Chancellor set for talks on EU financial rules

BRITAIN:MICHEL BARNIER, the official in charge of regulating finance in the European Union, will meet British chancellor of the exchequer George Osborne on Monday in what are likely to be tough talks over rules the chancellor believes will hurt the City of London.

Divisions with Britain place another obstacle in the way of Europes drive to reform finance, a push some analysts believe had lost its way in the continuing banking crisis.

Next week’s visit by Mr Barnier to the chancellor’s residence in London will be his first official meeting with Mr Osborne since the December summit which ended in a split that saw UK prime minister David Cameron leaving Brussels empty-handed and other EU countries left to press ahead for a fiscal pact without Britain. The meeting is seen as an important opportunity to bridge the divide over the City of London.

“The last few months have seen ups and downs in the UK-Commission relationship,” said an EU official, speaking on condition of anonymity. “Commissioner Barnier is looking forward to seeing the chancellor to discuss the many issues of common interest.”

They will address divisive questions, such as EU rules that will dictate how much capital banks must set aside, and which Mr Osborne wants to change before they are finalised to keep leeway to impose stricter standards on banks in Britain.

Mr Barnier is also set to discuss the powers that a newly created pan-European watchdog will get in intervening in markets for trading derivatives, such as those that hedge the risk from price moves on oil, gas or other commodities. Britain is keen to protect its hold on this $700 trillion market, which is mainly split between London and New York.

The meeting comes as 31 European banks tell their national regulators how they plan to fill a gaping capital hole, as the bloc attempts to deal with its debt crisis once and for all. Collectively, the banks need to fill a €115 billion gap, and while a few are still attempting to raise the money privately, most have said they have already found other ways to boost their capital buffers.

Europe has told the lenders they must hold core capital of at least 9 per cent of risk-weighted assets, and fill any shortfall by the end of June. Falling profits means the need for state aid cannot be ruled out, notably for Commerzbank and Italys Banca Monte dei Paschi di Siena.

Speaking yesterday, Mr Barnier also said measures should be taken to boost transparency on how credit rating agencies rate sovereign debt,

“Financial institutions are too much reliant on ratings, which should be reduced,” and rating agencies should be obliged to boost transparency on how they come with sovereign debt ratings, he said in a speech in Tokyo.

He did not elaborate on what specific measures he had in mind. – (Reuters)