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MEPs debate the financial and economic crisis post G20 summit

Institutions - 18-11-2008 - 16:58
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World leaders attend the G20 Summit on November 15, 2008 in Washington, DC. ©BELGA_AFP PHOTO POOL_RAINER JANSEN

Report on the G20, from Washington to Strasbourg

Parliament debated the financial and economic crisis in the light of the Washington G20 summit. Many European Parliament political group leaders stressed the need for regulatory reform, in particular credit rating agencies, private equity and hedge funds as well as the importance of boosting lending to small business. Other groups criticised speculators and the European Commission for its role in inciting the crisis by concentrating too much on industry's concerns.

For the Council, France's European Affairs Minister Jean-Pierre JOUYET said that the effects of crisis on economy were now showing clearly, with many countries having entered recession.  Public authorities were working to help reduce the impact of the financial tensions on households and businesses, he said.
Facing a slowdown that was "quite exceptional since 1929," the French Presidency had made it a priority to agree a recovery package: Member States had provided interbank loan guarantees and recapitalised banks. Effective joint action had also been seen at the G20 summit with Commission President Barroso and Council President Sarkozy working closely together.  
Accountability and responsibility in global financial system
The conclusions of the summit focussed, as the EU had proposed, on accountability and responsibility as key factors for the world financial system, continued Mr Jouyet.  The leaders had adopted principles like reform of credit rating agencies, the regulation of all those involved in financial industry and considering the link between remuneration policies and avoiding excessive risk.
"Most of main players in the major world economies have provided a strong lead which finance ministries will be putting into place over the next weeks. You can count on French presidency to promote unity in Europe and take forward our common ambitions. And you can also count on Czech presidency to continue this work," said the Council President-in-office.
The EU, he said, needed to continue to take a strong lead for tangible results. It must also shoulder responsibilities for European legislation: "I know I can count on Parliament to be fully involved." United action could inspire the Union and its Member States to react to affects on economy of financial crisis, he said.
Member States "cannot help growth if they do not work together"
"Member States cannot help growth if they do not work together," he continued.  The G20 summit had sent a clear signal of the need to use all possible macro elements to stop the economy slowing down for an extended period of time.  Mr Jouyet welcomed the ECB rate cuts and said the Council had supported their other initiatives at earlier stages. On fiscal matters, Member States had said that any freedom of movement within the Stability and Growth Pact should be used to try to reverse the downturn in the economy.  The Council would be working closely with the Commission to do everything possible to ensure national initiatives are closely harmonised and work in conjunction with one another.
"We also need to ensure the single market functions well and that the flexibility in state aid rules can be used to the full so Member States can help support threatened sectors." Mr Jouyet specifically mentioned the car industry as being one that needed supportive action by the EU as part of a wider package of measures.
Europe "shoulders its responsibilities"
"The European Union has shouldered its responsibilities in face of unprecedented destabilisation of world economy. We have taken urgent measures in the face of immediate danger, but now we need to keep Europe together as a unit, acting as one alongside our partners for a more thoroughgoing review of regulatory system and return to the normal economic cycle. I am certain we can regain control of our destiny and act, as Europeans expect, as a global player."
European Commission
Commission President José Manuel BARROSO reminded Members that the political initiative for global reform of the financial system came from Europe.  "It is my personal feeling that the first meeting of G20 heads of state and government marked a new era in collective steering of the global economic crisis and has made people realise that we need a global approach." He added, however, that it would be obscene to discuss solutions to the financial crisis while ignoring those who still do not have access to food or drinking water.
"In Washington, everyone understood that all economies are interdependent so we in Europe have to accept that and come up with responses," he said.  Our response now needs to be 'timely, targeted and temporary' and should include for example measures to help adapt some sectors of our economies to fight against climate change so that this fight is not seen as running counter to economic growth.
Referring to the 2009 legislative programme, Mr Barroso stressed that the focus of action needed to be on preventing damage from lack of growth and employment while, at the same time, looking at reforms to prepare for the post-crisis period.  A recovery programme would, therefore, be tabled by the European Commission on 26 November. He urged the European Parliament to adopt quickly the recently tabled proposals on bank guarantees and credit rating agencies.
In conclusion, he said that it was time for Europe to make its mark and he remained optimistic that the G20 in Washington had shown a level of open-mindedness which did not exist a few months ago.
Political group speakers
On behalf of the EPP-ED group, Joseph DAUL (FR) said the financial and economic crisis did not represent "a defeat of capitalism" but was a result of poor regulation, a lack of market transparency and the lack of proper financial supervisory bodies. He stressed that the centre-right parties were not in favour of "an unfettered financial system" but of a social market economy.  He called for more attention to be focused on the plight of small businesses, "who take risks to create jobs". They need a market "that is clear, fair and transparent", he said. 
The financial crisis had highlighted "the value of Europe", but he wondered why "we in Europe did not pre-empt the crisis better". In the wake of the crisis, world governance had taken a step forward but he still felt the need to warn against protectionism.  Lastly Mr Daul emphasised that "as a united Europe, with the institutions working together, we are strong".
Socialist group leader Martin SCHULZ (DE), referring to the G20 meeting, said the fact that it had met did represent progress, but he felt the time had come for swift action, notably on "credit rating agencies, financial supervision, private equity and hedge funds, and executives' salaries". 
"We are at a crossroads", said Mr Schulz and he called for stricter monitoring and "a legal ban on certain forms of speculation".  There must be no return to "business as usual".  He was also critical of any idea of taking money from the real economy to pay for the financial crisis, saying that instead we should be "investing in the real economy". He looked to the Commission to come forward with proposals as early as December.
Even Adam Smith believed that unbridled free markets have their limits, said Graham WATSON (UK), speaking for the ALDE group.  Nevertheless, the Liberal leader stressed the need to support open markets, saying that after 1929 countries had mistakenly tried for "individual salvation" whereas "now we recognise that salvation has to come collectively". 
Mr Watson's main point, however, was that this was not a time to abandon the drive for sustainable economic growth: the fight against climate change must be maintained.  Although coming from a different angle from Martin Schulz, Mr Watson too believed that "never again can we have business as before".
Brian CROWLEY (UEN, IE) believed that the bottom line in the crisis was that the EU, US, India and China must work together to ensure common rules and standards to govern the global financial markets for the future.  There should, he said, be no excuses for those who indulged in the reckless lending and dubious practices which caused the crisis.  The biggest danger today, he said, is that banks are not lending to small and medium-sized enterprises to allow them to grow and to take opportunities.  For the future, we must invest in research and development to find new ways to solve our problems.  We must give hope and encouragement to people.  We must not put a block on the creativity and innovation of the people of Europe.
Monica FRASSONI (Greens/EFA, IT) argued that Mr Barroso and his Commission were among those responsible for the current crisis and that they had sided with the Member States and industry rather than the European Parliament and consumers in arguments over lack of transparency and deregulation.  She emphasised the Green New Deal which means a genuine long-term economic strategy focussing on issues such as energy efficiency.  It meant not giving a blank cheque to industries such as the car industry unless they reform and modernise.
Roberto MUSACCHIO (GUE/NGL, IT) reminded the Parliament that President Sarkozy had spoken about the need for a structural overhaul of capitalism rather than the need to imagine a new future: a transition to a social economy based on fairness and co-operation.  But the scant result of the G20 did not include such an overhaul.  No one, he said, is asking what is at the heart of the current crisis so we cannot tackle the real problems  which are:  the devaluing of work in recent years through the policies of liberalisation which have led to suffering and injustice and secondly the serious ecological and energy situation.  Mr Musacchio questioned how can those who have created the problems be the ones to solve them?  We need strong words from the Left, he concluded.
Hanne DAHL (IND/DEM, DK) asserted that the problems had arisen because enterprise had become "a bubble in the whirlpool of speculation". The European Commission's proposal for tackling the financial crisis was "beating about the bush," she said, adding that the 'four freedoms' do not make things any easier.  She asked the European Commission whether the proposal on credit rating agencies would mean that new agencies are to be set up because, she said, the existing ones have been "inadequate and unreliable".  She was concerned about future employment insecurity and the price wage earners might have to pay as a result of the financial crisis.  "Wages should not be seen just as a cost factor," she said. "But also as a key influence on levels of demand, which can stimulate the economy."   
Jana BOBOŠÍKOVÁ (NI, CZ) was pleased that the Washington summit had respected the freedom of the market and had rejected the protectionism proposed by President Sarkozy.  She said it was not capitalism that had brought about the crisis, but the greed of banks.  And this was why a simple injection of money to the banks would amount to stealing from our citizens. "We must make sure the banks use the funds to provide loans to businesses and we need proper supervision over how the money is used."

Council response to group leaders


In his response to the group leaders' comments, Mr JOUYET said the G20 summit had been a historic and innovative event, including in terms of initiatives taken in Europe, and Europe's impact on the international stage.  "We are at a crossroads, and we cannot go back to 'normal.' We will need to use our imagination to find answers to the crisis.  It is important to be ready to act quickly.  We also need to be ready to act against the negative impact of crisis on small businesses and in terms of social dimension.  We need to take account of Keynesian aspects that may be able to be employed with climate change measures.  The distinction between public and private sectors is important, and we should not just focus on financial issues, but also look at helping the most vulnerable members of society," he said.

British and Irish speakers
Diana WALLIS (ALDE, UK) said that as regards the world financial crisis and the Commission legislative work programme, the latter, she said should in a sense be our response to the former. We, she said, should be able to give a strong and collective response in order to give confidence to those whom we represent - Europe’s citizens. "The financial and other challenges that face us need us to act together in solidarity, not just with an eye to national protectionism if we are to emerge unscathed as a continent." Her group, she said, intends to respond to the work programme with a positive and progressive resolution, emphasising above all an open Europe, a green Europe, an entrepreneurial Europe and a safe Europe.
Kathy SINNOTT (IND/DEM, IE) said that while the crisis has hit different countries around Europe in different ways,  one thing is certain: the financial institutions in all countries to some degree or another have bought toxic US mortgage debts based on subprime lending.. It seemed to Mrs Sinnott that there must have been wholesale misrepresentation of the quality of the debt by these agencies for such a huge amount of it to have been sold so easily.
Mrs Sinnott questioned if the facts about the claims made when selling these devices have been examined yet by the Commission and, if so, to what extent is it thought to have been misrepresented? If this is the case, she would also like to know if the Commission thinks that there is any recourse in law against the rating agencies for those who have suffered from their negligence or worse, since, at this stage, the whole financial structure has been attacked by them.
Giles CHICHESTER (EPP-ED, UK) said that Europe is presented with a big challenge because most measures of fiscal policy need to be taken at national level, yet the EU has a crucial role of coordination. The magnitude of the challenges facing us makes that particularly important, he said.
In the field of energy, he said that allowing lower VAT for improvements in the energy efficiency of buildings and launching an information campaign to encourage a change in people's behaviour are two specific ways to help the situation. He suggested that "there will never be a better time to set up one of the EU's famous groups of wise people – and in this case I suggest it should be wise men and women – to reflect on the challenge we face and come up with original solutions beyond the short-term remedy of throwing money at tax giveaways. I hope that Council and Commission will give this idea a fair wind."
Andrew DUFF (ALDE, UK) said that the crisis is going to have a dramatic effect on the future of the euro. Denmark and Sweden should, he said, become members before they expected and, in Britain too, it is time for the debate to begin.
In 1997, he said, Mr Brown established five famous so-called tests before we could adjudge sterling's accession to the single currency. Suddenly, in this crisis, all these five are met. The pound has fallen to a competitive exchange-rate level, labour markets are flexible, the City, once so proud, now risks being pushed aside by stronger supervision and regulation inside the euro zone, and the economic cycles of Britain and the euro zone are now completely in sync as we plunge into recession at the same time. Concluding, he appealed Mr Brown to now change the terms of the debate inside the United Kingdom. "If he fails to achieve that, the pound will be like a permanent ping-pong ball, bouncing in an uncontrolled manner between the big footballs of the euro and the dollar."
Malcolm HARBOUR (EPP-ED, UK) said that small businesses are going to be the engines of job recreation. The Commission, he said, should be looking at the real priorities for bringing in some of the things that we have worked on that will actually help the real economy. "That is where your priorities lie. I do not get any sense that this is a real response to the crisis at all." We need, he said, real action on the things that are going to make real differences to jobs out there now and in the future.
He noted that next week the Council  will have the opportunity to sign off a common position on the Telecoms package. That will pave the way for that investment, he said. It is crucial for the future of the European economy that this package is approved by the Council next Friday, he concluded.
Robert STURDY (EPP-ED, UK) said that at a time when the world is seeing the most important financial crisis that has ever hit us, we are looking at a failure so far on the Doha Round.  The financial crisis has to be underlined, he stressed, as has the need to deepen Europe’s relationships with its key partners, including the new US Administration, but "probably more importantly when the Director General, Pascal Lamy, is up for so called re-election – we will see whether or not he gets the post, but there is a good chance that he will."
The EU, he said, must not be Dickensian in its approach to trade. "We must open our barriers. We must not put in place trade defence instruments. Reform is only going to be successful on the grounds of a free market principle. That includes, as I say, open trade and investment. " Noting that Pascal Lamy met with the G20 to work with a proposal that will see a possibility of a settlement coming up in the short term, he hoped to see something even before Christmas.  The EU, he said, has led for the first time in the trade negotiations and must be congratulated.
Philip BUSHILL-MATTHEWS (EPP-ED, UK) was delighted that Commission President Barroso made many remarks about SMEs in his opening comments. However, he expressed concern that we have not seen enough action.
Referring to the heading ‘better regulation – delivery on promises’, if there is one word that you remember for this legislative programme, that word must be ‘delivery’, he said.
Mr Bushill-Matthews recognised that changing culture takes time and also, speaking as the coordinator for the Committee on Employment and Social Affairs for the EPP-ED Group, that  committee is not always the greatest ally in the cause of better and simplified regulation. He extended an invitation to the Commission President to come and address his committee - "maybe that would help make our committee help your work, and we could then become part of the solution."
John PURVIS (EPP-ED, UK) expressed concern at the grave danger of rushing to excessive misguided regulation and to unintended consequences. An example in the new capital requirements directive, he said, is the proposed 5% retention of securitisation proceeds. "This will only clog up credit creation. Lack of securitisation possibilities is the principal reason that credit has dried up now. We need the banks to lend but no, this misguided principle, which lacks an impact assessment, will prevent a restart of securitisation and the credit which our business and industry so badly needs. Ask the motor car industry how it will prosper if securitisation is snuffed out. That is only one example. If we suspend true and fair accounting, if we go out of our way to kill hedge funds and private equity and incentives to innovators, risk takers and even bankers, as Mr Schulz and the Socialists require, we will only delay and kill altogether that recovery."
Proinsias DE ROSSA (PES, IE) said that this crisis was allowed to develop because governments everywhere abandoned their responsibility to sufficiently govern the economy, including banks. "Most of those in power have ignored history and accepted the ideological mumbo jumbo which we have just heard now from the last three speakers that the market is a self-balancing natural phenomenon and government has no role in interfering with it. The fact is that Adam Smith's invisible hand is a pickpocket. The pockets that are being picked are the pockets of working people, who are losing their jobs, families who are losing their homes and, indeed, those who are poor already, who are losing their savings and pensions. It is not bankers and right-wing politicians who are losing. It will happen again unless we clearly define a new economic framework which enables us to ensure that banks and industries serve society and enable governments to govern in the public interest."
Mairead McGUINNESS (EPP-ED, IE) was inclined to the view that excessive regulation is as bad as none whatsoever. So we need to be very balanced in this, she warned. "But whatever we do, there are people now in business, on farms and in households who cannot get small amounts of credit to keep themselves going. I was on a farm in Ireland recently. They could not renew their EUR 25000 overdraft. This is a really serious problem and we really need to address it."
On the work programme, it will be a very busy year, she said, what with the budget review, the implementation of the health check and review of fisheries.
REF.: 20081117IPR42160