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Economic and financial reform  

A new financial order to prevent future economic meltdown

The financial crisis that started in 2007 and the eurozone crisis beginning in 2010 devastated EU economies and revealed many systems and financial regulations as unfit for purpose. It became clear that the management of national economies and financial markets needed wholesale reform.

These crises coincided with the European Parliament's acquisition of new powers placing it at the heart of efforts to tackle the crises, to protect taxpayers and to build a new system. Parliament was active on all fronts. It pushed for ambitious legislation, often against numerous vested interests bent on maintaining the status quo or limiting reforms as far as possible.

Major successes include systems to ensure that taxpayers do not have to pay for banks in trouble, stronger and accountable financial sector supervision, bankers' bonus caps, a ban on highly speculative credit default swaps and more accountable economic governance.


1. The work of the EP at a glance

Over the 2009-2014 term, the economic and monetary affairs committee handled 63 legislative files plus around 200 resolutions and opinions, and held numerous hearings with key players, including the presidents of the European Central Bank (ECB) and the Eurogroup, as well as the relevant European commissioners and various finance ministers.

The EP has helped shape legislation by regularly advocating a financial system at the service of the real economy and by ensuring that taxpayers will never again be the only line of defence, left to pick up the tab. It consistently advocated a European approach because a piecemeal economic union was clearly not viable. Moreover, repatriating economic policy would leave even larger member states defenceless in the face of globalisation.

Work has focused on three main areas:

• establishing a new economic governance system;

• cutting reckless risk-taking by the financial services industry;

• improving bank supervision and crisis management.


2. New economic governance

Parliament, which passes economic governance rules jointly with national governments, played a key role in the transformation of the coordination of public finances across the eurozone.

It saw from the outset that it was essential to coordinate national economies more closely and to move away from economic systems fuelled by ever-growing debt.

It consistently demanded economic policies that would also deliver growth, instead of being focused only on austerity measures. It waged an often lonely battle for more transparency and accountability as the essential factors for successful economic integration.

MEPs pushed through the economic governance 'six pack' strengthening measures to sanction countries that break the rules, followed by the 'two pack' of oversight rules for an EU review of member states' budgets, as well as a roadmap towards full economic and monetary union. The EP has also been a lead advocate for a stronger and more transparent and accountable economic policy coordination system, currently being developed through the European Semester.


3. New financial services legislation

The financial crisis introduced people to terms that had previously been the realm of traders. Credit default swaps, derivatives and short-selling entered prime time news programmes, and with them the realisation of just how much risk-taking had built up in the financial system.

Parliament's contribution was crucial in drawing up new legislation to check the excesses of the financial services industry in a bid to make it work for the real economy rather than only for quick profits.

During its five-year term, Parliament experienced some of the heaviest lobbying ever seen, with the financial services sector placing MEPs under huge pressure.

Some of the legislation on which the EP has left its mark includes rules on short selling and credit default swaps, derivatives trading, operation of hedge funds, market abusetrading supervision and standards and credit rating agencies. It was also the prime advocate for a financial transaction tax and for years was the only EU institution strongly campaigning for this levy. Finally Parliament campaigned strongly during negotiations on a basic bank account for all. More broadly, the EP was the driver in shaping the new financial services supervisory structure.


4. Bank supervision and crisis management

Since 2010, the EP has called for very important changes to the way banks are supervised and to the structures needed to deal with eventual banking crises. Unfortunately, many countries only woke up to this need in the middle of 2012. In those two and a half years the EU saw a series of spectacular bank collapses which left whole economies on the brink and taxpayers short-changed.

The banking legislation that was finally agreed provides for much tighter supervision carried out at EU level, as well as much stronger requirements for the size of the buffers banks need to hedge risks. Most importantly, systems have also been set up to ensure that taxpayers are never again the one and only defence against banking meltdown and ordinary bank deposits receive a high level of protection.

Notable legislation in which the EP was a key player includes laws related to winding down ailing banks, banking supervision, rules for bailing in banks, capital requirements and bankers' bonuses, and deposit guarantee schemes. The EP has also been at the forefront in calling for a wholesale review of the banking system. Last but not least, it was Parliament that led the way in insisting on caps to bankers' bonuses, a model that some now argue should also be applied more broadly to other sectors of the financial services industry.