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Bureau de change

If you go back a year or so and look at the material on financial legislation coming out of the European Union institutions in Brussels and you will find a common thread — all the texts read like bureaucratic documents. No, no surprise there. What other characteristics should legal documents have?

But recently a dramatically different tone has been detected in the discussion of financial regulation going on in Brussels.

The business of EU financial regulation is normally a dry one. There are advances here, harmonisation across national boundaries there, and so on. Most were, and still are, vital to economic progress.

Eventually, national finance ministries would implement the improvements but the take-up was all too often unenthusiastic.

Then lobby pressures in capital cities would get the new rules adjusted, in order, as they said, to fit in with the local picture. So what Europe has wound up with is a mish-mash. It is an uncoordinated patchwork of rules, riddled with loopholes and often hard to enforce through the courts.

But who cared? Certainly not the public at large. Nor the financial sectors. The only ones suffering frustration were the financial service bureaucrats themselves. But as bureaucrats’ aggravation has increased, so too the numbers of financial disasters have increased steadily, but largely unnoticed.

Then, in late June last year, a top-level meeting in Brussels concentrated, apparently for the first time, on the possibility of a forthcoming banking crisis. At this meeting. signs of a move away from bureaucratic language to more forthright talk were becoming evident.

This was clear when French MEP, Pervenche Berès, opened with: “It is high time that the Commission showed some initiative and pushed the member states in the right direction concerning cross-border supervision.”

Strong stuff compared with the usual noises that emanate from such meetings.

She was joined by another serious financial guru, Tommaso Padoa-Schioppa, the Italian former member of the European Central Bank, who said: “Almost all the actors tend not to act…reluctance to change the status quo is dominating.”

Fingers pointed at Charlie McCreevy, commissioner in charge of the internal market department. In response, the normally confident McCreevy sounded almost bashful, saying: “What are we going to do now? How do you move forward without leaving everybody [meaning the European Council of national finance ministers] behind? It is going to be very, very difficult to make any steps forward.”

McCreevy promised to publish something on the matter by October but, as it turned out, October was when things in the banking world were really starting to unravel.

By then, the normally bureaucratic face that Brussels presented to the world was transforming more radically, from “Don’t say anything that could possibly offend national ministries” to “Look what you’ve done, you load of idiots. Now listen to us.”

This makeover came almost overnight and it came not only from politicians but also from supposedly colourless civil servants themselves. Some took up words and phrases that could be at home in an opera libretto.

One example of the change came during a Parliamentary grilling of José Manuel Barroso, Commission president. During a discussion on a new plan for financial legislation, German rightist MEP, Werner Langen, complained that McCreevy had been playing “dead man walking for the last four years. Dublin and London are remotely controlling this commissioner”.

MEPs admonished the European Council of Ministers as “supine”.

Ms Berès demanded: “Mr Barroso, where have you hidden the internal market commissioner [McCreevy]. Where was he in July 2007 when his services were warning us of the forthcoming disasters in European banks?”

Langen urged Barroso to pass McCreevy’s portfolio to Joaquin Almunia, commissioner for economic and monetary affairs. In the end, Barroso did not hand over the portfolio. Rather, he adopted a belt and braces policy. This consists of leaving McCreevy to prepare his own plans to get Europe’s financial services back into shape. At the same time, he appointed Jacques de Larosière, the former French national bank governor, with a similar mission.

The resulting plan from the high-level group was unveiled at the end of February. It calls for a stiffening of EU financial services supervision. But it also falls short of proposing a single EU regulator. De Larosière’s report falls short of proposing a single EU regulator but he says at present, the European framework is “seriously fragmented”.

The criticism from the MEPs seems to have stirred the Commission bureaucrats into action. At the seventh Annual European Financial Services Conference in Brussels recently on the subject of Financial Markets and Economic Recovery, senior Commission mandarin David Wright was unstinting in his criticism, saying the current crisis was due to “lax monetary policy” and “unsustainable deficits… uncontrolled build-up of debt and leverage”.

With unusual candour, he also criticised what he said was the “appalling lack of due diligence and stupidity of many so-called professional firms” and “riding the tiger of unregulated, opaque, complex markets that have turned out to be a disaster”.

Wright said that while everyone has been shocked at the scale of the problem, they should not have been, as accounting rules were “behind the curve”.

But whether today’s strident tone from Brussels will really lead to more harmonised EU supervision is difficult to judge. A prominent EU player fears that Europe’s national financial officials will continue not to cooperate with each other, saying: “They will carry on with their nationalistic parlour games of scoring off each other, regardless of the interests of the EU citizens”.

But at least McCreevy is showing spirit. He says that, among other things, the Commission is currently working on the CRD, the regulation of credit rating agencies, revised deposit guarantee schemes, amendment to account rules, as well as on executive pay. This looks far from bureaucratic and June’s forthcoming parliamentary elections could keep the pressure up.

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