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ECONOMY: EU Divided Over Regulation
Analysis by David Cronin
BRUSSELS, Feb 13 (IPS) - The global recession has exposed the ideological fissures at the highest level of
officialdom in the European Union.
Joaquin Almunia, the European commissioner for economic affairs, expressed
a widely held view Feb. 11 when he declared a "need for more ambitious
regulation" of financial services, implying that the way this sector has largely
been exempt from stringent rules has contributed to the near collapse of the
international banking system.
But Almunia, a Spanish Socialist, does not hold the portfolio in the European
Commission, the EU's executive arm, which would enable him to come
forward with the kind of proposals he deems necessary. Instead,
responsibility for this area belongs to Charlie McCreevy, the single market
commissioner, who has emphasised his antipathy to far-reaching regulation.
Since taking up his current post in 2004, McCreevy has repeatedly recited the
mantra 'less is more'. "For far too long the EU has been adopting rules at EU
level, simply for the sake of having rules at that level," he told a conference in
Cape Town during 2007. "Once adopted the rules have been left to gather
dust on the statute book. My approach is a different one. We should adopt
fewer, better quality rules and then devote our energy to making sure they
are properly enforced."
Irishman McCreevy is studying a range of options for how hedge funds
should be regulated, and has been tasked by the Commission with
presenting a plan for doing so before elections to the European Parliament
this coming summer. Yet while he has invited comments from all interested
parties as part of a 'public consultation' exercise, he has maintained that he
would prefer to see these investment funds subject to voluntary codes of
conduct, rather than binding laws.
Some economic analysts have contended that hedge funds are at least partly
culpable for creating the sub-prime crisis in the U.S. and for endangering
banks on this side of the Atlantic by engaging in a highly speculative activity
known as short-selling. Nonetheless, McCreevy said in late 2008 that hedge
funds generally play a positive role in modern finance.
"I think he is finding it very hard to accept that his beloved unregulated
market has failed," said Poul Nyrup Rasmussen, the former Danish prime
minister and now a Socialist member of the European Parliament. "He has
certainly been trying to delay and where possible avoid regulation on hedge
funds and private equity. I can't say what lessons he has learned from the
crisis but he does not seem to have changed his dislike of market regulation,
which is a pity because practically everyone else has realised that better
regulation is unavoidable and necessary. I suspect we will encounter further
efforts by him to put off regulation."
Although hedge funds were banned in Germany until 2004 because they were
considered too risky, McCreevy encouraged their development in Ireland,
where he was finance minister from 1997 to 2004. And by the time their
global value was estimated at 2.5 trillion dollars in the summer of 2008, the
International Financial Services Centre in Dublin stood alongside London and
New York as one of the major onshore centres of hedge funds in the world.
"Mr McCreevy behaves like a lobbyist for the hedge fund industry," says Peter
Wahl from World Economy, Ecology and Development (WEED), a German anti-
poverty group. "He has an extremist position and is a full believer in the
casino style of capitalism that has now collapsed."
In recent years, McCreevy has publicly identified with the chief architects of
market fundamentalism. In December 2005, he praised Margaret Thatcher for
how she had "economically transformed" Britain as its prime minister in the
1980s. And he quoted Milton Friedman, intellectual guru to the late U.S.
president Ronald Reagan, as well as to the Chilean military dictator Augusto
Pinochet, to support his contention that tax competition between nations is
healthy.
In December last year, a United Nations conference in the Qatari capital Doha
recognised the kind of tax competition McCreevy favours as a major
contributor to global poverty. U.S. President Barack Obama has also promised
to crack down on tax havens.
According to the World Bank, up to 800 billion dollars in untaxed capital
leaves poor countries or economies in transition each year, frequently
because multinational firms have received tax breaks from the host countries.
This dwarfs the 100 billion dollars that such countries receive in annual
development aid.
Accountancy firms have been accused of providing invaluable advice to
companies about how they can conceal their profits and thereby evade tax.
The four biggest firms with global reach - PricewaterhouseCoopers, KPMG,
Ernst & Young and Deloitte - have all paid huge settlements in recent times
after they were sued for breaching financial rules. Yet McCreevy, himself an
accountant by training, has recommended that the four (joined together in
the International Accounting Standards Board) should effectively set the rules
that companies listed on the EU's stock exchanges should follow. This has
thwarted moves to introduce the kind of international system deemed vital by
anti-poverty campaigners to tackle tax evasion: one where every
multinational firm has to state what profits it makes and what taxes it pays in
every country where it operates.
"Published accounts will always be like bikinis - much more interesting for
what they conceal than for what they reveal," McCreevy has said. "The view
that more frequent reporting by companies increases transparency is one
about which I am deeply sceptical."
John Christensen from the Tax Justice Network differs: "The IASB is a private
company. By and large, it is manned by and controlled by the big four
accounting firms and their clients. It doesn't generally consult outside the
four. McCreevy is very closely connected to the four, he comes out of that
background. And he doesn't buy into the idea that there is a legitimate
interest in corporate information outside the investor community.
"There is not necessarily any financial conflicts of interests. But I'm afraid
McCreevy is seen as representing the interests of the International Financial
Services Centre in Dublin. Dublin is competing with other tax havens like the
Isle of Man and Jersey. It is pushing lax regulation and McCreevy is seen as
part of that problem of lax regulation." (END/2009)
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