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BackIt is crazy. One bubble after the other is bursting; and one sector after the other is targeted. Now the financial sharks have discovered their next victim - after the internet at the turn of the millenium, followed by property only a few years later, they are now speculating on commodities and food commodities. Rice, coffee and wheat have become the daily bread of financial sharks. And this inevitably results in the fact that the indispensable daily bread of others is taken away from them in an outrageous manner.
Pawn of greedy gamblers
And what do EU policies do? What approach is taken by the ruling powers in the Union? They are lagging behind, even though only rapid action can prevent the next bubble from bursting. It is difficult to spur them into action in spite of the fact that fortune hunters can only be reined in by acting decisively.
Pawn of greedy gamblers
It is crazy. The real economy – honest workers, hardworking craftsmen, correct entrepreneurs - is increasingly more becoming the pawn of unruly, greedy, gambling plungers. Stock markets and banks less and less fulfil their key task – the financing of private and business investments - they prefer to play betting shop and casino.
But how could all this happen? Who is responsible for this? What are the causes for this development? The answer goes way back to the 90s, when the EU Member States decided to deregulate the financial markets. Their motto: barriers have to go, regulations have to be abolished, the market will manage to regulate itself.
Since regulations have been abolished, not only shares and bonds have been the target of speculating gamblers, but increasingly so real goods, food commodities and commodities. This phenomenon is called economic globalisation “financialisation de l'économie” - the real economy becomes the pawn in the hands of the financial economy.
This game, which is played by some, has a huge impact on many: food prices, but also petrol and energy prices are becoming increasingly more volatile and sometimes even reach astronomical heights. In the third world, this leads to hunger and sometimes even to revolts. However, the enormous price fluctuations are also beginning to have an impact in Europe and the USA.
But how could all this happen? Who is responsible for this? What are the causes for this development? The answer goes way back to the 90s, when the EU Member States decided to deregulate the financial markets. Their motto: barriers have to go, regulations have to be abolished, the market will manage to regulate itself.
Since regulations have been abolished, not only shares and bonds have been the target of speculating gamblers, but increasingly so real goods, food commodities and commodities. This phenomenon is called economic globalisation “financialisation de l'économie” - the real economy becomes the pawn in the hands of the financial economy.
This game, which is played by some, has a huge impact on many: food prices, but also petrol and energy prices are becoming increasingly more volatile and sometimes even reach astronomical heights. In the third world, this leads to hunger and sometimes even to revolts. However, the enormous price fluctuations are also beginning to have an impact in Europe and the USA.
EU Internal Market Commissioner Michel Barnier - in response to this development - comes out in favour of more transparency and stability in respect of commodity prices and more regulation in this sector. A revision of the MiFID Directive (Markets in Financial Instruments Directive) was presented in form of a new Commission proposal by the end of October.
Why speculation on commodities has to be prevented – panel discussion by AK and ÖGB
Why speculation on commodities has to be prevented – panel discussion by AK and ÖGB
Is the MiFID Directive sufficient to bring commodities speculation under control? The European Office of the Austrian Trade Union Federation ÖGB and AK Europa, the Brussels Office of the Austrian Federal Chamber of Labour invited to a high calibre panel discussion, which was hosted by the Brussels correspondent of Börsen-Zeitung, Detlef Fechtner: “Why Europe must present speculation on commodities”.
Heiner Flassbeck, Director and Chief Economist at UNCTAD (United Nations Conference on Trade and Development) presented the result of a study commissioned by the AK on price volatility in commodity markets.
The financialised markets had completely detached themselves from the real economy. “Food prices are systematically driven up by speculators”, says Flassbeck. “The financial markets create fundamentally wrong prices. And wrong prices harm the market.”
But what is to be done about this? Flassbeck: “Food and commodity prices have to be put on the right track again, reflecting supply and demand – and not what the financial markets dictate.” And he demands: “In future, all financial transactions have to trade on stock markets and no longer bilaterally. This will allow admission restrictions, product restrictions and more transparency.”
Jasper Jorritsma, representative of the European Commission (Directorate General Internal Market) presented the MIFID: “The main objective of this Directive is that the financial markets begin to work for the real economy – and are not detached from it.”
Sven Giegold, Green MEP, pointed out that not only the financial markets, but also other factors would have an influence on prices. Meat consumption would rise, land consumption would rise. The consequence was shortages and automatically increased prices. He regards the MIFID as “a step in the right direction, but there is still a lot of work ahead of us.”
The Social Democrat MEP Robert Goebbels, MiFID shadow rapporteur, is “pleasantly surprised that the Commission recognizes realities at last.” The citizens had to be protected against speculators, because these would put whole economies under pressure. Apart from that, he demanded to ban commodity futures, which do not relate to goods.
“It is time to keep the financial economy on a short leash”, emphasised Silvia Angelo, Head of Economic Policy Department of the Vienna Chamber of Labour. “The financial economy must once again be put at the service of the real economy.” And she demanded: “It is time for the financial markets to be put under European supervision.”
Both Angelo and Goebbels pointed to high frequency trading, where computer programmes speculate with considerable amounts of money within milliseconds. Angelo: “This development is awful.” Goebbels: “This is frightening”. I would be tempted to ban this.”
The issue of investor protection was also mentioned. Silvia Angelo: “Radical reforms are needed. And in particular a reversal of the burden of proof.” Not the consumers should have to prove that they were wrongly informed by a financial advisor (which is often very difficult in practice), but vice versa.
Literature references:
UNCTAD Study Abbreviated version
UNCTAD Study Long version
AK Study “Commodities – Speculation, Distribution, Prices” (only in German)
Heiner Flassbeck, Director and Chief Economist at UNCTAD (United Nations Conference on Trade and Development) presented the result of a study commissioned by the AK on price volatility in commodity markets.
The financialised markets had completely detached themselves from the real economy. “Food prices are systematically driven up by speculators”, says Flassbeck. “The financial markets create fundamentally wrong prices. And wrong prices harm the market.”
But what is to be done about this? Flassbeck: “Food and commodity prices have to be put on the right track again, reflecting supply and demand – and not what the financial markets dictate.” And he demands: “In future, all financial transactions have to trade on stock markets and no longer bilaterally. This will allow admission restrictions, product restrictions and more transparency.”
Jasper Jorritsma, representative of the European Commission (Directorate General Internal Market) presented the MIFID: “The main objective of this Directive is that the financial markets begin to work for the real economy – and are not detached from it.”
Sven Giegold, Green MEP, pointed out that not only the financial markets, but also other factors would have an influence on prices. Meat consumption would rise, land consumption would rise. The consequence was shortages and automatically increased prices. He regards the MIFID as “a step in the right direction, but there is still a lot of work ahead of us.”
The Social Democrat MEP Robert Goebbels, MiFID shadow rapporteur, is “pleasantly surprised that the Commission recognizes realities at last.” The citizens had to be protected against speculators, because these would put whole economies under pressure. Apart from that, he demanded to ban commodity futures, which do not relate to goods.
“It is time to keep the financial economy on a short leash”, emphasised Silvia Angelo, Head of Economic Policy Department of the Vienna Chamber of Labour. “The financial economy must once again be put at the service of the real economy.” And she demanded: “It is time for the financial markets to be put under European supervision.”
Both Angelo and Goebbels pointed to high frequency trading, where computer programmes speculate with considerable amounts of money within milliseconds. Angelo: “This development is awful.” Goebbels: “This is frightening”. I would be tempted to ban this.”
The issue of investor protection was also mentioned. Silvia Angelo: “Radical reforms are needed. And in particular a reversal of the burden of proof.” Not the consumers should have to prove that they were wrongly informed by a financial advisor (which is often very difficult in practice), but vice versa.
Literature references:
UNCTAD Study Abbreviated version
UNCTAD Study Long version
AK Study “Commodities – Speculation, Distribution, Prices” (only in German)