MEPs call for help

Europe is experiencing historic times. How else could it be explained that Conservative, Liberal, Green and Social Democrat MEPs issued a joint appeal to draw attention to the fact that the lobbyists of the financial industry are a danger to democracy in Europe? “We agree ... on the necessity to inform the public of the dangers for democracy“, reads the report. And continues: “We, the Members of Parliament, responsible for the regulation of the financial and banking sector, therefore appeal to the civil society (NGO, trade unions, academics, Think Tanks...), to establish one or several non-governmental organisations to develop a counter expertise to the procedures triggered by the most important market players in the financial markets (banks, insurance companies, hedge funds,...) and to spread these findings efficiently via the media”.

Is the EP able to cope with the regulation of the financial markets?

However right MEPs might be to point out that the overpowering interests of the financial industry pose a threat to democracy, citizens and workers are left with a bitter taste of helplessness. After all, it should be the fundamental task of the democratically legitimized representatives of the people to make sure that different positions are carefully considered and decided in the interest of the common good. The intention to delegate this parliamentary responsibility to third parties gives an idea which fate the grandly announced reforms of the financial sector awaits in the European Parliament.

G20: all want to protect their national financial industries against too many rules

The heads of the G20 did not exactly cover themselves with glory at their meeting, which took place last weekend in Toronto. At the outbreak of the crisis, the G20 had vowed to do great things. They wanted to unite forces to pull together and to keep the financial markets on a shorter leash. Having succeeded in preventing a global meltdown so far, national solo runs are once again the flavour of the day. Financial markets are an instrument of national economic policy and power politics. It is therefore not surprising that no country wants to risk a perceived starting disadvantage due to too strict rules for its financial industry. Logical result: the summit, which cost over 900 Mio. EUR, brought neither a result concerning an international bank levy nor with regard to the Financial Transaction Tax.

Apparent consensus: banks need more Equity

Most worrying is the non-result regarding the issue of the equity of banks. Decades of deregulation resulted in the fact that the banks had practically no equity cushions worth mentioning at the outbreak of the crisis. When the risky speculation transactions started to go wrong, they had no reserves to absorb the losses - the taxpayer had to step in. A lesson learnt from the crisis, on which all experts agreed, was that the banks would need significantly higher equity cushions in future. And the European Parliament vociferously called for strict European rules.

Politicians want to distance themselves from their own promises

Meanwhile, nobody seems to want to get involved anymore. The G20 did not want to agree on internationally coordinated rules for higher equity quotas of the banks. Instead of acting fast, one now wants to take a slower approach. Rules will be introduced at the end of 2012 at the earliest, which countries may even implement at different times. The European Parliament, which waived good-bye to its own European ambitions, takes a similar line.

Change of mind thanks to multi-million lobbying of the banks

The background for this sudden change of mind is massive lobbying campaigns of the financial industry. The banking lobby used questionable commissioned studies to paint an extremely bad picture. As happened recently at the annual meeting of the international finance elite in Vienna, which was immediately used to present a “brand new” study. The result of this study: if the banks would be regulated more strictly, economic growth would lose four percentage points over a period of 10 years and 5 million jobs would not be created. Truly impressive, if one considers that in accordance with the official statistics of the European Commission, the national aid packages for the banks alone accounted for 15 % of the economic output of the EU27.

There are counter expertises, but they must be taken up and implemented

It must be one of the tasks of politicians, to confront such obvious media stagings and to inform citizens and workers about the real facts. Jaime Caruana, General Manager of the Bank for International Settlements, for examples arrives at a completely different estimation than the banking lobby. Stricter rules and more equity of the banks are not as dangerous as the banks want us to believe. “In the short run, their impact on demand is probably small and temporary. And in the long run, it has significant advantages if financial crises become less probable and costly”, says Caruana. There is no real lack of “counter expertise”, politicians must just accept and implement it - in spite of the opposition of the national and international financial industry.

Further information:

Speech of von BIZ General Manager Jaime Caruana (only in German)

Annual Report of the Bank for International Settlements (only in German)

Press Release of the European Banking Association