SPEECH/09/299
José Manuel Durão Barroso
President of the European Commission
Europe: Working together to shape a
new financial system
Launch of Lamfalussy Report
Brussels, 16 June 2009
Let me start by thanking Prime Minister Van Rompuy and Deputy Prime Minister
Reynders for inviting me to speak to you today.
The Lamfalussy Report is the crowning achievement of a man whose life is full of
achievements. I warmly congratulate Baron Lamfalussy and his High Level
Committee colleagues for their work, and the Belgian government for establishing
the High Level Committee in the first place.
The launch of this report sends an important message: that the Belgian government
is not prepared to be a victim of events, buffeted by the financial storms that are
blowing round the world. On the contrary, it is determined to seize the initiative, and
use the crisis as an opportunity to drive through well-thought-out reforms.
By inviting me as President of the European Commission, the government is
sending another important message: that the EU and its Member States must work
together to succeed. We acted immediately to avert disaster in the banking sector
last autumn. Now we must continue to take co-ordinated action within the EU, to
minimize job losses and return as quickly as possible to a path of sustainable
growth. And we must speak with one voice on the global stage, if we are to protect
European interests and forge a new, international financial architecture that reflects
European values and prevents such a disaster happening again.
The Lamfalussy report, commissioned at the national level, and the de Larosière
report, commissioned by me at the European level last October, complement each
other perfectly, and show us the way forward.
What those reports point to are gaps in preventing, managing and resolving crises.
Nationally-based supervision models are lagging behind market reality, as more and
more banks and insurance companies start operating across borders.
For businesses, complying with numerous different regimes brings additional
administrative and regulatory burdens. There is also no means for putting together
the various bits of information gathered at micro-level, and drawing conclusions for
systemic risks at macro-level.
We need to ensure national supervisors have the tools to do their job - and that
means a clear mandate for them to have a stronger voice in dealing with institutions
active in their countries but based fully or partly elsewhere.
Supervisors - and indeed governments - need to have the shared information to
enable them to act collectively and in good time, in the mutual interest and on the
basis of mutual confidence. And where things do still go wrong or where there is a
difference of view, we need clear and agreed mechanisms for urgent decisionmaking.
In recent months, governments, regulators and supervisors in several EU Member
States - including this one - have responded to prevent financial catastrophe, within
the broad policy guidelines agreed at European level. I pay tribute to that.
But an ad hoc approach might not be enough next time.
Clearly, it is time to develop a genuine European supervisory framework, and to
build real trust, coherence and consistency among European supervisory
authorities. The Communication that the Commission presented on 27 May sets out
just such an approach.
The de Larosière report provided the blueprint for our proposal, in line with the
conclusion by European leaders in March that it was the right basis for action.
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The Commission proposal includes the creation of a macroprudential body at the
European level. The European Systemic Risk Council, under the chairmanship of
the President of the ECB, will oversee the overall stability of the financial system.
This council will identify and warn about emerging risks, and recommend action to
overcome them. It will also link up to global bodies such as the IMF and the
Financial Stability Board.
The proposal also includes a new system of microprudential supervision of
individual financial institutions, which combines certain centralised responsibilities at
European level, while maintaining a clear role for those who are closest to the dayto-day operation of companies.
This European System of Financial Supervisors will consist of a robust network of
national financial supervisors working in tandem with new European Supervisory
Authorities, created by the transformation of existing committees for the banking
securities and insurance and occupational pensions sectors.
Together, they will ensure the convergence of technical standards between Member
States, and improve the coherence and consistency of supervisors - in particular
towards cross-border groups and entities with a Europe-wide reach such as credit
rating agencies.
By acting in this way, we are trying to avoid a heavy-handed, top-down approach
where it isn't necessary. This network represents a realistic approach, based on the
important principles of partnership, flexibility and subsidiarity. It should enhance
trust between national supervisors by ensuring that host supervisors have an
appropriate say in setting financial stability and investor protection policies, so that
cross-border risks can be dealt with effectively.
However, given the urgency of the situation, the Commission has proposed to go
further than the de Larosière report by accelerating the implementation of the new
architecture.
I hope, when Member States meet in the European Council this week, that they will
commit to the basic design of this future architecture, and to a clear roadmap for the
necessary legislative changes that we have already announced for the autumn.
That way, the renewed supervisory arrangements can be up and running in the
course of 2010.
In this context, the approval of the proposals by the ECOFIN Council last week is a
very encouraging development. I'm also pleased to say that an overwhelming
majority of Member States at that meeting also favoured a binding dispute
settlement mechanism, which I know is important to Belgium. I'd like to thank the
Belgian authorities once again for the support they have shown for our proposals.
In the meantime, the Commission continues to press ahead with the other elements
of our ambitious reform programme. I am pleased that the Council and Parliament
were recently able to reach timely agreements on credit rating agencies,
improvements to the bank capital requirement rules and Solvency II.
Now work should be taken forward just as urgently on the legislative proposals on
hedge funds and private equity, as well as the forthcoming proposals for further
strengthening of bank capital requirements.
Action by Member States and industry is needed to realign remuneration to follow
up the two Recommendations the Commission has recently issued, and the
forthcoming amendments to the capital requirements regime will extend the scope
of supervision and enforcement by regulators to cover remuneration structures
within banks and investment firms.
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It is also vital that we accelerate action on impaired assets on banks' balance
sheets, on the basis of the Commission's coordinated framework. Only a few
Member States have started to deal with this issue. More action is vital if we are to
start getting credit – the lifeblood of our economies – flowing again.
Ladies and gentlemen,
We have already done much to kick-start our economies, principally through the
European Economic Recovery Plan, proposed by the Commission and agreed by
the European Council in December. This aims to boost demand and generate
confidence by providing for a co-ordinated fiscal stimulus, accompanied by an
acceleration of structural reforms, as set out in the Lisbon Strategy for Growth and
Jobs.
In other words, the plan uses the crisis as an opportunity to promote a more
innovative, highly skilled, low carbon economy, and ensure that Europe emerges
stronger after the crisis.
The Commission has made a preliminary assessment of progress with the national
and community dimensions of the plan, and the first findings are that money is
beginning to get through to the real economy and produce a real impact.
Discretionary fiscal stimulus efforts are sizeable, amounting to 1.8% of EU GDP in
2009 and 2010, or 2.1 % when including the 0.3% at EU level – this comfortably
exceeds the original target we set ourselves last December, of 1.5% of GDP. When
automatic stabilisers are factored in, the overall support of government finances to
the EU economy amounts to around 5% of GDP, or more than €600 billion!
Just as importantly, there are no obvious cases of rolling-back past reforms which
could undermine the return to normal economic conditions.
Now the focus is squarely on maintaining jobs and creating the right environment
for job creation in the future. The Commission has proposed a raft of measures
following the Employment Summit of 7 May, and once again, partnership between
the EU and its Member States will be essential to deliver them.
The Commission will play its part by accelerating and simplifying deployment of
European Social Fund resources, making €19 billion available for operations in
2009-2010 alone, and by assisting Member States to put in place rapid reaction
packages, together with social partners.
We are also working on job creation through entrepreneurship. A new EU
microfinance facility, established with the European Investment Bank, would provide
approximately €500 million in loans to promote small business creation.
But all this will be for nothing if we don't reform Europe's financial architecture to
prevent a repeat of this crisis. An ambitious proposal, as I outlined earlier, is now on
the table. This will be one of the most important decisions for this week's European
Council, and the proposal deserves the fullest support from all Member States.
If we get that support, the EU can complete the process of putting its own house in
order. Compared to our international partners, this is an area where we are already
ahead of the game. By continuing to set the example in this way, we will maintain
our leading role in the G20, and ensure that it is Europe, speaking with one voice,
that shapes tomorrow's international financial system.
And not the other way round.
Thank you.
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