Could EU mortgage directive lead to fraud tourism?
The news that the European mortgage directive has been delayed yet again is hardly a surprise considering the problems facing the continent. But if MEPs fail to make the right decision, the consequences could be dire.
At today’s briefing Vicky Ford, MEP for the east of England and shadow rapporteur on the Economic and Monetary Affairs Committee, reeled off a whole host of other priorities facing the European Union.
There is the debt crises of southern Europe, the capital requirements for banks and the debate of the financial transaction tax to name a few.
But the mountain of issues cannot disguise the fact that delays are synonymous with the EU and the reason is that every rule change requires the consensus of 27 different countries.
Each has their own legal and political systems, economic priorities and culture leading to a dizzying array of interest groups and trade bodies speaking many different languages and representing a wide variety of sectors and interests.
Everyone wants their say, everyone has their own concerns and everyone wants to table amendments.
The 819 amendments tabled to the current mortgage directive aptly illustrate this fact.
Ford gave examples of the different issues facing different nations. Germans, for instance, often buy property with both residential and commercial space making distinctions tricky while buy-to-let and bridging in the UK could be classed as investment products.
Where consensus is so hard to reach compromise is inevitable and many directives and rule changes end up being almost hollowed out completely.
For example, the original aim of the mortgage directive was to create harmonisation across the European Union.
Today, Ford told how Mario Draghi, president of the European Central Bank, explained that harmonisation of LTV ratios across Europe was not right and that this was greeted with many nodding heads.
Ford, who is head of a key grouping in the European parliament and central to negotiations, added that she is “allergic to harmonisation”.
If harmonisation is being diluted so much then the original rationale for the rules is undermined.
It becomes Kafkaesque reasoning. ‘If harmonisation isn’t central anymore then why are you continuing with the plans? Because we’ve already started it’.
Another example of harmonisation being undermined during the process are the rules on passporting for credit intermediaries.
The bold new world planned by the EU aimed to give brokers passports to trade all across Europe without fear.
But problems occur when one considers who will punish, say, a Spanish broker committing fraud in the UK? Is it the FSA? Is it the Spanish regulator? Is it an as yet unknown European central enforcement agency?
Ford revealed that amendments have been tabled so that in the case of the example above, a Spanish broker could face enforcement action by the UK regulator and banned from operating here.
But who has authorised him in the first place? What if the Spanish authorities are more lax than their UK counterparts in authorisation? If there are some lax countries then it could potentially lead to fraud tourism.
It is a typical European compromise that solves one problem and creates a whole host of others as the policy dwells in the halfway house between national sovereignty and European supra-nationalism.
The same problems can be seen in the debt crises where monetary policy is aligned across the EU but fiscal policy is not.
To have one currency across Europe subject to different tax systems and legal codes was always going to be problematic.
The fact that Greece desperately needs a devaluation of its currency whereas Germany does not is paramount to current European woes.
To apply financial regulation across Europe in exactly the same way seems to be ignoring the lessons of the present day.
Financial regulation should be adaptable and applicable to specific markets so a blanket application across the EU will surely see both over and under-regulation of some areas in some countries.
It’s either full integration of political, legal and economic systems or it is done on a national basis, as EU compromises are worse than both.
When it is 27 countries negotiating compromise is an inevitable and enduring feature of the EU.
So the mortgage directive might be some time away yet and when it comes don’t expect it to be perfect, that’s not the European way.