Stepping up EU supervision

With the recent finalization of the awaited European Parliament and Council agreement on new European financial market authorities and supervisory mechanisms, now the debate is open. The creation of the European Systemic Risk Council – the new permanent EU Institution charged with EU and national financial market supervision under the direction of the European Central Bank – brings in the limelight an apparently technical issue. In fact it is directly related with citizens’ ‘pockets’. Does Europe supervise financial markets? And how? With which consequences and results? While in writing – namely in EU Treaties and Institution regulations – common monetary policy is accompanied by a system tasked with monitoring activities entailing the decisions and/or financial participation of European players in the markets, in reality those who were seeking a supervisory mechanism failed to find one. Most of them realized, and Europe was obliged to batten down the hatches. The concept of ‘supervision ‘implies the possibility of adopting unorthodox measures, which do not comply with enforced regulations, such as financial practices and behavior that are a detriment to market competition, consumer interest, and to legitimate national and/or sectoral interests. Community annals overflow with such cases. Needless to say that rules do exist, and that they abound in the field of international trade; of investment -public and private -; and as relates to the stock exchange. But one thing are the rules, another is monitoring their correct adoption. Also since it cannot be denied that at national level there is room for manoeuvre within the legislative framework for the common market and the single currency: more room than one would imagine. This is not necessarily a negative aspect. Often it is a requirement, having taken for granted Member States’ peculiarities (industrial policy, relations with foreign partners, banking systems) that require diversified measures and guarantees, which would theoretically and technically fail to produce uniformity at all costs. Provided that the shared rules of the game are not broken. For example, the political supervisor of the European Single Currency and Stability Pact Group ‘lays down the law’ to all 16 Euro-zone Countries. Still, the Stability Pacts don’t have equal content and adoption modalities. And what of 11 States which include the British financial giant? Financial and banking supervision reform – strongly called for by the G20 and by the World Trade Organization – finally grants control to an authoritative Community umbrella with true supervisory and intervention powers also for the fiscal sector. There are many urgent issues: early financial risk detection; stock-exchange speculation; the “mysterious” international rating realm, which by granting recognition to the economic and political reliability/solidity/sustainability of a given Country has the power to change its destiny in a few hours’ time; the plague of uncontrolled lending of high-risk financial products put on the market by the single banks and by the general banking system; the control of monopoly positions disguised as mergers.As usual, an accurate evaluation of the reform’s impact will take time. However, the statement by European Commission President, Josè Manuel Barroso, according to whom the European Systemic Risk Council “will prompt the growth of European taxpayers’ savings” is reason for hope.