I've been trying to post something for a while about recent fiscal developments at the EU level and suggestions of a EU tax. However it's taken a lot of time as I keep on getting distracted.
In the mean time some tentative words on the agreement reached recently on EU reform, between the Commission, Parliament and the Council. Some extracts below from...
...European Voice:
"The reform will create a European Banking Authority (EBA), a European Insurance and Occupational Pensions Authority, and a European Securities and Markets Authority, each with binding powers over national regulators and market actors. The package also includes a European Systemic Risk Board (ESRB), which would monitor threats to the EU's economy as a whole.
The authorities will have the power to ban trading in certain financial instruments, and to settle disagreements between national financial regulators. They would also be able to give direct instructions to banks and other financial actors in crisis situations and in cases where national supervisors are in clear breach of EU rules. The authorities will also draw up technical standards to be applied by national regulators.
Governments will be able to overturn the authorities' decisions if they impinge on national fiscal competences, although this right will be subject to an anti-abuse clause to prevent member states from making frivolous challenges.
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and from EUobserver:
"The heart of the fight had been between the increasingly self-confident parliament who feared a weak set of agencies would not have the power to correct dangers ahead, and member states, particularly Britain, who feared a loss of sovereignty in one of the most critical areas for a national government.
In the end, a compromise has delivered to member states the ability to appeal the decisions of the new bodies, something fiercely resisted by MEPs.
In a major victory for the national capitals, it is they who will have the critical hand on the alarm bell. The member states are to be the ones to declare that there is an emergency on the cards, not the European Commission or the parliament.
Additionally, direct oversight of companies will not be performed by the new agencies, a task to be left with national supervisors. The new agencies are to only co-ordinate actions.
Finally, the parliament was also dealt a defeat in its attempt to have a unified headquarters for the four bodies. Instead of all being based in Frankfurt, they will now be located in London, Paris and the home of the ECB.
The legislation bringing all of this into affect will be reviewed in three years."
... and from the lion's mouth, here and HERE are the two relevant articles directly from the European Parliament's website, of which I'd like to highlight the following bragging points:
"The architecture agreed is for a new European Systemic Risk Board (ESRB) and threeEuropean Supervision Authorities (ESAs).
These ESAs are for banks, insurance and pensions companies and a third forsecurities and markets.
The ESRB will be concerned with macro risks, i.e. with risks to the stability of the financial system as a whole whilst ESAs will be concerned with risks to the stability of particular markets such banking, insurance and financial instruments.
The European supervision authorities will be able to take decisions which are directly applicable to individual financial institutionsin cases of manifest breach or non-application of law, and where there is disagreement between national authorities.
The ESAs may temporarily prohibit or restrict harmful financial activities or products already covered by specific financial legislation or in emergency situations.
ESA firefighting powers
The agreement gives the ESAs a strong role within the current setup of colleges of national supervisors. This will enable them to guide national supervisors to ensure tighter supervision of cross-border financial institutions. In the event of disagreements between national supervisors, ESAs will also be able to impose legally-binding mediation and, if no agreement can be reached within the relevant college of supervisors, to impose supervisory decisions on the financial institution concerned. ESAs will also be able to intervene as mediators at their own discretion, rather than at the request of one of the national supervisors.
The ESAs will also be able to monitor how national supervisors implement their obligations under EU law. If these obligations are implemented incorrectly, the ESAs may raise the alarm, issue instructions to the national supervisor concerned and, if these go unheeded, directly instruct the financial institution to remedy any breach of EU law.
A clean financial market: the role of the ESAs
ESAs will have the power to investigate specific types of financial institution, financial product, such as a "toxic" product, or financial activity such as naked short selling, to assess what risks they pose to a financial market. When specific financial legislation regulates these areas of activity, or in emergency situations, ESAs may temporarily prohibit or restrict harmful financial activities or products, and may also ask the Commission to introduce legislative acts to prohibit such activities or products
MEPs secured the inclusion of a strong review clause requiring the Commission to report back every three years on whether it is desirable to integrate the separate supervision of banking, securities, pensions, and insurance, on the benefits of having all the ESAs headquartered in one city, and on whether the ESAs should be entrusted with further supervisory powers, notably over financial institutions with pan-European reach."
So what's to be made of all of this? Well it's not ideal. An ideal system would certainly not have Member States (MSs) be in charge of determining when a crisis takes place. Unfortunately, I didn't even find a clause where the parliament was entitled to refer a question to the Council asking them to consider a given situation as one of crisis and to either agree or provide an answer for disagreement. If I'm not mistaken, Parliament can do that, but the Council will probably enjoy a long deadline and the ability to provide vague and practically useless answers. This might not be problematic at all. After all, there might be some self-interest from the MSs to push them to declare such a state of affairs when it arises. However, this may trigger the imposotion of reforms that may go beyond the tastes of MSs, giving this whole infrastructure a rather non-credible commitment flair. This is because the system would see MSs committing, ex-ante, to call a crisis by its name when they see one. However, given that the activation of the measures would expose them to the toughness of EU wide regulators' measures, MSs might simply be too unwilling to put themselves at the regulatory mercy of their newly empowered European overlords, who do not answer to electoral incentives nor to the strict demands of interest groups (or do they...?).
The thing about this though is that non-credible commitments require tight lip control on the flow of information. If there's a leak indicating that the description of reality being given by policy makers is different from reality, it may become apparent that the present policy course is characterised by policy makers who are i"in denial" and is thus unsustainable. To this realization, the market will provide its own correction. So what matters is not whether the commitment is credible, but whether it is actually believed or not. In a sense, MSs can say that the sky is pink and crowded with happy little orange flying pandas, but if people can look up at the sky and find in blue and panda free, what MSs say is irrelevant. Thus we will probably see a situation where as the economic context of some of these regulated fields gets worse, a gradation of bad adjectives will emerge leading up to "crisis" level. Somewhere between the beginning of the crisis until this moment of political epiphany, market players will understand what's going on and predict or force state intervention, thus ensuring the afore revellation.
Right?
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