| EUROPEAN PARLIAMENT – Are the elected deputies interested in protecting the European consumer or simply interested in improving their awareness of how to protect themselves? |
The efforts by Bulgarian MEP Iliana Iotova are laudable but there may be too much utopia in her solution of simply “teaching children about basic finance so they avoid getting into bad debts at a later age”. The experience of other EU Member States with more financially literate consumers than those exposed to credit and debt over a shorter period of time (such as Bulgarians for example) has not prevented them from having problems of overindebtedness. The MEP raises concern about children taking loans their parents are unaware of and mortgages where people don't understand the small print, but appears to accept that deceptive practices by the suppliers of credit should be tolerated. Also copied below is a press release from the 18th November by the European Parliament where it is reported that many Members of the European Parliament "CRITICISED SPECULATORS AND THE EUROPEAN COMMISSION FOR ITS ROLE IN INCITING THE CRISIS BY CONCENTRATING TOO MUCH ON INDUSTRY'S CONCERNS".
Other Parliament Committee press releases are pasted below:
PRRESS RELEASE BY THE EUROPEAN PARLIAMENT:
18.11.08
PROTECTING THE CONSUMER: IMPROVING CONSUMER EDUCATION AND AWARENESS ON CREDIT AND FINANCE
MEPs adopted an own-initiative report on protecting the consumer: improving consumer education and awareness on credit and finance. Overall, the report welcomes the Commission initiatives to educate consumers on finance and credit because "empowered and educated consumers help to foster competition, quality and innovation within the banking and financial services industries".
The recently set up Expert Group on Financial Education and the proposed online database of financial education schemes and research in the EU are particularly welcome, it says.
FINANCE EDUCATION IN SCHOOLS
The House calls on the Commission to develop educational programmes relating to personal finance, which can be adapted to the specific needs of each Member State, and encourages Member States to include financial education in primary and secondary schools.
Training programmes should also be set up in Member States for social workers who deal with persons at risk of poverty or excessive debt, the report says.
QUALITY INFORMATION OVER QUANTITY
The rapporteur states that "effective, clear and comprehensible information, particularly in advertisements for financial products, is necessary". "Financial institutions should provide sufficient information before contracts are concluded and should strictly apply the rules laid down in Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (Mifid) and Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers."
However, the report acknowledges that "overloading" the consumer with information would be counterproductive, stressing the need for "quality over quantity".
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TEXTS ADOPTED ON TUESDAY 18TH BY THE EUROPEAN PARLIAMENT
The European Parliament adopted by 634 votes to 12 with 27 abstentions, a resolution on protecting the consumer: improving consumer education and awareness on credit and finance.
The own-initiative report had been tabled for consideration by Iliana Malinova IOTOVA (PES, BG) on behalf of the Committee on the Internal Market and Consumer Protection.
For MEPs, the ‘sub-prime mortgage’ crisis illustrates not only the dangers of inadequate information for borrowers but also the lack of understanding and knowledge of such information leading to consumers being insufficiently concerned about the risks of insolvency and excessive debt. The resolution states that raising the level of financial literacy of consumers should be a priority for policymakers both at Member State and at European level.
Parliament welcomes the Commission initiatives in the field of the financial education of consumers, in particular the recent setting-up of the Expert Group on Financial Education, and its intention to publish an online database of financial education schemes and research in the EU. The Expert Group should have clear responsibilities and powers. It suggests that it be asked in particular to look into the added value of, and best practices in, EU financial education and cross-border financial services.
For MEPs, the objective of educating and raising the awareness of consumers as regards finance and credit is to improve consumers' awareness of economic and financial realities with a view to understanding economic commitments and avoiding unnecessary risk, excessive debt and financial exclusion. Training and the provision of information should allow consumers to take an independent approach, based on their own judgement, to the financial products that are offered to them or that they are considering using.
The Commission is invited, in cooperation with the Member States, to develop, at EU level, educational programmes in the field of personal finances, based on common rules and principles which can be adapted to the needs of, and applied in, all Member States, setting benchmarks and promoting the exchange of best practice.
The resolution recommends that financial education schemes focus on important life-planning aspects such as basic saving, debt, insurance and pensions. Moreover, to be efficient, the financial education programmes must be tailored to the needs of specific target groups (and, where appropriate, personalised) according to a mix of criteria such as age, income and level of education.
MEPs recognise the role of private initiatives, the financial services industry and consumer organisations at both Community and national level in defining the specific needs of target groups for financial education, in identifying the weaknesses and shortcomings of existing education schemes, and in providing financial information to consumers, including through internet-based tools media and educational campaigns, etc. for financial planning.
They stress the need for an ongoing two-way educational process for both sides, that is to say financial advisors and consumers, so as to ensure the provision of accurate information.
The Commission is invited to:
• increase budget line 17 02 02 to finance activities at EU level aiming at improving consumers' financial education and financial literacy;
• contribute to raising awareness at EU level through supporting the organisation of national and regional conferences, seminars, media and awareness campaigns as well as educational programmes with cross-border participation, in particular in the field of retail financial services and household credit/debt management;
• further develop and upgrade the Dolceta website and to provide this service in all official languages and include a link to the online database it intends to set up of existing regional and national financial education schemes;
• set up information campaigns in order to raise the awareness of consumers of their rights under EU legislation in the sphere of the provision of financial services.
Parliament encourages the encourages the Member States to:
• include financial education in the primary and secondary school programmes developed by the competent institutions,
• pay special attention to the educational needs of pensioners and persons at the end of their professional career, who may be at risk of financial exclusion, and also to young people starting their professional career who are faced with the challenge of determining how to make appropriate use of their new income;
• establish a network for financial education in which both the public and private sector take part, and to encourage cooperation and dialogue between all actors;
• set up training programmes in economics and financial services for social workers, since they are in contact with persons at risk of poverty or excessive debt.
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IMPROVING CONSUMER EDUCATION AND AWARENESS ON CREDIT AND FINANCE
European Parliament resolution of 18 November 2008 on protecting the consumer: improving consumer education and awareness on credit and finance (2007/2288(INI))
The European Parliament ,
– having regard to the Communication of the Commission of 18 December 2007 on financial education (COM(2007)0808),
– having regard to the Commission's Green Paper on retail financial services in the single market (COM(2007)0226),
– having regard to its position at second reading of 16 January 2008 with a view to the adoption of a directive of the European Parliament and of the Council on credit agreements for consumers and repealing Council Directive 87/102/EEC(1) ,
– having regard to its resolution of 11 July 2007 on financial services policy (2005-2010) - White Paper(2) ,
– having regard to Rule 45 of its Rules of Procedure,
– having regard to the report of the Committee on Internal Market and Consumer Protection and the opinion of the Committee on Economic and Monetary Affairs (A6-0393/2008),
A. whereas on the one hand financial markets are fast evolving and have become very dynamic and increasingly complex, and, on the other, societal changes and changes in lifestyle create a need for sound management of private finances and to adjust private finances regularly to suit new work and family circumstances,
B. whereas raising the level of financial literacy of consumers should be a priority for policy-makers both at Member State and European level, not only because of the benefits for individuals but also because of the benefits for society and the economy, such as reducing the level of problem debt, increasing savings, increasing competition, making appropriate use of insurance products and making adequate provision for retirement,
C. whereas studies reveal that consumers tend to overestimate their knowledge of financial services and need to be informed of the fact that they are not as financially literate as they believe, and of the consequences thereof,
D. whereas high quality financial education programmes, targeted and, where appropriate, as personalised as possible, can contribute to raising financial literacy, allowing consumers to make informed choices and thus to the effective functioning of financial markets,
E. whereas the importance of cross-border financial services is constantly increasing, and the Commission should take initiatives at EU level for the promotion of cross-border and, where necessary, comparable information on financial education,
F. whereas particular attention should be paid to the educational needs of vulnerable consumers, and also to those of young consumers, who face decisions affecting economic prospects for their whole lifetime,
G. whereas research has shown that those who have learned the basic aspects of personal finance at a very early age have more financial literacy; whereas financial education is closely related to the teaching of basic skills (mathematics and reading),
1. Welcomes the Commission initiatives in the field of the financial education of consumers, in particular the recent setting-up of the Expert Group on Financial Education, and its intention to publish an online database of financial education schemes and research in the EU; is of the opinion that this Expert Group should have clear responsibilities and powers; suggests that it be asked in particular to look into the added value of, and best practices in, EU financial education and cross-border financial services;
2. Stresses that the objective of educating and raising the awareness of consumers as regards finance and credit is to improve consumers' awareness of economic and financial realities with a view to understanding economic commitments and avoiding unnecessary risk, excessive debt and financial exclusion; considers that training and the provision of information should allow consumers to take an independent approach, based on their own judgement, to the financial products that are offered to them or that they are considering using;
3. Notes that the "sub-prime mortgage" crisis illustrates not only the dangers of inadequate information for borrowers but also the lack of understanding and knowledge of such information leading to consumers being insufficiently concerned about the risks of insolvency and excessive debt;
4. Underlines that empowered and educated consumers help to foster competition, quality and innovation within the banking and financial services industries and recalls that educated and confident investors can provide additional liquidity to capital markets for investment and growth;
5. Stresses the importance of establishing the level of financial literacy in the Member States and an understanding of the added value the EU can provide, as well as of defining educational needs for specific target groups in society, according to a mix of criteria such as age, income and level of education;
6. Recognises the role of private initiatives, the financial services industry and consumer organisations at both Community and national level in defining the specific needs of target groups for financial education, in identifying the weaknesses and shortcomings of existing education schemes, and in providing financial information to consumers, including through internet-based tools media and educational campaigns, etc. for financial planning;
7. Is of the opinion that financial education programmes are most effective if they are tailored to the needs of specific target groups and, where appropriate, personalised; is of the opinion, moreover, that all financial education programmes should contribute to the improvement of a conscious and realistic handling of each individual's financial possibilities; consideration should be given to the development of programmes that improve adults" financial capabilities;
8. Calls on the Commission, in cooperation with the Member States, to develop, at EU level, educational programmes in the field of personal finances, based on common rules and principles which can be adapted to the needs of, and applied in, all Member States, setting benchmarks and promoting the exchange of best practice;
9. Emphasises that financial education can complement but cannot be a substitute for coherent consumer protection provisions in financial services legislation and the regulation and strict supervision of financial institutions;
10. Acknowledges the important role of the private sector, and particularly of financial institutions, in providing consumers with information on financial services; emphasises, however, that financial education should be offered in a fair, unbiased and transparent manner, so as to serve the interests of the consumer, and that it must be clearly distinguished from commercial advice or advertising; in order to achieve this goal, encourages financial institutions to develop codes of conduct for their staff;
11. Acknowledges that a delicate balance needs to be struck between providing consumers with the knowledge they need to make informed financial decisions and overloading the consumer with information; favours quality over quantity, for example high-quality, accessible, concrete and easily comprehensible information aimed at enhancing the consumer's ability to make informed and responsible choices;
12. Considers that effective, clear and comprehensible information, particularly in advertisements for financial products, is necessary and that financial institutions should provide sufficient information before contracts are concluded and, in particular, strictly apply the rules laid down in Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments(3) and Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers(4) ; calls on the Commission to put forward, in a coherent manner specific legislative proposals for a harmonised system of consumer information and protection, in particular in the framework of mortgage credit (such as a harmonised, simple and comparable European standardised information sheet including common indications on the annual percentage rate charged, etc.);
13. Recommends that financial education schemes focus on important life-planning aspects such as basic saving, debt, insurance and pensions;
14. Asks the Commission to continue efforts to promote dialogue between stakeholders;
15. Suggests the increase of the budget line 17 02 02 to finance activities at EU level aiming at improving consumers' financial education and financial literacy; asks the Commission to contribute to raising awareness at EU level through supporting the organisation of national and regional conferences, seminars, media and awareness campaigns as well as educational programmes with cross-border participation, in particular in the field of retail financial services and household credit/debt management;
16. Calls on the Commission to further develop and upgrade the Dolceta online tool and to provide this service in all official languages; suggests that the Commission include on the Dolceta website a link to the online database it intends to set up of existing regional and national financial education schemes; suggests that the Dolceta website should include links to the websites of public and private bodies operating in the field of financial education, broken down by country;
17. Asks the Commission to include indicators of the availability and quality of financial education in the Consumer Markets Scoreboard;
18. Calls on the Commission to set up information campaigns in order to raise the awareness of consumers of their rights under EU legislation in the sphere of the provision of financial services;
19. Stresses the need for the Member States, with the support of the Commission, to carry out regular surveys, in cooperation with the various social and population groups of the Member States, concerning current levels of financial literacy among the public, in order to identify priority areas for action and thus ensure the appropriate, prompt and effective implementation of financial education programmes to assist the public;
20. Encourages Member States to include financial education in the primary and secondary school programmes developed by the competent institutions, designed to develop the skills needed in everyday life, and to organise systematic training for teachers on this subject;
21. Stresses the need for an ongoing two-way educational process for both sides, that is to say financial advisors and consumers, so as to ensure the provision of accurate information in step with the most recent developments in the financial services sector;
22. Is of the opinion that synergy effects between different educational organisations are not sufficiently used; asks Member States, therefore, to establish a network for financial education in which both the public and private sector take part, and to encourage cooperation and dialogue between all actors;
23. Encourages Member States to pay special attention to the educational needs of pensioners and persons at the end of their professional career, who may be at risk of financial exclusion, and also to young people starting their professional career who are faced with the challenge of determining how to make appropriate use of their new income;
24. Calls on the Member States to set up training programmes in economics and financial services for social workers, since they are in contact with persons at risk of poverty or excessive debt;
25. Instructs its President to forward this resolution to the Council, the Commission and the governments of the Member States.
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MEP ON WAYS TO AVERT FUTURE CREDIT CRUNCH
Economic and monetary affairs - 15-10-2008 - 12:53
ILIANA IOTOVA: ADVOCATES EDUCATION AND FRUGAILTY
Teaching children about basic finance so they avoid getting into bad debts at a later age is the aim of a leading MEP. Bulgarian Socialist Iliana Iotova has also raised concern about children taking loans their parents are unaware of and mortgages where people don't understand the small print.
The 44-year old former journalist believes that "financial education has to begin already in the primary school" and that the European Union should set aside a specific budget for financial education. She proposes €1.5 million. This would have common principles and be similar right across Europe.
EASY CREDIT AND CHILD LOANS WORRYING
We put it to Ms Iotova whether more awareness could actually help people avoid such crises? She was emphatic: "I am convinced. One of the main causes of the crisis is the over-indebtedness of the population and this came from the United States. Our studies show that Europe is heading the same way as the U.S. - more credit is being taken and less is being repaid."
She went on to say: "Another worrying phenomenon is that children take loans (like for shopping on the Internet) that parents cannot control. Another problem is the fashion in Europe for mortgaging of housing. Many people are not sufficiently financially literate and do not understand the small print in the contract for a home mortgage or loan and subsequently it appears that people can not repay these credits. "
WATCH THE HOUSEHOLD BUDGET
As well as drawing on the lessons of the crash of 1929, Ms Iotova also says: "What I recommend to each household is to pay attention to the household budget: how much do we spend on electricity, food, heating - do we really need the things we are buying? I recommended being more cautious about our money and educating the children on the merits of saving."
However, she ends on a positive note: "I am sure that this crisis will be overcome - we see the results of the meeting of the eurozone members and their will for solidarity. And those sceptical of the European Union and the Reform treaty can now see why it is worthwhile to have the EU."
In early October fellow Members of the cross party Internal Market Committee backed her proposals. The full parliament will vote on them in November.
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MEPS DEBATE THE FINANCIAL AND ECONOMIC CRISIS POST G20 SUMMIT
18.11
Parliament debated the financial and economic crisis in the light of the Washington G20 summit. Many European Parliament political group leaders stressed the need for regulatory reform, in particular credit rating agencies, private equity and hedge funds as well as the importance of boosting lending to small business. Other groups criticised speculators and the European Commission for its role in inciting the crisis by concentrating too much on industry's concerns.
COUNCIL
For the Council, France's European Affairs Minister Jean-Pierre JOUYET said that the effects of crisis on economy were now showing clearly, with many countries having entered recession. Public authorities were working to help reduce the impact of the financial tensions on households and businesses, he said.
Facing a slowdown that was "quite exceptional since 1929," the French Presidency had made it a priority to agree a recovery package: Member States had provided interbank loan guarantees and recapitalised banks. Effective joint action had also been seen at the G20 summit with Commission President Barroso and Council President Sarkozy working closely together.
ACCOUNTABILITY AND RESPONSIBILITY IN GLOBAL FINANCIAL SYSTEM
The conclusions of the summit focussed, as the EU had proposed, on accountability and responsibility as key factors for the world financial system, continued Mr Jouyet. The leaders had adopted principles like reform of credit rating agencies, the regulation of all those involved in financial industry and considering the link between remuneration policies and avoiding excessive risk.
"Most of main players in the major world economies have provided a strong lead which finance ministries will be putting into place over the next weeks. You can count on French presidency to promote unity in Europe and take forward our common ambitions. And you can also count on Czech presidency to continue this work," said the Council President-in-office.
The EU, he said, needed to continue to take a strong lead for tangible results. It must also shoulder responsibilities for European legislation: "I know I can count on Parliament to be fully involved." United action could inspire the Union and its Member States to react to affects on economy of financial crisis, he said.
MEMBER STATES "CANNOT HELP GROWTH IF THEY DO NOT WORK TOGETHER"
"Member States cannot help growth if they do not work together," he continued. The G20 summit had sent a clear signal of the need to use all possible macro elements to stop the economy slowing down for an extended period of time. Mr Jouyet welcomed the ECB rate cuts and said the Council had supported their other initiatives at earlier stages. On fiscal matters, Member States had said that any freedom of movement within the Stability and Growth Pact should be used to try to reverse the downturn in the economy. The Council would be working closely with the Commission to do everything possible to ensure national initiatives are closely harmonised and work in conjunction with one another.
"We also need to ensure the single market functions well and that the flexibility in state aid rules can be used to the full so Member States can help support threatened sectors." Mr Jouyet specifically mentioned the car industry as being one that needed supportive action by the EU as part of a wider package of measures.
EUROPE "SHOULDERS ITS RESPONSIBILITIES"
"The European Union has shouldered its responsibilities in face of unprecedented destabilisation of world economy. We have taken urgent measures in the face of immediate danger, but now we need to keep Europe together as a unit, acting as one alongside our partners for a more thoroughgoing review of regulatory system and return to the normal economic cycle. I am certain we can regain control of our destiny and act, as Europeans expect, as a global player."
EUROPEAN COMMISSION
Commission President José Manuel BARROSO reminded Members that the political initiative for global reform of the financial system came from Europe. "It is my personal feeling that the first meeting of G20 heads of state and government marked a new era in collective steering of the global economic crisis and has made people realise that we need a global approach." He added, however, that it would be obscene to discuss solutions to the financial crisis while ignoring those who still do not have access to food or drinking water.
"In Washington, everyone understood that all economies are interdependent so we in Europe have to accept that and come up with responses," he said. Our response now needs to be 'timely, targeted and temporary' and should include for example measures to help adapt some sectors of our economies to fight against climate change so that this fight is not seen as running counter to economic growth.
Referring to the 2009 legislative programme, Mr Barroso stressed that the focus of action needed to be on preventing damage from lack of growth and employment while, at the same time, looking at reforms to prepare for the post-crisis period. A recovery programme would, therefore, be tabled by the European Commission on 26 November. He urged the European Parliament to adopt quickly the recently tabled proposals on bank guarantees and credit rating agencies.
In conclusion, he said that it was time for Europe to make its mark and he remained optimistic that the G20 in Washington had shown a level of open-mindedness which did not exist a few months ago.
POLITICAL GROUP SPEAKERS
On behalf of the EPP-ED group, Joseph DAUL (FR) said the financial and economic crisis did not represent "a defeat of capitalism" but was a result of poor regulation, a lack of market transparency and the lack of proper financial supervisory bodies. He stressed that the centre-right parties were not in favour of "an unfettered financial system" but of a social market economy. He called for more attention to be focused on the plight of small businesses, "who take risks to create jobs". They need a market "that is clear, fair and transparent", he said.
The financial crisis had highlighted "the value of Europe", but he wondered why "we in Europe did not pre-empt the crisis better". In the wake of the crisis, world governance had taken a step forward but he still felt the need to warn against protectionism. Lastly Mr Daul emphasised that "as a united Europe, with the institutions working together, we are strong".
Socialist group leader Martin SCHULZ (DE), referring to the G20 meeting, said the fact that it had met did represent progress, but he felt the time had come for swift action, notably on "credit rating agencies, financial supervision, private equity and hedge funds, and executives' salaries".
"We are at a crossroads", said Mr Schulz and he called for stricter monitoring and "a legal ban on certain forms of speculation". There must be no return to "business as usual". He was also critical of any idea of taking money from the real economy to pay for the financial crisis, saying that instead we should be "investing in the real economy". He looked to the Commission to come forward with proposals as early as December.
Even Adam Smith believed that unbridled free markets have their limits, said Graham WATSON (UK), speaking for the ALDE group. Nevertheless, the Liberal leader stressed the need to support open markets, saying that after 1929 countries had mistakenly tried for "individual salvation" whereas "now we recognise that salvation has to come collectively".
Mr Watson's main point, however, was that this was not a time to abandon the drive for sustainable economic growth: the fight against climate change must be maintained. Although coming from a different angle from Martin Schulz, Mr Watson too believed that "never again can we have business as before".
Brian CROWLEY (UEN, IE) believed that the bottom line in the crisis was that the EU, US, India and China must work together to ensure common rules and standards to govern the global financial markets for the future. There should, he said, be no excuses for those who indulged in the reckless lending and dubious practices which caused the crisis. The biggest danger today, he said, is that banks are not lending to small and medium-sized enterprises to allow them to grow and to take opportunities. For the future, we must invest in research and development to find new ways to solve our problems. We must give hope and encouragement to people. We must not put a block on the creativity and innovation of the people of Europe.
Monica FRASSONI (Greens/EFA, IT) argued that Mr Barroso and his Commission were among those responsible for the current crisis and that they had sided with the Member States and industry rather than the European Parliament and consumers in arguments over lack of transparency and deregulation. She emphasised the Green New Deal which means a genuine long-term economic strategy focussing on issues such as energy efficiency. It meant not giving a blank cheque to industries such as the car industry unless they reform and modernise.
Roberto MUSACCHIO (GUE/NGL, IT) reminded the Parliament that President Sarkozy had spoken about the need for a structural overhaul of capitalism rather than the need to imagine a new future: a transition to a social economy based on fairness and co-operation. But the scant result of the G20 did not include such an overhaul. No one, he said, is asking what is at the heart of the current crisis so we cannot tackle the real problems which are: the devaluing of work in recent years through the policies of liberalisation which have led to suffering and injustice and secondly the serious ecological and energy situation. Mr Musacchio questioned how can those who have created the problems be the ones to solve them? We need strong words from the Left, he concluded.
Hanne DAHL (IND/DEM, DK) asserted that the problems had arisen because enterprise had become "a bubble in the whirlpool of speculation". The European Commission's proposal for tackling the financial crisis was "beating about the bush," she said, adding that the 'four freedoms' do not make things any easier. She asked the European Commission whether the proposal on credit rating agencies would mean that new agencies are to be set up because, she said, the existing ones have been "inadequate and unreliable". She was concerned about future employment insecurity and the price wage earners might have to pay as a result of the financial crisis. "Wages should not be seen just as a cost factor," she said. "But also as a key influence on levels of demand, which can stimulate the economy."
Jana BOBOŠÍKOVÁ (NI, CZ) was pleased that the Washington summit had respected the freedom of the market and had rejected the protectionism proposed by President Sarkozy. She said it was not capitalism that had brought about the crisis, but the greed of banks. And this was why a simple injection of money to the banks would amount to stealing from our citizens. "We must make sure the banks use the funds to provide loans to businesses and we need proper supervision over how the money is used."
COUNCIL RESPONSE TO GROUP LEADERS
In his response to the group leaders' comments, Mr JOUYET said the G20 summit had been a historic and innovative event, including in terms of initiatives taken in Europe, and Europe's impact on the international stage. "We are at a crossroads, and we cannot go back to 'normal.' We will need to use our imagination to find answers to the crisis. It is important to be ready to act quickly. We also need to be ready to act against the negative impact of crisis on small businesses and in terms of social dimension. We need to take account of Keynesian aspects that may be able to be employed with climate change measures. The distinction between public and private sectors is important, and we should not just focus on financial issues, but also look at helping the most vulnerable members of society," he said.
BRITISH AND IRISH SPEAKERS
Diana WALLIS (ALDE, UK) said that as regards the world financial crisis and the Commission legislative work programme, the latter, she said should in a sense be our response to the former. We, she said, should be able to give a strong and collective response in order to give confidence to those whom we represent - Europe’s citizens. "The financial and other challenges that face us need us to act together in solidarity, not just with an eye to national protectionism if we are to emerge unscathed as a continent." Her group, she said, intends to respond to the work programme with a positive and progressive resolution, emphasising above all an open Europe, a green Europe, an entrepreneurial Europe and a safe Europe.
Kathy SINNOTT (IND/DEM, IE) said that while the crisis has hit different countries around Europe in different ways, one thing is certain: the financial institutions in all countries to some degree or another have bought toxic US mortgage debts based on subprime lending.. It seemed to Mrs Sinnott that there must have been wholesale misrepresentation of the quality of the debt by these agencies for such a huge amount of it to have been sold so easily.
Mrs Sinnott questioned if the facts about the claims made when selling these devices have been examined yet by the Commission and, if so, to what extent is it thought to have been misrepresented? If this is the case, she would also like to know if the Commission thinks that there is any recourse in law against the rating agencies for those who have suffered from their negligence or worse, since, at this stage, the whole financial structure has been attacked by them.
Giles CHICHESTER (EPP-ED, UK) said that Europe is presented with a big challenge because most measures of fiscal policy need to be taken at national level, yet the EU has a crucial role of coordination. The magnitude of the challenges facing us makes that particularly important, he said.
In the field of energy, he said that allowing lower VAT for improvements in the energy efficiency of buildings and launching an information campaign to encourage a change in people's behaviour are two specific ways to help the situation. He suggested that "there will never be a better time to set up one of the EU's famous groups of wise people – and in this case I suggest it should be wise men and women – to reflect on the challenge we face and come up with original solutions beyond the short-term remedy of throwing money at tax giveaways. I hope that Council and Commission will give this idea a fair wind."
Andrew DUFF (ALDE, UK) said that the crisis is going to have a dramatic effect on the future of the euro. Denmark and Sweden should, he said, become members before they expected and, in Britain too, it is time for the debate to begin.
In 1997, he said, Mr Brown established five famous so-called tests before we could adjudge sterling's accession to the single currency. Suddenly, in this crisis, all these five are met. The pound has fallen to a competitive exchange-rate level, labour markets are flexible, the City, once so proud, now risks being pushed aside by stronger supervision and regulation inside the euro zone, and the economic cycles of Britain and the euro zone are now completely in sync as we plunge into recession at the same time. Concluding, he appealed Mr Brown to now change the terms of the debate inside the United Kingdom. "If he fails to achieve that, the pound will be like a permanent ping-pong ball, bouncing in an uncontrolled manner between the big footballs of the euro and the dollar."
Malcolm HARBOUR (EPP-ED, UK) said that small businesses are going to be the engines of job recreation. The Commission, he said, should be looking at the real priorities for bringing in some of the things that we have worked on that will actually help the real economy. "That is where your priorities lie. I do not get any sense that this is a real response to the crisis at all." We need, he said, real action on the things that are going to make real differences to jobs out there now and in the future.
He noted that next week the Council will have the opportunity to sign off a common position on the Telecoms package. That will pave the way for that investment, he said. It is crucial for the future of the European economy that this package is approved by the Council next Friday, he concluded.
Robert STURDY (EPP-ED, UK) said that at a time when the world is seeing the most important financial crisis that has ever hit us, we are looking at a failure so far on the Doha Round. The financial crisis has to be underlined, he stressed, as has the need to deepen Europe’s relationships with its key partners, including the new US Administration, but "probably more importantly when the Director General, Pascal Lamy, is up for so called re-election – we will see whether or not he gets the post, but there is a good chance that he will."
The EU, he said, must not be Dickensian in its approach to trade. "We must open our barriers. We must not put in place trade defence instruments. Reform is only going to be successful on the grounds of a free market principle. That includes, as I say, open trade and investment. " Noting that Pascal Lamy met with the G20 to work with a proposal that will see a possibility of a settlement coming up in the short term, he hoped to see something even before Christmas. The EU, he said, has led for the first time in the trade negotiations and must be congratulated.
Philip BUSHILL-MATTHEWS (EPP-ED, UK) was delighted that Commission President Barroso made many remarks about SMEs in his opening comments. However, he expressed concern that we have not seen enough action.
Referring to the heading ‘better regulation – delivery on promises’, if there is one word that you remember for this legislative programme, that word must be ‘delivery’, he said.
Mr Bushill-Matthews recognised that changing culture takes time and also, speaking as the coordinator for the Committee on Employment and Social Affairs for the EPP-ED Group, that committee is not always the greatest ally in the cause of better and simplified regulation. He extended an invitation to the Commission President to come and address his committee - "maybe that would help make our committee help your work, and we could then become part of the solution."
John PURVIS (EPP-ED, UK) expressed concern at the grave danger of rushing to excessive misguided regulation and to unintended consequences. An example in the new capital requirements directive, he said, is the proposed 5% retention of securitisation proceeds. "This will only clog up credit creation. Lack of securitisation possibilities is the principal reason that credit has dried up now. We need the banks to lend but no, this misguided principle, which lacks an impact assessment, will prevent a restart of securitisation and the credit which our business and industry so badly needs. Ask the motor car industry how it will prosper if securitisation is snuffed out. That is only one example. If we suspend true and fair accounting, if we go out of our way to kill hedge funds and private equity and incentives to innovators, risk takers and even bankers, as Mr Schulz and the Socialists require, we will only delay and kill altogether that recovery."
Proinsias DE ROSSA (PES, IE) said that this crisis was allowed to develop because governments everywhere abandoned their responsibility to sufficiently govern the economy, including banks. "Most of those in power have ignored history and accepted the ideological mumbo jumbo which we have just heard now from the last three speakers that the market is a self-balancing natural phenomenon and government has no role in interfering with it. The fact is that Adam Smith's invisible hand is a pickpocket. The pockets that are being picked are the pockets of working people, who are losing their jobs, families who are losing their homes and, indeed, those who are poor already, who are losing their savings and pensions. It is not bankers and right-wing politicians who are losing. It will happen again unless we clearly define a new economic framework which enables us to ensure that banks and industries serve society and enable governments to govern in the public interest."
Mairead McGUINNESS (EPP-ED, IE) was inclined to the view that excessive regulation is as bad as none whatsoever. So we need to be very balanced in this, she warned. "But whatever we do, there are people now in business, on farms and in households who cannot get small amounts of credit to keep themselves going. I was on a farm in Ireland recently. They could not renew their EUR 25000 overdraft. This is a really serious problem and we really need to address it."
On the work programme, it will be a very busy year, she said, what with the budget review, the implementation of the health check and review of fisheries.
Contact: Jack BLACKWELL, jack.blackwell@europarl.europa.eu
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EU NEWS FROM ECON – Recent European Parliament commentary from the Economic and monetary affairs committee 04-11-2008
JEAN-CLAUDE JUNCKER ON IMPACT OF CREDIT CRISIS AND MARKET REGULATION
Jean-Claude Juncker, Chair of the Eurogroup, told the Economic and Monetary Affairs Committee on Tuesday that the risk of the financial system collapsing had diminished, but the real economy was now being affected, and governments should act to help the most vulnerable sections of society. He called for more regulation and supervision of financial markets in future.
Mr Juncker said the measures taken by governments around the world had helped to normalise the situation on financial markets, but this would take some time to be fully effective: "There is still a risk of a credit crunch, even if it is notably smaller now than in previous weeks." He called on banks to take advantage of the stability support put in place by governments to make available the credit needed for the economy to function.
“NATURAL ROLE FOR GOVERNMENTS” TO COUNTER MARKET FAILURE
It was not, he said, a question of the state offering presents to bankers: "We had to ensure the financial system could function. States had to counter a market failure – this is a natural role for governments, though they may have forgotten this over the last twenty years."
There would now need to be considerably "more supervision and regulation in the global financial system", said Mr Juncker, who argued that the cause of the crisis could be found in the "deregulatory frenzy" of recent years. Some of those now leading calls for international regulatory reform had refused to consider the proposals put forward by the German presidency of the G8 as recently as 2007, he noted.
COUNTER-CYCLICAL BUDGET MEASURES WITHIN THE STABILITY PACT
The real economy was now being affected by the financial market situation, he said, and the Eurogroup (made up of finance ministers from the euro area countries) had agreed that governments should adopt a counter-cyclical budgetary policy, within the room for manoeuvre provided by the "wisely reformed" Stability and Growth Pact", said Mr Juncker. Responding to José Manuel Garcia Margallo (EPP-ED, ES), who asked for confirmation that we are now in the "exceptional circumstances" which, according to the Pact, could justify a budget deficit of above 3 per cent of GDP, Mr Juncker said that not a single member of the Eurogroup believes the present circumstances were not exceptional. On the other hand, he also stressed the Pact's indication that such exceptional deficits should be temporary and close to the 3 per cent limit.
NO RELAUNCH PLAN, BUT TARGETED HELP FOR THE POOREST
None of the eurozone finance ministers favoured a Keynesian-style economic relaunch plan of the sort attempted in the 1980s, he said. Elisa Ferreira (PES, PT) wanted to know, in that case, what Mr Juncker did recommend. He called for governments with budgetary room for manoeuvre to use fiscal measures to help the most vulnerable sections of society, and to give support to SMEs. Those whose budgets did not allow fiscal loosening overall could still reprioritise their budgets to support those hardest hit by the downturn.
EFFECT OF CRISIS IN NON-EURO ZONE MEMBER STATES
Olle Schmidt (ALDE, SE) asked what would be the biggest advantages for countries such as Sweden in adopting the euro. Mr Juncker said "We are now seeing non-euro states discovering advantages to euro membership, even those whose citizens are generally recalcitrant about deeper EU integration. As someone responsible for a small country, I feel better protected within the eurozone – and those outside it have little influence – they are not there when decisions are taken on the world stage."
In reply to Zsolt Becsey (EPP-ED, HU), who asked about Hungary's approaching the IMF and the EU for assistance, Mr Juncker agreed that EU Member States should first approach the EU in such circumstances, to ensure coherence between the conditions for loans. He noted however that the Maastricht Treaty specifically bans bail-outs for eurozone Member States.
NO TO ROUTINE EUROZONE SUMMITS
Committee Chair Pervenche Berès (PES, FR) asked about the implications of the recent meeting of Heads of State or Government of the eurozone on the future institutional arrangements for zone. Mr Juncker stressed that he did not oppose such summit meetings when circumstances called for it, but they should not become part of the EU routine: "There are already 12 meetings a year of the Eurogroup finance ministers – we should not add a routine meeting of eurozone Heads of State or Government ahead of each EU summit. We cannot have 16 meetings a year to discuss the same issues!"
03/11/2008
Committee on Economic and Monetary Affairs
In the chair : Pervenche Berès (PES, FR)
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09-10-2008
REFORMING THE GOVERNANCE OF THE INTERNATIONAL FINANCIAL REPORTING STANDARDS SYSTEM
Parliament has set out its views on the proposal for a high-level Monitoring Group to oversee the bodies that develop International Financial Reporting Standards. MEPs are supportive of the proposal on the initial membership of the Group, but are doubtful about the value of setting it up until its role and powers have been clarified.
International Financial Reporting Standards are developed by the 14-member International Accounting Standards Board, which is appointed and overseen by the trustees of International Accounting Standards Committee Foundation, a private sector, not-for-profit organisation. Earlier this year, Parliament adopted a report criticising these governance arrangements and calling for greater accountability in the system. The IASCF has since proposing setting up a high-level Monitoring Group as part of reforms to address these concerns.
In a resolution adopted on Thursday by 568 votes in favour to 27 against with 43 abstentions, Parliament says this Monitoring Group should be entitled to recommend candidates as Trustees and be responsible for approving the selection of Trustees after an agreed nomination process. It calls for the Group to be involved in setting the agenda for the IASB so as to ensure transparency and accountability, while recognising that the subsequent accounting standard setting process should remain free of undue interference and should be done in full consultation with all stakeholders, including investors.
NOT ENOUGH CLARITY ON ROLE AND POWERS?
Parliament expresses doubts about setting up the Monitoring Group at this stage, before a further consultation is launched and without a clear overview of the relationship to be established between the MG and the IASCF. It does not agree with the proposed make-up of the group, saying that the IMF and World Bank should not be represented, but should instead include the chair of the Basel Committee on Bank Supervision among others.
MEPs say the membership of the Monitoring Group should reflect the balance of the world's most significant currency areas, cultural diversity, and the interests of both developed and emerging economies and of international institutions which have accountability requirements before public authorities. They are supportive of the initial proposal for its membership, but want to ensure EU market regulators are also represented and that no one organisation or country should have more than one representative.
NO NEED FOR AN INTERNATIONAL ACCOUNTING ADVISORY GROUP
Parliament deplores the fact that it was not consulted on the Commission's plans for an International Accounting Advisory Group in addition to the Monitoring Group.
MEPs say membership of the Group should become effective only after the bodies represented have committed to introducing IFRS as their domestic accounting standard.
Parliament wants to agree a Memorandum of Understanding on the association of legislators with the work of the Monitoring Group.
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09-10-2008
FINANCIAL MARKET SUPERVISION: PARLIAMENT CALLS FOR WIDE-RANGING REFORM
MEPs made a formal call on Thursday (9 October) for the Commission to come up with legislation to improve the supervisory architecture and regulatory framework for financial services in Europe.
Parliament adopted a report, drawn up by Ieke van den Burg (PES, NL) and Daniel Dăianu (ALDE, RO), which is a comprehensive overview of areas that need attention in the light of the current crisis and after seven years of operation of the current “Lamfalussy system” It includes recommendations on the structure for the “Level 3” Committees of national financial regulators (CESR for securities, CEIOPS for pensions and insurance, and CEBS for banking) and on the mechanisms for managing systemic risk.
SOLID LEGAL BASIS FOR SUPERVISION
MEPs argue that voluntary arrangements are insufficient to streamline the fragmented structure of European supervisors that need to guarantee the stability of the financial markets and protect the real economy against excessive risks. The Level 3 committees need a legal status commensurate with their duties, and national supervisors should have a commitment to executing the decisions of the committees written into their mandates.
Today MEPs stressed the need to have a structure at EU level that would be legally empowered to break deadlocks and solve conflicts between national and sectoral supervisors. This structure should be an "add on" to the existing network of the light coordination structure of national supervisors in the banking, insurance and securities market. It should contain an independent chair and vice chair, that together with the three chairs of those committees on the coordination of national supervisors (for banking, insurance/pensions and securities) would form a sort of "appeal body" and a coordinating structure that could hugely improve the effectiveness and rapidity of action in crisis situations.
MEPs encourage the Level 3 Committees to work towards better cross-sector and cross-border integration and coordination.
Parliament says that colleges of supervisors dealing with cross-border institutions should become mandatory with a fairly fixed division of competences and a system of qualified majority voting between the supervisors which enables them to make decisions.
The plenary agreed on an indication of what could be the key parameters for qualified majority voting inside the European supervisors committees. Not only the size of the Member State and the financial group's headquarters should count, but also the systemic importance of the activities of that group for a member State where it has branches or subsidiaries
ROLE OF THE ECSB AND INTERNATIONAL REPRESENTATION
Micro- and macro-prudential and market supervisors should combine their knowledge of developments in the market. The European System of Central Banks would get a central position to coordinate and to take leadership if necessary.
The division of information and tasks should also be streamlined to improve the voice of the European Union at international level, says the report. The EU should have a clear voice in international bodies including the Financial Stability Forum.
TRANSPARENCY: SECURITISATION, COMPLEX FINANCIAL PRODUCTS AND RATING AGENCIES
The report calls for measures to make the securitisation process (the selling on as investment products of loans by those who originate them) more transparent and for credit rating agencies to use appropriate terminology making clear the difference between complex financial products. It says companies should not be able artificially to keep debt vehicles off their balance sheets.
Originators of securitised products should be required to assess and monitor risk and ensure debt-backed securities are transparent enough for investors to be able to understand the risks they are taking on.
More transparency is also required when it comes to the over-the-counter markets, where clearing houses should be encouraged.
MEPs want to see lessons learned from the oversight of auditors to be applied to credit rating agencies, notably when it comes to conflicts of interest.
DEPOSIT GUARANTEE SCHEMES
MEPs urge the Commission to ensure that deposit guarantees are urgently revised to avoid arbitrage between guarantee levels in Member States that may further increase volatility and undermine financial stability instead of increasing security and depositors' confidence. Moreover, the level of refund should be significantly increased and the availability of refunds to retail clients in case of failing financial institutions should be assured within a reasonable timeframe including cross-border situations.
REMUNERATION DISCLOSED AND ASSESSED FOR RISK
Financial institutions should disclose their remuneration policy, notably including the packages offer to directors – and market supervisors should assess whether the remuneration policy encourages extreme risk taking when they examine a company’s risk management.
PROCEDURAL INFORMATION
The report was drawn up under Rule 39 of Parliament’s Rules of Procedure, whereby the EP can use its right formally to request that the Commission draw up legislation on a particular subject (Article 192 of the Treaty). The report was adopted with 565 votes in favour, 74 against and 18 abstentions - easily meeting the requirement for an absolute majority of Parliament to support such legislative requests.
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| ID: |
42098 |
| Author(s): |
iff |
| Publication date: |
19/11/08 |
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