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What can Europe do when the financial crisis is global?


If it was not obvious before, it surely is now – that finance is global.  Money can move around the world at the press of a button.  National governments have little or no control as the current crisis has hit every part of the world.  If it was not obvious before, it surely is now – that if there is any hope of avoiding future cataclysms it is necessary to have an international effort to find out what is going on and international agreements seeking to control systemic excess.


However, the meltdown has occurred so quickly that there has been no time to have international agreements and each country has had to scramble to try to control its own situation.  How often is a crisis forecast and avoiding action taken: we learn from our mistakes.


While the limitations of national supervision of the financial markets are well recognised, the chances of international agreement must be slim.  Certainly in the short-term.  The EU has been trying to achieve a true common market in financial products for fifty years and we are not there yet.  There has been no progress at all in instituting common supervisory standards and so financial companies are encouraged to migrate to the laxest regime while still retaining their right to free movement of capital within the Union.   The global nature of the current crisis suggests that supervision standards need to be international but if the EU could in fact agree a regulatory framework there is a good chance it would be accepted as a blueprint for wider application.


Jacques de Larosiere, a former managing director of the IMF, has come up with a plan which may prove a breakthrough.  With EU leaders agreeing at their recent Berlin meeting [21.2.09] that something needs to be done, this plan is timely. It sensibly suggests a start can be made by simply bringing together regulators from around the Union to coordinate standards.  There is no suggestion of a single regulatory body: that would be rejected by the UK for a start.  Indeed, while the money for bailing out banks is only available from national coffers, individual states have an incentive to keep a close watch on their own bailiwick.


As the global crisis has unfolded however it has surely become questionable how far we can expect to avoid future problems through better regulation.  We can have a certain amount of faith that new regulation might at least produce more information as to what is going on in financial markets.  The unexpected nature of the current crisis has been put down to sheer ignorance amongst even financial journalists as to the scale and nature of some of the financial instruments peddled around the world. Yet there will be resistance to any effort to get participants in the market to divulge what they will see as commercially confidential data.


More fundamentally there is little chance of agreement on where to draw red lines in our capitalist system.   The UK faith in “light touch” regulation has arguably led to the massive losses in the banks, as freedom to take risks became licence, and Lord Turner, the new head of the FSA, has promised a “revolution” in regulation hoping to stop excess.  But at then end of the day is anybody in the UK or across Europe in a position to stop businesses taking risks which turn out to be unfortunate.


Will the Eurozone survive the recession better than the UK?   [24.2.09]


It was easy to see why the financial problems started in 2007 in the UK and the USA.  Financial services had come to dominate the UK economy, hand in hand with Wall Street. They were riding for a fall, based on an inordinate amount of credit, coupled with a blind faith that it would always be available.  Banks started to borrow 20 or 30 times their reserves in order to expand their loan books.   Building Societies demutualised in order to join in the fun.  The money generated fed the frenzy.  Hedge funds and private equity companies were formed to channel money into the stock exchange and mergers and acquisitions.    The longer the band played the wilder the dancing became.  People confidently invested with the likes of Madoff and Allen Stanford.  Families borrowed more than they could afford on the principle that house prices would go on rising.  Companies lent more than a house was worth on the same principle.  


Surely none of this happened in the Eurozone!  Anathema to America, wariness towards perfidious Albion, resistance to hedge fund “locusts” surely saved the Eurozone from the logic of anglo-saxon capitalism.  Apparently not.  The caution generated from past financial melt-down, the tradition of renting rather than buying a home, the closeness of the banks to local business – all this surely would save the eurozone countries from contagion.  Apparently not.  The recession seems to have arrived across the continent and indeed across the globe as it has in the UK and the USA.  There was supposed to be decoupling, but apparently not.  Why?   [to be continued]




A report in the FT says that productivity in Europe dropped last year in comparison to the US.  The reason given is that American companies were more ruthless in sacking people in the recession than European companies.   That says a lot about the two power blocks.




Viviane Reding, the EU telecoms commissioner, [a lady from Luxembourg], is ruffling feathers again.  Excellent!  Her determined pursuit of operators to get a Common Market  for mobile phone users is not making her popular with them.  So far she has achieved reductions in charges for cross-border phone calls [capped at €0.46 per minute].  Now she is tackling the cross-border email,  surfing and text message charges [proposing a cap of €0.11 for the average text message from next July as against the current charge of €0.29].  Even if the operators recoup the costs of reducing these prices in their charges elsewhere, the principle of reducing barriers to trade across the Common Market is being upheld.  The fact that the general public will notice these initiatives as they go on holiday is a definite plus for EU PR.  [24.9.08]




How do you pronounce Rompuy as in Herman van Rompuy?  One paper helpfully said it was as Rompow.  But is that the How Now Brown Cow kind of ‘ow’.  Or is it the Mow Tow Sow sort of ‘ow’?   [6.12.09]  I now think it is ‘ow’ as in Now, because the Liverpool player Kuyt is pronounced as in Now.  He is Dutch and I think Mr Rompuy is Flemish.

Is Gordon Brown warming towards the EU?           More.......

Can Tory designs to damage our place in Europe be thwarted?                                                                       More.......

Our much vaunted freedom to set interest rates and devalue the currency outside the eurozone has not worked.


Will the Eurozone or the EU break up under the strain of the financial crisis?                                                                                 More........