A The EU’s role in our financial crisis
By Christopher Booker
Last Updated: 12:01am BST 05/10/2008
A The EU’s role in our financial crisis
By Christopher Booker
Last Updated: 12:01am BST 05/10/2008
As the Western world’s banking system teeters on the edge of collapse, one
crucial factor in this unprecedented crisis has gone almost entirely unnoticed –
although David Cameron made a veiled reference to it on Tuesday.
At the heart of this catastrophe lies a drastic change made last year to banking
regulations, which has led to the current freezing of the money markets. Without
it, most of the banks that have collapsed, such as Lehman Brothers, might have
Chairman of Committee of European Securities Regulators: Harmonisation of EU financial supervision is “moving ahead at full speed”;
“The autonomy of national supervisors will steadily be reduced”
In an interview with Belgian business magazine Trends, Eddy Wymeersch, Chairman of the Committee of European Securities Regulators (CESR) – one of the committees that will be upgraded to a full EU authority with binding powers under the Commission’s draft plans for more financial supervision – said: “In future we will no longer give advice, but we will impose binding rules”. He said, “In the long term there will be gradual harmonisation [of EU financial supervision]” and that “the autonomy of the member states will steadily be reduced”. He also argued that “contrary to what the newspapers claimed, the British weren’t opposing [the proposals]. They only had reservations about giving the new authorities decision-making powers, which could have an impact on the national taxpayer”. He concluded saying: “the harmonisation of supervision of the EU’s financial sector is moving ahead at full speed. In September 2009 the European Commission will submit its actual proposal. By the third quarter of 2010 the supranational authority has to be operational.”
Open Europe last night held an event in London to discuss the EU’s proposals for financial regulation and supervision in the wake of the financial crisis.
David Green, Advisor on International Affairs to the Financial Reporting Council, opened the debate by suggesting that “There is currently a divide between euro area banks and non-euro area banks. There is no place where the chairman of the FSA and the ECB can meet”. He suggested that “The [European] systemic risk board will provide for the first time a platform for a proper debate” but warned that the UK would have the same voting strength on the board as smaller countries. He also said there was “a disturbing feature in the voting system…It should be evenly weighted between euro area banks and non-euro area banks”.
Mark Hoban MP, Shadow City Minister, argued in his speech that “the Treasury and the Government took their eyes off the ball in the first part of this year”, adding that “we needed robust, early engagement from the government” whilst “discussions were taking place in Brussels which were going to set the tone for regulation not just for the next few months but for years”. He added that “unfortunately we have now lost the right to be heard about the direction of regulation”.
Dr David Doyle, Senior Advisor at the Brunswick Group, confirmed that the three new EU authorities would get legal powers to override national financial authorities. He said that the new EU bodies would address the problem of member states interpreting and implementing EU laws in different ways. He argued that upgrading “these committees into full fledged departments with legal powers to investigate, sanction, to ensure EU application and regulation of the legislation” would be an important step to solve such diverging interpretations, but denied that such a move would lead to losses of national sovereignty.
London traffic to be halted by EU directive
Monday 5th October 2009
As the EU becomes more central to UK and European law, Boris Johnson,
the Mayor of London, has revealed that some of London’s busiest
streets will be closed to traffic on “hot days”. This is part of the
London strategy to combat emissions and avoid substantial fines from
the EU under a recent directive regarding air quality.
It was revealed that a number of popular sites within London exceeded
the EU limits on emissions on 100 days last year which if translated
into proposed fines from the EU would mean substantial payments from
the UK coffers. There will be all sorts of changes to vans, cars and
other vehicles currently allowed into London and indeed some
commercial vehicles may well be subject to a £100 daily fee.
Despite the fact that Boris Johnson initially rejected earlier plans
by Ken Livingstone, the former mayor of London, he appears to have
done a U-turn and finally given in to these “crackpot” EU directives.
Slowly but surely life is being strangled out of London traffic and
London businesses which are becoming subject to higher and higher
taxes, both direct and indirect. Any competitive edge which London has
over other financial centres around the world is slowly being reduced
in what many believe is a ploy so that the EU will eventually become
the centre of the European financial markets.
France goads Britain over EU jobs win
Monday, 30th November 2009
FRENCH president Nicolas Sarkozy fired a salvo at the City of London
yesterday, describing Britain as the “big losers” in the appointment
of Frenchman Michel Barnier to the EU’s finance brief.
Sarkozy’s remarks, which were instantly condemned by City figures,
underline the difficulties London can expect in dealing with Barnier.
France is seen as favouring tough regulation and could have serious
influence on issues like bankers’ pay and curbs on hedge funds through
Barnier’s position as the EU’s internal markets commissioner.
Sarkozy told Le Monde: “It’s the first time in 50 years that France
has had this role. The English are the big losers in this business.”
He added: “It’s not that the Brits were hesitant, they were frankly
against [Barnier’s appointment]… It’s exceptional for France.”
Angela Knight, chief executive of the British Bankers’ Association,
said she was concerned by the outburst.
She said: “I share concerns that the UK doesn’t have an economic
commissioner given the importance of the City, and these remarks are
not a happy thing when we are all in the same EU and we are all at the
end of the recession. The recovery is going to require positive
Justin Urquhart Stewart, director of Seven Investment Management,
said: “These politicians are playing populist propaganda to try and
cast the blame for the financial crisis on anybody but themselves, and
when it comes to France they are keen to blame the Anglo-Saxon banking
system for all the woes of the world. But political grandstanding
Jonathan Faull, a senior British civil servant, is expected to be
named director-general of Barnier’s department – but he was worked for
the EU since 1978 and is widely seen as being at the heart of the
Bruges Group research shows that the EU’s financial regulations are set to destroy thousands of well-paid jobs in the City of London. The EU now threatens the long term prosperity of the City of London and, by extension, the London and UK economies.
How is Britain to remain a well-paid, successful and influential nation in the 21st Century world economy? We should be concentrating on such activities as financial services, marketing, design, advertising, legal work, accountancy, publishing, journalism, business information, the arts and the various forms of management consultancy. We should also want the UK to be the headquarters for companies with production facilities across the globe.
Yet threats are emerging to Britain’s long-term prosperity. In September the European Commission submitted new and sweeping proposals for a European Systemic Risk Board. This is to include the so-called “European Banking Authority”, which is to have far-reaching powers. In the current proposals they include the authority to close down a particular bank or insurance company, regardless of the views of the UK’s own regulators.
The proposed Directive on Alternative Investment Fund Managers, which in practice means managers of hedge funds and private equity funds, is interventionist and prescriptive. Not only will it cramp the operations of alternative investment managers who have long records of good performance, but also it will cause the relocation of well-paid and talented professionals to centres outside the EU.
Britain’s exports of international financial services grew by 15% a year for over 15 years, a really serious growth industry in which the UK is a world leader. The EU will ruin this.
How many people will be affected? Total employment in international financial services in London is approaching ½ million people. There may be about 250,000 in the Square Mile itself. Around 20% – 25% of those will be affected by the EU’s plans with the potential loss of tens of thousands of well-paid jobs. These jobs – like those in manufacturing – will be forced out of the UK; losing Britain many talented professionals. Almost certainly the financial services industry will go to Asia.
We must do everything we can to put pressure on our politicians to hold a referendum on the Lisbon Treaty after the forthcoming general election.
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Last December, a leading City economist, Professor Peter Spencer of Ernst &
Young’s Item Club, warned that unless something was done urgently to modify the
new rules, the resulting paralysis of the banking system would “make 1929 look
like a walk in the park”.
Last week, as his prediction seemed to be coming true, the US was moving to
change the rules. But in the EU they are enshrined in a directive which could
take months, or years, to unpick.
In 2004, partly in response to the Enron debacle, the world’s leading economic
powers made an agreement known as Basel 2.
It proposed a drastic tightening of the so-called “fair value” or
“mark-to-market” rules, whereby banks and other financial institutions define
whether they are solvent and fit to continue trading. Brussels, which is fast
taking over regulation of our financial services, embodied this in two
directives, 2006/48 and 2006/49, known as the Capital Adequacy Directive.
Much of this lays down a complex “Risk Assessment Model”, under which a bank at
the end of each day’s trading must produce a statement of its assets to show
whether or not it is solvent. If not, the bank must declare this to the
regulatory authorities, such as Britain’s Financial Services Authority (FSA),
and cease trading.
As informed observers pointed out at the time, this might not cause problems
when property and share values were rising but when markets fell the banks would
be put in a critical position.
Writing down their assets to the value they would fetch in a “fire sale”,
without allowing for underlying value or future recovery, their asset base might
be so severely undervalued that it would be difficult for them to lend or
borrow, freezing those deals which are the banking system’s lifeblood.
At worst, though technically solvent, they would have to close their doors.
Since the credit crunch began last year, this is precisely what has happened.
Another City economist, Professor Tim Congdon, warned in January that the
“scientific precision of the Basel rules” had been shown to be “hocus pocus”,
explaining how this had already played a key part in the collapse of Northern
Rock. As a “solvent but illiquid bank”, wrote Prof Congdon, Northern Rock’s only
hope was to appeal for help to the Bank of England.
In former times, as the Bank’s governor, Mervyn King, tried to explain to the
Treasury Select Committee in September 2007, he could have sorted it out behind
the scenes, in a rescue operation involving other banks – as had often been done
But Mr King was hamstrung by EU legislation, such as its directives on takeovers
and “market abuse”, as shown by Prof Congdon in a devastating pamphlet, Northern
Rock and the European Union (published by Global Vision). The EU’s role makes
nonsense of the claim that Britain’s financial regulation is a “tripartite”
system – Bank, Treasury and FSA.
In reality it is quadripartite, with Brussels the fourth and in many ways most
important player, as we saw when subsequent attempts to sort out the Northern
Rock shambles fell foul of EU competition and state-aid rules.
As Ron Sandler, Northern Rock’s chairman, said when it was nationalised, “the
bank will have to operate according to rules set in Brussels”. Because the EU’s
competition commissioner, Neelie Kroes, failed to grasp the difference between a
loan and state aid, one of her first requirements was that the bank should sack
2,000 employees as evidence that it was being “restructured” .
Thus the EU has become the gigantic “elephant in the room” of our financial
services industry, on which a third of Britain’s income depends. Nowhere is the
effect more damaging than in those directives implementing the Basel 2 agreement
(actively promoted by Britain at the time) that have reduced our banking and
lending system to paralysis.
When Mr Cameron admitted last week that a “new international regulation” which
“automatically downgrades the value of banks” was “making the financial crisis
worse than in previous downturns”, he did not dare risk inflaming his party’s
Eurosceptics by referring to the EU directly. He merely coyly suggested that
“our regulatory authorities” should get together with “the European regulators”
to “address this difficult issue”.
He did not point out that, as the US Securities and Exchange Commission was
abandoning the new rules (supported by the bail-out bill before Congress), all
we have to look forward to is that Gordon Brown, after his “crisis summit” in
Paris yesterday, will air this “difficult issue” at the European Council on
Even if they decide to follow the US lead, it would entail the tortuous
procedure of the Commission drafting a new directive, which could take more than
a year. Meanwhile Europe’s banking system remains frozen, threatening no one
more than Britain – for reasons that none of our politicians dare explain.