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President of the European Commission
The gravity of the financial crisis is clear to all. It is absolutely right that it should be at the core of the European Council next week.
Addressing this crisis is an important test – for the financial sector, for the Member States, for Europe, for the international financial institutions. There is a wide variety of players involved – banks and other financial institutions, supervisors, the ECB and other central banks, the national governments, the Commission – so we need coordination. And events are moving very quickly – so we need speed.
Last week, I called for a coordinated European response. Because I am convinced that without it, it will be much harder for Europe to overcome this crisis. Today, I am encouraged by the determination of Member States to work together, as demonstrated by the statement of the 27 leaders and myself on Monday, the euro group and the ECOFIN meetings. But I am not yet satisfied – we can and we must do more.
In particular, I urge Member States to make a real effort at coordination – to improve co-operation amongst themselves and with the European Institutions. Yes, public intervention has taken place largely at national level, because this is where the money and the competencies are. This reflects the fact that we are a union of states, not one single state, with situations different at least to a certain degree. Member states actions have in most cases been effective. But Member states need to act on the basis of common principles and within a commonly agreed framework, and take into account the cross-border effects of their actions.
Of course, there are also many things we are doing and we still need to do at the level of the European institutions – both in the short and in the medium to longer term. The proposals I have in mind are concrete, practical, and realistic.
Because let me be clear: tempting as it may be – this is not the time nor the place for political posturing and grandstanding, for announcing grand initiatives that have no chance of being followed through. Markets would penalise this sort of behaviour immediately – and the costs would be borne by economic operators and by taxpayers. This is the time for ambition combined with realism and responsibility.
In this context, let me pay tribute to the ECB which has shown itself an assured and effective global player, with the euro a key steadying force.
The Commission has played its role to the full. State aid and competition rules have been shown to be essential to give guarantees of the level playing field. The risk of action in one Member State spilling over to negative consequences for another makes these rules more essential than ever. And at the same time, the Commission has shown how it is fully capable of acting at speed and with the necessary flexibility. I welcome the fact that this beneficial role of state aid rules and the way the Commission is applying them is recognised in the ECOFIN Council conclusions. The Commission will shortly issue guidance, setting out the broad framework within which the state aid compatibility of recapitalisation and guarantee schemes could be rapidly assessed.
In the legislative area, we will come next week with two proposals: firstly, to promote the convergence of deposit guarantee schemes - strengthened and more common rules here will be an important part of the exit strategy from the crisis. I am encouraged by the ECOFIN Council which has followed our proposal to at least double it, setting the common threshold at 50.000 €, with most Member States even going up to 100.000 €.
Secondly, we will come with a proposal to make sure that European financial institutions are not disadvantaged vis-à-vis their international competitors in terms of accounting rules and of their interpretation. Last week I had a meeting with the representatives of the European banks who were unanimous in telling me that this was a serious problem for them. The Commission role has been to promote awareness of the need to act and to create the political momentum.
Then there is the medium and longer term: the measures needed to bring stability and sustainability back into financial markets. I have said it before and I say it again: apart from liquidity, we need also to inject credibility into the market. Fire-fighting is not enough. Here Commission work has been underway since the start of the crisis a year ago.
We need to show that we have learnt the lessons needed to build the right regulatory framework to minimise the risks of future crises. Progress on the ECOFIN roadmap agreed last year will need to be closely monitored.
Let me highlight in particular three issues:
First, I would like the Council and the European Parliament to give real priority to our proposal of last week on capital requirements.
Second, we will come next week with the proposal we announced on rating agencies – again, I know I can rely on your support to fast-track work on it.
Third, we will also review our December 2004 recommendation on executive pay which unfortunately was largely ignored by Member States– a good illustration of the kind of resistance we have been facing in this area over the last years.
Last point of a more systemic nature: we also need to have a further look at EU level supervision in the single financial market. There are more than 8,000 banks in the EU – but two thirds of total EU bank assets are held in 44 cross-border institutes. Some operate in as many as 15 Member States. This is the Single market at work: but cross-border banks have to deal with different systems of supervision in each Member State. And national supervisors are not able to address the entirety of a banking activity beyond the national borders. It makes sense to remove the mismatch between a continental-scale market and national systems of supervision. When a cross-border bank is under pressure, finding rapid solutions with several national supervisors in parallel is possible, as the past weeks have shown, but not easy. I know that we will face an uphill struggle with Member States on this. The current debates in the Council on the "Solvency II" directive show the large degree of resistance any attempt at improving cross-border supervision still faces.
What we have proposed in "Solvency II" and in the capital requirements directive is the strict minimum we need. Indeed, I am convinced we will have to go much further.
So we need to launch a reflection process in order to build common ground. That is why I will be setting up a High Level Group to look at the right architecture to ensure financial markets suited to the realities of the single market, and that supervisors can work together to meet the challenge of cross-border banks. I am proud to announce to you today that Jacques de Larosière, former Director-General of the IMF, Governor of the Banque de France, President of the EBRD, has accepted my invitation to chair this group which will be independent and consist of high level experts in the subject matter.
I think the current crisis has shown that we need a comprehensive rethinking of our regulatory and supervision rules for financial markets - which includes hedge funds and private equity, as highlighted by this Parliament. So we will come back to these questions. I only hope Member States will show – all of them – the same level of willingness as EP and Commission.
Let me recap:
All these measures, together with Member States acting in a coordinated and consistent manner, will show an EU addressing the real problems. The effect on confidence will be all the stronger if the institutions can show a resolution and a determination to act quickly.
As far as the Commission is concerned, I would like to inform you that I have decided to set up inside the College a permanent steering group on the financial crisis, composed of Commissioners Almunia, Kroes and McCreevey, and which I will chair myself. And I want to keep open lines with this Parliament on these questions. I know that this Parliament has already signalled its openness to fast-tracking proposals, and I hope that we can work together. Because financial stability is a public good.
In all of this, the international dimension is critical. President Sarkozy's proposal for an international conference is the right way forward. The more that public authorities can act in tune, the more effective our action will be, and the less the chance that action will undermine fair competition.
The focus is on the financial crisis, and rightly so. But it would be a mistake to see Europe grinding to a halt as a result. There are two other areas where we must make decisive progress this autumn.
First, the climate change and energy package. Those who think that this is not the policy for an economic downturn are making a mistake. The package is central to Europe's future prosperity – without it there will be higher costs later, we will be more vulnerable to energy shortfalls: and we will lose the chance of exploiting some big new markets. Of course industries are worried that change will bring extra costs. This is completely understandable. But I am also convinced that we can find ways to reassure industries that they will not be put at a competitive disadvantage.
I will be urging the European Council to press on and to keep up with the timetable being followed by the Parliament and being maintained so effectively by the French Presidency. Yesterday the Parliament took an important procedural step forward. Of course we are only at the beginning here of the interinstitutional negotiations. The Commission is ready to engage constructively in order to arrive at an agreement, meeting with the largest possible support both in the Council and in the EP plenary.
Finally, the Lisbon Treaty. Now is not the time to prejudge the precise way forward. But it is a time to recall that the last few weeks and months have shown again how Europe needs the Lisbon treaty. A more effective Europe; a more democratic Europe; a Europe with a clear voice on the international stage.
Honourable Members, these are not ordinary times. These are unprecedented times which require all of us, Commission, Council and Parliament, to rise to the occasion. Together, we must call and work for a European response to the financial crisis. We owe it to our citizens.