Nikolaos Chountis – Confederal Group of the European United Left – Nordic Green Left

After the stock market and oil crisis in 1970s, the world economic system in general, and the financial system in particular, were based on three “pillars”: a) the collapse of the fixed exchange rates system, b) the internationalization and liberalization of financial markets and c) the development of derivatives and other financial tools.

Since the early 80s, we are witnessing the integration of the financial sector in the EU, which was based on the neoliberal globalization, namely, the abolition of national controls and barriers to the movements of capital, the privatization of banks and other financial institutions (e.g. insurance companies), the assignment of central financial functions, such as, credit risk assessment, definition of accounting standards, etc., to private organizations, and the lack of a European system of regulation and supervision.

In the last meeting of the European Council (18-19 June 2009) was decided the establishment of two new regulatory bodies, the European Systemic Risk Board (ESRB) and the European System of Financial Supervisors (ESFS). Although that decision was in the right direction, the shaping of the new institutions was based on the premise of the “primacy of the markets”, a fact that limited their scope.

In particular, the European Systemic Risk Board (ESRB) was established under the auspices of the European Central Bank (ECB), and it is composed of 1) the Central Bankers from the 27 member countries of the EU, 2) the European Commission representatives, and 3) the President and Vice-President of the ECB. Please note that the supervisory and financial authorities of member countries participate only as observers, ie without voting rights. The ESRB does not have any legal personality.

The ESRB’s responsibilities include: managing information on developments in the economy and the financial sector, identify and analyze potential threats to financial stability, issuing warnings and make recommendations for regulatory measures, coordinating with international organizations like the International Monetary Fund (IMF).  In the absence of implementation of its recommendations, the ESRB may refer to the Council of the EU, and make public warnings. Finally, it is required to submit monthly reports to the Council and Parliament.

Unlike the ESRB, the European System of Financial Supervisors refers to the upgrading of the three existing committees at the European level– regarding the banking sector, the investment companies and insurance companies, respectively – which were established in 2005 and 2006 under the “Financial Services Action Plan”, and they provide technical support to the Commission. The Committees are made up of representatives of the national supervisory authorities of member countries of the EU.

These committees are acquiring a legal personality (European Supervisory Authorities – ESA) and their own resources, and will be able to take decisions on the basis of the majority principle, leaving aside the consensus so far needed. Their responsibilities include the enhancing of the coherence of the surveillance of member countries of, the strengthening of the surveillance of cross-border groups, the oversight of credit rating agencies and the development of a single European ‘rulebook’. Finally, the ESA are required to submit monthly reports to the Council and the European Parliament.

In practice, for the issue of financial regulation, there are two different and conflictual positions. The first supports the ‘free market’ premise and the relaxation of any rules that regulate the financial sector, while the second argues that the current economic crisis dictate us to “put an end” to speculative financial markets. The framework of this conflict has been based on the functions and powers that these regulatory “pillars” will have, and how they will effectively regulate an ever-growing market.

For the Left, the financial sector has been dangerously increased in magnitude and significance, related to the real economy, while the competition between hedge funds, banks and other financial institutions leads to more volatility and risk. The EU, in addition to the financial regulatory system, must develop a concrete, strict, uniform throughout the EU and effective set of rules, in order to monitor the activities of the financial sector. The proposed regulatory authorities, however, have been left without any effective power, in the sense that Member States will be responsible for the specific rules governing the financial sector. On the other hand, there might be the possibility of a new kind of competition based on financial regulation, where financial capitals will choose the country with the more relaxed regulatory framework. Thus, while the Commission’s initiative to regulate the financial sector is, in principle, positive, we must admit that the success is extremely limited, due to the attachment of the European Commission to these economic axioms that led us to the crisis.