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Wednesday, October 22, 2014
- More than six years after the global financial crisis broke out, European Union (EU) countries continue to protect banks and investments funds from tougher rules, despite abundant evidence of recurrent criminal or reckless activities in the sector, and new accumulation of enormous financial risks.
The latest in a string of scandals involving banks was the revelation in May that at least seven European banks or banks operating in Europe had colluded to falsely fix the Euro Interbank Offered Rate (Euribor).
The Euribor is a daily reference rate, published by the European Banking Federation, based on the averaged interest rates at which Eurozone banks offer to lend unsecured funds to other banks in the euro wholesale money market.
“The (European) commission has concerns that … three banks may have taken part in a collusive scheme which aimed at distorting the normal course of pricing components for euro interest rate derivatives,” the body said in a statement issued May 22.
The three banks in question are JPMorgan Chase, HSBC and Crédit Agricole. Another four banks (Barclays, Deutsche Bank, Royal Bank of Scotland and Société Générale), also accused of misconduct concerning the Euribor, reached a settlement with European regulators.
Because of such behaviour, bank managers have since 2009 again earned the nickname of ‘banksters’, a combination of banker and gangster coined in 1937 at the height of the global economic crisis of the time.
Experts and analysts complaint that despite such criminal activities, and the new accumulation of financial risks, European governments have during the past six years repeatedly intervened to stop far-reaching rules to regulate operations in the financial sector.
The list of actions taken by European governments to spare banks and investment funds from new rules is long. In December last year, the French government managed to arrange for French banks to pay a lower-than European average contribution to the E.U.-created national deposit insurance.
“To obtain that, France used the friendly support of Michel Barnier, the French European Commissioner for Internal Market and Services,” says Burkhard Balz, German member of the European Parliament (EP). Balz is a member of the conservative Christian Democratic Union.
“Over the last six years we have seen a pattern of behaviour concerning efforts to introduce a Europe-wide financial regulation,” Udo Bullmann, a German Social Democratic member of the European Parliament, told IPS.
This pattern goes as follows, Bullmann added: “First, the European Commission makes a timid regulating proposal. The European Parliament takes the proposal over and toughens its content. But then it is the turn of governments, and they water the proposal down, even under the original commission level.”
Independent experts agree. “The European Union is indeed a community of states, but at the end of the day, the member states compete against each other instead of cooperating to put forward a comprehensive set of rules for financial markets,” says Joost Mulder of Finance Watch, an independent association set up in 2011 to act as a public interest counterweight to the powerful financial lobby.
“What the individual states want is to protect their countries’ banks and investment funds,” Mulder added.
Opposition to far-reaching financial regulation comes from practically every state, but in changing roles. Britain usually opposes rules that would affect operations at the London financial market. It also has consistently opposed establishing limits for bonuses for financial managers, one of the main reasons for risky investments and moral hazard. Germany and France prefer to pass modest laws on financial aspects, to avoid approving a tougher European binding regulation.
In September last year, Finance Watch published a report on the planned European banking union and the bank reform in the European Union, and concluded that “despite its intention, (it) will fail to prevent European citizens from bearing the losses of failed banks in the event of a systemic banking crisis unless there are meaningful structural and capital reforms to Europe’s largest banks.”
The banking union, which should start operations in November, is supposed to create a safety net to minimise the risk of further European Union taxpayer-funded bailouts.
The banking unions foresees a new European authority, the so-called Single Resolution Mechanism (SRM), with the power to wind up or restructure failing banks.
According to Finance Watch, “The SRM has the right objectives: namely to enable the orderly resolution of banks in participating member states, and to weaken the interdependencies between financial institutions and their sovereigns.”
But the watchdog group does not see “how these objectives can be met without reducing the regulatory incentives that favour sovereign debt, and without a structural reform of bank activities to make bail-in and bank resolution credible.”
According to International Monetary Fund (IMF) figures, in the aftermath of the global financial meltdown of 2008, industrialised countries bailed out private banks for 1.75 trillion dollars, some 1.3 trillion euros. This amounts to the one-year salary of more than 42 million people earning net average German wages of around 25,000 euro per year.
The global bank rescue weakened the European states involved, in particular Greece, Spain, Portugal and Ireland, and triggered, among others, the present sovereign debt crisis, with its social and human costs.
Another typical example of the lack of will among European governments to improve regulations and reduce risks in financial markets is the long and so far fruitless debate on the introduction of a very low tax on financial transactions, also known as the Tobin tax, after it was suggested by Nobel Laureate economist James Tobin in 1972.
In September 2011, the European Commission proposed the introduction of the tax within the 27 member states of the European Union by 2014. According to the original proposal, the tax would only impact financial transactions between financial institutions charging 0.1 percent against the exchange of shares and bonds and 0.01 percent across derivative contracts.
According to the initial Commission estimates, the tax could raise up to 57 billion euros per year. But, as of June 2014, that is, almost three years after the proposal, only 11 E.U. member countries appear ready to introduce the tax. Furthermore, there is wide disagreement among these 11 countries about which transactions should be taxed, and how high the levy should be.
Sven Giegold, German Green Party member of the Euro-Parliament and expert on international finance, even goes as far as saying that “France, nominally a strong supporter of the Tobin tax, actually did kill it.”
In May, during negotiations at the European Council, the French government opposed raising the Tobin tax on most financial derivatives and on government bonds. Giegold said that “France obviously fears that if taxed, banks wouldn’t buy government bonds.”
After such objections, Giegold complained, “the original tax on financial transactions has been devaluated to a useless levy to be paid only by small savers.”
A new scheme to avoid new rules for financial markets in Europe is to make them part of supra-regional binding projects, such as the Transatlantic Trade and Investment Partnership (TTIP), currently under negotiation between the European Union and the U.S. government.
According to Finance Watch, “there is no proven case for including financial services in the TTIP.” “We are concerned that the EU’s approach to regulatory cooperation (within the TTIP negotiations related to financial markets) will encourage convergence around the lowest common standards, not the highest,” Thierry Philipponnat, Finance Watch’s secretary, said during a recent hearing at the European Parliament.
For Philipponnat, “it is difficult to see how the inclusion of financial services in the European Union-U.S. free trade agreement negotiations, and especially the parts on regulatory cooperation, will not lead to a ‘race to the bottom’ in financial services regulation.”