http://www.telegrap h.co.uk/money/ main.jhtml? xml=/money/ 2008/05/22/ cneu122.xml
EU-wide 'super regulator' poses threat to City of London
By Ambrose Evans-Pritchard
Last Updated: 12:32am BST 22/05/2008

A top cast of European statesmen has issued a blistering denunciation of
financial markets and called for a creation of a pan-EU body to protect the
citizens against the "social risk" posed by modern capitalism.

"The financial world has accumulated a massive amount of fictitious capital,
with very little improvement for humanity," said the group in an open letter to
the European Commission and the EU presidency.

"The current financial crisis is no accident. It was not, as some top people in
finance and politics now claim, impossible to predict. For lucid individuals the
bell rang years ago. This crisis is a failure of poorly or unregulated markets,
and shows us, once more, that the financial market is not capable of
self-regulation, " it said, calling for the a new "European Crisis Committee" to
take the matter in hand.

"Free markets cannot ignore social morals. Decent capitalism needs effective
public policy. But when everything is for sale, social cohesion melts and the
system breaks down," it said.

The letter is signed by former premiers and finance ministers from Europe's
socialist bloc, including ex-German Chancellor Helmut Schmidt, France's Lionel
Jospin and Michel Rocard, and former Commission chief Jacques Delors. While the
initiative comes from the Left, it is in tune with the views of French president
Nicolas Sarkozy and German Chancellor Angela Merkel. Both have called for
measures to clamp down on "speculation" .

The fulminating text is the clearest evidence yet of the mounting drive for an
EU-wide "super regulator", which would reduce Britain's Financial Services
Authority to a regional branch - and pose a grave threat to the City of London.

"Financial markets have become increasingly opaque. The size of the lightly or
not-at-all regulated "shadow banking sector" has constantly increased in the
last twenty years. Inadequate incentive schemes, short-termism and blatant
conflicts of interest have enhanced speculative trading.

One investment bank earned billions by speculating downwards on sub-prime
securities while selling them to its clients, epitomising the loss of business
ethics!" the letter said.

European critics of Anglo-Saxon "casino" capitalism have seized on the credit
debacle as a chance to clip the wings of the City and to extend EU jurisdiction
deeper into financial affairs - a jealously-guarded domain of EU member states.
They know that Britain is unusually vulnerable to pressure after the Northern
Rock affair, which exposed grievous shortcomings in the UK regulatory structure.
# Letter to President European Commission José Manuel Barroso

Brussels has so far played down suggestions for an EU "super regulator".
Commission president Jose Manuel Barroso is an Iberian free-marketeer, but his
term is coming to end. Charlie McCreevy, the "Thatcherite" single market
commissioner, is almost certain to be replaced by somebody less sympathetic to
London next year.

Britain may not have veto power to block unwelcome moves. Proposals under some
single market clauses in EU treaty law can be pushed through by a majority vote.
Britain can no longer count on Poland as a free market ally, tipping the
balance.

The letter leaves no doubt that hedge funds and private equity are on borrowed
time in the new political landscape left by the credit crunch. "Rising income
inequality has gone in tandem with an ever growing financial sector.

This financial crisis has thrown some light on the alarming income differentials
which have increased in recent decades. Ironically, many CEOs' salaries and
bonuses reached incredibly high levels while the performances of their companies
stagnated, or even went down. There is a huge ethical issue here," it said.