IN THE wake of the financial crisis, EU leaders were determined last night to cap months of preparation with steps to strengthen Europe’s patchy system of financial supervision – in spite of the UK’s reservations about yielding binding powers to EU authorities.
The UK has made clear that it will resist proposals to give EU supervisors the right to impose decisions on national supervisors if there are disagreements – for example, over how to bail out a stricken bank.
Yet neither the British nor countries like France that are heavily supportive of the supervision reforms appeared inclined to let their differences explode into an open row at the summit. Disputes are likely to be put off until the autumn, when formal legislation is expected to be proposed.
At the moment EU leaders are basing their discussion and communique on a more discursive European Commission “communication”, published last month.
This, in turn, was derived heavily from the reform proposals drawn up over the winter by former French central banker Jacques de Larosière at the commission’s request.
Key proposals in the communication document are for the creation of a new European systemic risk council to assess and warn of threats to financial stability in the region, coupled with a new European system of financial supervisors, which will oversee individual banks and financial firms.
On the latter front, three existing pan-EU co-ordinating committees would be upgraded into European supervisory authorities for the banking, insurance and securities sectors, so that a “strengthened framework” could be up and running in 2010.
These three new bodies would be tasked with developing harmonised rules, common approaches to supervision and settling potential disputes between national supervisors, who would continue to handle day-to-day matters.
They could also be given responsibility for supervising “certain entities with pan-European reach [such as] credit-rating agencies and EU central counterparty clearing houses”, the draft says.
But the UK, which houses by far Europe’s largest financial centre in the City of London, is deeply unhappy about giving binding mediation powers to European supervisory authorities.
However, British prime minister Gordon Brown secured a guarantee last night from EU leaders that the new supervisory system would not include powers to force national governments to bail out banks.
Diplomats said the summit communique would say that EU-level decisions would “not impinge in any way on the fiscal responsibilities of the member states”.
Mr Brown also signalled a softening of British opposition to the head of the European Central Bank chairing the proposed systemic risk council, saying the chairmanship of the body was not the most important thing.
A smattering of relatively small member states, such as Slovenia, also appear to be questioning the speed with which events are moving. Most other countries, however, appear to back the commission proposals. – (Copyright The Financial Times Limited 2009)
