Poachers in the woods
European Voice
In a comment in European Voice (‘Europe will be out of business unless it is open for business', 23-29 April), European commissioners Neelie Kroes and Meglena Kuneva defended the single market and a business-friendly Europe as key elements in efforts to overcome the economic and financial crisis. And they point to what they call “the most far-reaching overhaul of financial regulation in a generation”, nothing short of a revolution “in the way we assess risk”.
But a “far-reaching overhaul” is far from the political reality. Though deregulated financial markets have proven to be a major source of poverty creation, only feeble reforms are in the pipeline. One among several reasons is the fact that the clout of the financial lobby in Brussels has been left surprisingly untouched by the crisis.
Earlier this year Charlie McCreevy, the European commissioner for the internal market, talked of the need to “stand back” and “be objective” and not just fulfil the wishes of the financial lobby – a remarkable statement given that the commissioner's own expert groups were dominated by corporations: of the 14 groups with non-governmental representatives, approximately 80% came from the private financial sector, broadly defined, and half were totally dominated by the private sector.
Unfortunately, there have been no tangible signs of McCreevy's change of heart. One would have thought the Commission would seek independent advisers for the so-called de Larosière group, the key group behind Kroes's and Kuneva's revolution. But almost all of the eight members that the Commission selected for it are either closely connected to financial corporations or have a history of advocating deregulation. This particular brand of corporate lobbying – exercised through the Commission's own expert groups – has, once again, set the agenda.
How well does this kind of lobbying work? Consider the debate on banking regulation. Since the adoption of the Basel II framework, banks in the EU have had the discretion to assess risk themselves. Not surprisingly, they have been so optimistic about their own investments that their bad bets contributed significantly to the crisis.
What would a proper response be? At the Organisation for Economic Co-operation and Development (OECD), one senior analyst concluded last June that it was time to “keep the poachers out of the woods” and that systems “that rely on private-sector modelling are problematic”. Following this line, regulators must put a stop to this kind of risky self-regulation.
But the proposal the EU has put on the table is a timid reform of Basel II, making a minor adjustment to capital requirements and a rather vague wish for more effective supervision. The Commission's line reflects the advisers it has chosen.
It is high time for a radical overhaul of the Commission's expert groups. The next European Parliament should press for that.
Kenneth Haar
Researcher, Corporate Europe Observatory
