Monthly Archives: June 2013

Pity the Lithuanians. When assuming the EU rotating presidency next month they will inherit the mother of all regulatory backlogs, especially when it comes to the financial sector. It is an impossible and thankless task, a numbingly complex pile of half-negotiated, often paralysed and always contentious directives and regulations, which the European Commission is still adding to with some gusto.

There are going to be around 25 financial services files for the Lithuanians to shepherd through, either in negotiations between member states, or directly with the European parliament. The poor Lithuanian officials strong-armed to work the files will have to become instant experts. Most of the proposals will require countless long meetings with member state or parliamentary negotiators; some will need ministerial input and some sacrificial political blood.

The demands could dwarf the resources and time available. After March 2014, the parliament essentially shuts shop for European-wide elections, so the Lithuanian presidency, which runs through the end of this year, is pivotal. Some countries only have one or two financial services attachés covering the bulk of files. Getting MEPs together for talks is like herding cats. Getting them to agree is even harder, especially in this pre-election environment. A lot of the initiatives will not make it through; their fate is then in the hands of the next leaders of the EU’s parliament, commission and council. Read more

Actor Brad Pitt is interviewed at last week's Paris premiere of his new film "World War Z"

When EU and US officials launched new talks on a transatlantic trade deal earlier this year – an issue of such import that President Barack Obama announced it in his February State of the Union address – many thought the most contentious issues would be agricultural, like US exports of beef with synthetic hormones.

But even before the talks have formally begun, an altogether different issue has threatened to derail the deal: France’s insistence that the so-called “cultural exception” – the ability of European governments to establish quotas and subsidise their home-grown film and music industries – be completely off the table.

The US has insisted on no “carve outs” before the talks even begin, and EU officials worry that if cultural issues are put aside pre-emptively, it will give the Obama administration fodder to respond in kind with an issue that may be sensitive for a wider number of countries – like agriculture.

In an effort to bridge the gap, the Irish presidency last week circulated a new draft of the mandate that will be given to the European Commission in the trade talks which contains new language assuring France that, while audiovisual issues will not be excluded, there will be clear red lines in the EU’s negotiating position. Brussels Blog got its hands on the 12-page document, which is marked “trade-sensitive” across every page and “EU restricted” at top, and posted it hereRead more

A European watchdog in Paris is going to snatch regulatory control of Libor from the British — or so the European Commission is proposing. It is the stuff of nightmares for the UK Treasury. The political land-grab is the most striking element of a broader shake-up to restore faith in the largely unregulated and, in some cases, shockingly amateur business of compiling benchmarks for everything from heating oil and coal to mortgage rates.

What is the Commission up to? The crux of the draft proposal, which we obtained and wrote about in today’s paper, is ending self-regulation for thousands of indices. All benchmarks must be authorised by a regulator, but there is a sliding scale of regulatory intrusiveness. In the naughty corner are Libor and Euribor, inter-bank lending benchmarks deemed important enough to require direct supervision by the European Securities and Markets Authority, an EU watchdog in Paris. Brussels argues the users, contributors and fallout from problems are EU-wide, so therefore deserve EU oversight.

Is this a bit heavily handed? The stakes are high. The benchmark industry generates around €2bn in revenue but the Commission estimates the size of related markets approach €1,000,000bn. Given many benchmarks have never been touched by law, there is a risk that the voluntary contributors may simply decide the legal risks aren’t worth it. When it comes to Euribor and Libor, the Commission’s answer is to give Esma powers to compel banks to submit transaction data or complete questionnaires on prices or bids. But contributions to the less important benchmarks won’t be mandatory.

Hadn’t these benchmarks already been reformed? Global regulators have launched a big clean up in the wake of the Libor scandal. While its rules to tighten governance go further than expected, the Commission vision, especially when it comes to methodologies, is largely aligned with the guidance from Iosco, the umbrella group of financial regulators. So for instance, Michel Barnier, the EU commissioner in charge of the proposal, stops short of requiring benchmarks to be based purely on transactions and allows a hybrid methodology where necessary, which uses survey results to estimate prices. The UK, of course, also launched its own big Libor reform project led by Martin Wheatley, the UK financial regulator. The Commission sides with most of his substantial findings but decides it should all be overseen from Esma in Paris rather than London.

Could they have done more to annoy London? Probably not, at least in terms of the governance. The Treasury will see this as another Brussels masterplan to centralise power and will probably rue the decision not to sue when Esma was made regulator for credit rating agencies (they almost did to show this went beyond the EU treaties). The real sting though will be the fact that it comes so soon after the UK’s own clean-up. What does it say about the Commission’s faith in the proud UK regulators? On top of that, the Commission opted for the European financial watchdog in Paris to do the job, rather than the European Banking Authority in London, which was at least politically a bit more palatable. For now though the official response from London is relaxed; they are confident of their arguments, have shown they are able to reform Libor, know this isn’t a London problem and not too worried about the power all going to Paris.

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After months of deliberation and some not-so-private sparring with Berlin, the European Commission has pretty much anointed who it wants to be the all-powerful bank bailout and clean-up authority for Europe’s banking union: the European Commission.

This (somewhat predictable) conclusion to its internal policymaking journey is outlined in a paper, seen by the Financial Times, which was distributed to commissioners ahead of their weekly college debate on Wednesday.

There is no sign of Brussels bowing to pressure from Berlin. At the heart of the Commission’s proposed system is a powerful central authority, which has access to a single bailout fund and the clout to shut down a bank even against the wishes of its home state’s government. Brussels wants it operating by 2015.

What about those German concerns that this would breach the EU treaties? Michel Barnier, the EU commissioner responsible for financial issues, concedes in the paper that “only an EU institution” has the legal authority to take important decisions with European effect. Given there is no legal basis to give the European Central Bank this role, the Commission concludes that the only option is to anoint itself as the top resolution authority. Read more