

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Belgium, the Netherlands and Luxemburg nationalised it by pouring in billions of euros. The bank was divided in three, with each section rescued by the corresponding government. With Fortis, this sort of cross-national geographical distribution was relatively easy, but several other large EU banking groups are much more difficult to divide between countries. In Fortis’ case, no European solution was possible. The ECB can only provide liquidity against collateral to keep the money market functioning – and indeed has earned praise for the speed at which it pumped cash into a frozen financial system. But the ECB has no powers to resolve a solvency crisis. In the absence of a European Treasury, such operations can only be carried out by national authorities – who are naturally reluctant to pay for the rescue of banks abroad. 9 In the months that followed the outbreak of the crisis, financial protectionism was evident in the reluctance or refusal of EU national central bank authorities (such as those of Austria or Greece) to allow banks to use bailout funds to support their distressed crossborder subsidiaries. The problem calls for Europe-wide institutional responses. To begin with, pan-European banks should be subjected to fully consolidated supervision (more on which anon). Uncoordinated national responses, resulting from a weak political centre in the Eurozone and the EU, generate negative externalities and regulatory arbitrage. The deepening of integration in the Eurozone and the further development of a single voice for the Eurogroup are obvious necessities. Moreover, in times of crisis, the European Investment Bank could be organised to undertake rescue operations at EU level, by taking up stakes in pan-European financial institutions under stress. The implications of public debt financing difficulties following the slump underscore the tight nexus of interdependencies within the Eurozone. Southern European governments, for instance, have been hard-pressed to find buyers for their securities at times of excess global supply of government bonds. The no-bailout clause is of little use if the credibility of the entire Eurozone is to be endangered by the inability of a Eurozone member-state to sell its debt, or by a referral of a Eurozone government to the IMF. The proposed issuing of a Eurobond (promoted by President Sarkozy and Eurogroup Chairman Juncker) would significantly lower the cost of public debt financing for member-states under duress. It should rightfully be followed by Brussels-dictated conditionality, to return profligate governments to a sustainable financial position. 34 After the crisis: A new socio-economic settlement for the EU
In an interdependent European banking system, national-level responses exercise beggar-thy-neighbor effects on neighboring EU banking systems. Such was the case in October 2008, when countries like Ireland and subsequently Greece initially announced unlimited blanket guarantees for all bank deposits, opening opportunities for regulatory arbitrage at the expense of neighboring banking systems. The rapid spread of financial contagion from the US to Europe and the world points to the highly destabilising effects that financial integration and globalisation can have when not followed by corresponding governance structures. The pitfalls of regulatory fragmentation In the run-up to the crisis, European markets faced and continue to face a diversity of different rules and supervisory practices. The level playing field is not level at all, thus encouraging regulatory arbitrage. The issue of integrated banking supervision remains unresolved and has been stalled by cross-national differences. The fragmentation of the EU regime of financial regulation and supervision, which is testament to the cross-national heterogeneity of political and regulatory preferences, suffers from undeniable weaknesses. Information regarding the risk situation of a financial group is not effectively shared among different supervisors. As a result, financial contagion becomes more likely and disruptions emerging in one market can potentially spill over into other markets. The current system is not effective, and it is not efficient either. As pointed out by Deutsche Bank Research, 10 supervisory fragmentation creates duplication in reporting duties and inconsistent requirements for pan- European financial institutions. Rather than being rewarded for advancing the single market, pan-European banks end up carrying additional burdens. From the standpoint of the European financial market, this is counterproductive as it hinders the global competitiveness of Europe’s large financial services companies as well as Europe’s financial markets. 11 Supervisory fragmentation is a problem not only in the cross-national but in the cross-sectoral dimension too. Market integration has blurred the borders between different financial market segments and activities. Many of the largest market players in Europe are financial conglomerates. The recent crisis demonstrated the ease with which cross-border risks accumulated by investment banks can spread to commercial banks, Chapter 2 – George Pagoulatos 35
Page 1 and 2: Authors Iain Begg | Gabriel Glöckl
Page 4 and 5: Published in 2009 by Policy Network
Page 6 and 7: 4 After the crisis: A new socio-eco
Page 8 and 9: 6 After the crisis: A new socio-eco
Page 10 and 11: Simona Milio is associate director
Page 12 and 13: Chapter 10 Simona Milio ...........
Page 14 and 15: Before the crash: the EU as a parti
Page 16 and 17: liberalisation. The City of London
Page 18 and 19: of the Financial Services Action Pl
Page 20 and 21: confidence and world trade, to whic
Page 22 and 23: following the ECJ’s controversial
Page 24 and 25: signals are in place to promote a n
Page 26 and 27: need to be constructed to create ac
Page 28 and 29: or indeed re-impose, what they rega
Page 30 and 31: Markets with rules The overall conc
Page 32 and 33: 30 After the crisis: A new socio-ec
Page 34 and 35: Target financial stability The EMU
Page 38 and 39: mortgage banks and the insurance se
Page 40 and 41: financial market rules. The ESFS au
Page 42 and 43: prudential regulation - though only
Page 44 and 45: initiatives vis-à-vis ratings agen
Page 48 and 49: Even if membership in a monetary un
Page 50 and 51: emained relatively contained to spe
Page 52 and 53: The second channel of functional sp
Page 54 and 55: But even so, the depth and intensit
Page 56 and 57: governance in the EU and the euro a
Page 58 and 59: in the EU show, authorities at the
Page 60 and 61: factors will remain prevalent and b
Page 62 and 63: centralised decision-maker. Similar
Page 66 and 67: (GNI), the interests of the member
Page 68 and 69: terms only very slowly and as a per
Page 70 and 71: policy proposal asks itself what th
Page 72 and 73: ensure that a ceiling is put on the
Page 74 and 75: Reform of EU expenditure Spending 4
Page 76 and 77: The medium-term financial framework
Page 78 and 79: unanimity. The need to obtain the c
Page 80 and 81: therefore, was weakening the Europe
Page 82 and 83: for the signing of the strict and d
Page 84 and 85: Since then, member states have name
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in the world monetary system. It al
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a Treaty that not only ignores trad
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88 After the crisis: A new socio-ec
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Firstly, they should include policy
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emanate from demographic trends. Ho
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Furthermore, the Lisbon agenda may
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Strengthening, if not really crafti
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incentives in the welfare schemes a
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security, yet at a lower cost than
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102 After the crisis: A new socio-e
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asis only in the 1990s, and over th
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in an increasingly global age the
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So what kind of social role for the
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effective common policies in areas
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help by ensuring a thorough audit a
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irrespectively of benefit and costs
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to the European Innovation Scoreboa
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flexible labour regulation than cou
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to cope with change is germane to a
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average job tenure figures in the E
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(74), and road vehicles (78). On th
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Towards a less dogmatic approach Wh
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will be reinforced rather than cont
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Where do we come from? The EU agend
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However, so far the flexicurity app
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existing practices of wage subsidie
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minimum wage tend to have higher pr
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commitment for employment”, 18 un
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provisions for minority protection,
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eflected in the objective of the Li
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instruments have been criticised fo
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However, the countries’ planning
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ich developed country pre-occupatio
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emerging markets (indeed the rules
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Energy and carbon use depend on fou
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concentrate on the size of the cake
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esurgence of long-term unemployment
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22 Financial Services Authority (FS
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7 This idea is not new. The 1970 We
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33 Arpaia, Alfonso, Declan Costello
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9 See Garabiol-Furet, M.-D. (2006)
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Chapter 11 1 Victor, D.G. (2006)
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Authors Iain Begg | Gabriel GlÃ¶ckler | Anke Hassel ... - The Europaeum

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