Verbatim report of proceedings

Wednesday, 5 September 2007 - Strasbourg

11. Financial instability and the impact on the real economy (debate)

  President. − The next item is the Council and Commission statements on financial instability and the impact on the real economy.

  Manuel Lobo Antunes, President-in-Office of the Council. – (PT) Mr President, Commissioners, ladies and gentlemen, as you would imagine, it is still too soon to evaluate the recent turbulence in the financial markets. We must await more specific economic data and, as you know, the Council has not met since late July, but I agree with Mr Jean-Claude Juncker, President of the Eurogroup, when he said that for the moment there is no perceptible impact on the growth forecasts in the euro area as a whole.

The European economy has continued to show strong growth based on solid foundations. In fact this year has shown very positive results in terms of reducing budget deficits, stability of the euro, economic growth and employment.

It is against that background that we must view the recent financial turbulence that I mentioned earlier. That is all I have to say on the matter for now. I am sure that the informal meeting of the Ecofin Ministers, to be held on 14 and 15 September, in the Portuguese city of Porto, will, as is customary at those Council meetings, analyse the economic and financial situation of the European Union in greater detail on the basis of much more complete and up-to-date data.

I should also like to assure you that the Portuguese Presidency will continue the work of consolidating a single market for financial services. Also the continuing high investment in convergence of supervisory practices and constant improvement of the prudential framework clearly shows that we have not underestimated the importance of a framework which promotes financial stability.

Finally, in general terms, the Presidency is committed to continuing implementation of the Lisbon Agenda. Implementation of that agenda is the best contribution we can make to strengthening the potential for growth in the European economy and maintaining solid foundations and the Portuguese Presidency remains strongly committed in that field.

  Joaquín Almunia, Commission. − (ES) Mr President, ladies and gentlemen, in recent weeks there has been serious turbulence in the financial markets, initially caused by the deterioration in the US sub-prime mortgage market.

This deterioration extended to all the financial markets via securities and financial products supported by those mortgages, which, in recent years, have been acquired in large quantities by financial institutions almost throughout the world.

If we look at corrections to stock markets over recent weeks, they have not been greater than previous market corrections over the last two years; however, what happened recently is unusual in that it gave rise to a liquidity crisis in the interbank markets, which obliged the central banks to inject large amounts of money. The liquidity problems are clearly linked to a decline of confidence owing to a lack of information on the global exposure of market operators to the products linked to North American high-risk mortgages.

The impact of this turbulence could go beyond what we have seen so far and it therefore demands our full attention and fully justifies today’s debate. It is still too early to quantify the consequences of this crisis on the real economy.

The final impact will depend principally on three factors. Firstly, we will have to see what direct impact the deterioration in the North American housing market has on the overall US economy, although there is no doubt that it will be negative, and US growth will be lower than predicted up till now. Given the influence of the US economy on the wider global economy, a slowdown in growth in the United States will have some impact on the rest of the world, in particular, on European economies. This impact should, in principle, be limited, in our case, as EU countries mainly trade within the EU. Moreover, the global economy continues to enjoy a high rate of growth, thanks to the dynamism of the emerging countries, among others. Emerging countries have certainly not been greatly affected by this crisis.

The second relevant factor when evaluating the possible impact of the financial turbulence is the changes in financing conditions for businesses and households. We are already seeing a re-evaluation of risk premiums to bring them more into line with the real assessment of that risk. This is correcting a situation in which the abundance of liquidity had led to a degree of relaxation of risk assessment. This has positive aspects, but if financing conditions were to be tightened beyond certain limits, economic activity would undoubtedly be affected by the reduced availability of capital.

The third factor, which is probably the most important and most difficult to predict, will be the impact on confidence. Confidence is a key driver of investment and purchase decisions, but unlike the previous factors, it is a subjective value that is based on the overall messages, perceptions and information received by economic operators. Among others, these include messages from the public authorities, whether national governments, parliamentary representatives or international organisations.

I therefore think that this debate is a good opportunity, not only to assess the direct consequences of what has happened on the markets in recent weeks, but also to recall and emphasise the fact that the European economy continues, as the representative of the Council has just said, to have solid foundations, which should not be significantly affected by the recent turbulence and that therefore our economy is in a good position to overcome the uncertainties that have arisen.

As I said before, the global economy is still extremely dynamic, and thanks to this there is still a trade surplus in the external sector of our economy, as demonstrated by the latest statistics published by Eurostat. Investment, in particular in capital goods, remains at high levels, supporting current economic activity and anticipating future improvements in productivity. Private consumption is benefiting from sustained job creation, so that our latest statistics show an unemployment rate in the euro area and in the EU that is almost comparable to historical lows: in the case of the euro area, unemployment is below 7%. Inflation remains stable.

Thanks to all this, companies are enjoying positive results, which should enable them to cope with any tightening of credit without having to significantly review their investment and growth plans. In short, ladies and gentlemen, there is no doubt that, given that one of the risks of decline which we had been warning about for some time when we published our economic forecasts – risks of a decline in the US mortgage market and its impact on the US economy – has materialised, growth this year and next year in the European Union and in the euro area is not going to exceed our forecasts given in May this year.

Nevertheless we have good reason to remain confident about the foundations of the European economy and its capacity to overcome the current turbulence. Next Tuesday, 11 September, on behalf of the Commission, I will publish the interim growth forecasts for 2007 both for the euro area and the EU, which will give us an initial indication of the possible impact of the crisis.

On the same day I will have the opportunity to present these forecasts to you when I appear before the Committee on Economic and Monetary Affairs. The forecasts for 2008 and beyond, as you know, will have to wait until we publish our economic forecasts in November, as usual.

  Charlie McCreevy, Member of the Commission. − Mr President, the United States sub-prime mortgage crisis and its potential impact in Europe have been occupying our attention in recent weeks. The European mortgage market has different characteristics than that of the United States, so problems on anything like a similar scale are less likely to arise in Europe in the near future. Sub-prime lending in the European Union is very limited compared to the United States and we have safeguards in place, such as lending rules and limits on loan to value.

The recent turmoil has, however, clearly demonstrated the interconnectivity and globalisation of financial markets. Risks have been spread wisely. This is positive. Contagion, however, is an issue. Some European banks and asset funds are exposed to sub-prime related securities. There have been some real problems, notably via the liquidity squeeze of the asset-backed and commercial paper markets.

What can Europe learn from this crisis? It is too early to draw firm conclusions, as there is too much uncertainty in the market. It is also important to react sensibly, taking the necessary time to assess the situation. Fast policy reaction is likely to be a bad reaction.

The following issues emerge from our preliminary thinking:

Firstly, the interconnectivity of markets shows how important it is to have a globally converged approach to regulation, with sound prudential rules and proper investor protection standards. It makes the Commission’s regulatory dialogues with the United States and other jurisdictions even more critical. High standards of regulation are necessary throughout global financial markets, given the spill-over effects.

Secondly, questions about mortgage lending in the United States inevitably arise. While I support the notion of facilitating access to the housing market for people who would not normally be able to buy a home, with hindsight the adequacy of regulation and consumer protection will inevitably be debated. Repair is under way, but the problem will take some time to resolve.

One of the lessons from the crisis is the importance of lifetime financial education for citizens, whilst ensuring that responsible lending is enforced. In the European Union we are already looking at these issues within our ongoing work on consumer and mortgage credit and consumer education.

Thirdly, the transfer of mortgage loans, and their risks, to other parties has been at the centre of this crisis. Sometimes these risks have returned to the originating bank when their financial vehicles could not sell off or finance the bank-originated securities.

We certainly need to look closely at the mechanisms at play – that is the role of conduits and special-purpose vehicles, and their relevance for European banks.

The problems of valuation of complex securitised products and market-clearing mechanisms in stressful market situations also need further analysis. The recent market crisis has also highlighted the importance of reputational – as well as liquidity – risks as important drivers to properly assess banks’ risk exposure to complex transactions.

Fourthly, what about Basel II, the new capital requirements directive for banks? Basel II provides improved opportunities to banks and investment firms to properly assess risks and to correctly calibrate their regulatory capital. So will Solvency II, which is Basel’s broad equivalent for the insurance sector.

However, this does not mean we should be complacent. There will be implications that will require careful examination by regulators. For example, more work will be needed on the capital calibration of complex products and of banks’ ability to identify potential problems in crisis situations, including potential concentration of risks in certain areas.

Fifthly, many hedge funds have been particularly active in the structured credit markets. Many of those hedge funds and their wealthy private or institutional investors may have incurred losses – some heavy – in recent months. That is the way markets go.

Sophisticated players in hedge funds know this. Financial markets function on risk. I do not criticise those who make fortunes when times are good; I am not going to shed any tears now if there are losses. However, the crucial thing is that hedge fund failures do not appear to have spilled over to the wider financial system. Investment fund rules, USITs, have held up. Our prudential framework and bank risk controls have, as we expected, prevented hedge fund failures from triggering wider systemic disruption.

As much as some people want to demonise hedge funds, they are not the cause of the difficulties in the market. Let us not forget where the present crisis has its roots: poor-quality lending, compounded by securitisation of these loans in off-balance sheet vehicles, the risks associated with which few understood. These are issues that prudential authorities and supervisors will need to focus on in the time ahead.

Sixthly, what was the role of credit-rating agencies in this crisis? I have already expressed criticism about how slow they were in downgrading their credit ratings for structural finance backed up by sub-prime lending. How robust was their methodology? How well were the limitations in the ratings of structural products, vis-à-vis standard corporate ratings, explained and understood?

Potential conflicts of interests of credit-rating agencies is another concern: on the one hand because they act as advisers to banks on how to structure their offerings to get the best mix of ratings; on the other, credit-rating agencies provide ratings that are widely relied upon by investors. They also concern regulators, given their importance for the calculation of banks’ capital requirements.

It has been alleged that there was unwarranted rating inflation for structural products. The role of credit-rating agencies needs to be clearer: what they do and what they do not do, the extent to which they can be relied up and the extent to which they cannot. I am following up these issues with Committee of European Securities Regulators (CESR) and I intend raising them also with our international partners.

What we need are clear, robust, methodological rules and principles that are rigorously applied, and a much deeper understanding by investors of the uses and limitations of ratings and their reliability or otherwise. The scope for conflicts of interest to influence ratings must be firmly addressed. Of course, adequate due diligence by other market players is also essential. Where was it? Were firms and the professionals they employ constantly and objectively assessing the quality of the instruments they were buying and selling and the risk implications of the structures of those instruments, or were they just assuming? Did they stop and consider the viability of the underlying assets, the fraud risks, the track records of the originators and the trends in the markets? Did they question the ratings themselves and did they have access to the necessary data, both qualitative and quantitative, to do so?

I hope that the boards of all financial firms will examine their actions and draw appropriate conclusions. We believe that light-touch, principled-based regulation is the best approach for the financial sector – it has proven its value. But we need to remain vigilant and draw lessons. All parties need to take their responsibility and to take it seriously.

  John Purvis, on behalf of the PPE-DE Group. – Mr President, while the Council was not meeting, at least the European Central Bank, was at work and I think can be given some credit for having stemmed the possible further infection in Europe. Let us hope it will continue to play that sensible, reasonable and sensitive role.

But every so often it seems that it is the inevitable fact of financial life that the chase after competitive advantage will lead to excesses, which in turn lead to the predictable bust. These pressures are largely responsible also for the urge to develop these innovative financial instruments which Mr McCreevy described, and which lurk behind the development of this crisis in the American sub-prime mortgage market and its resulting transmission to Europe.

I do not see this situation as a justification for a witch-hunt on hedge funds. To some extent they have been perhaps sophisticated, or naive, victims of these new-fangled alchemies. In the same way, normally conservative but naive banks have been tempted by the enhanced interest rates paid by these supposedly high-rated instruments to go for what has obviously turned out to be too good to be true.

It seems that few operators in the financial markets, including, probably, few regulators, sufficiently understand these instruments, these credit derivatives, these collateralised debt obligations. Even less do they fully understand the potential risks and implications. So it is incumbent on the authorities both in the US and Europe – and I am glad to see that Mr McCreevy is going to take this particular aspect so seriously – that they all become more conversant with these mechanisms with their structuring and their slicing, how these slices are rated, valued, accounted, with their marketing, with their liquidity and tradability.

Innovation is as desirable in financial mechanisms as anywhere else. This must not be inhibited but, when problems of this seriousness are likely to emerge, it is essential that managers and regulators shoulder their responsibilities to understand them fully and, if and where necessary, introduce the requisite restraints.

  Robert Goebbels, on behalf of the PSE Group. – (FR) Mr President, the cost of August’s turbulence on the financial markets has not yet emerged. The Commission – we have just heard – is expecting a negative impact on growth. The real losses suffered by the banks and other financial players will become apparent when their annual accounts are drawn up.

According to Commissioner Almunia, we still lack information about the actual, overall exposure of all the players. The fact that those who took risks that were too great are footing the bill is a salutary principle, but behind the speculative activism of the financial world, there are victims: the families caught in the trap of mortgage lending based on the promise of unlimited growth in the property market and small investors directed to risks that were undervalued by all those living off fat commissions, including the credit rating agencies.

The Socialist group has been asking for years for increased supervision of hedge funds and all the special instruments being endlessly multiplied by the markets. As Carlo Ciampi maintains, the tumultuous development of derivative products is free from any kind of control. Even the directors of major banks no longer understand these opaque instruments. The real risks, for example the property loans, are sliced up ad infinitum, and repeatedly included in investment fund products and stock exchange instruments, with the result that nobody can locate the original risk any more.

The market expects the central banks to come to the rescue of the speculators. The ECB did in fact, in its role as lender of last resort. One might therefore ask why the ECB has had to inject more capital than the Federal Reserve into the market when it suddenly became illiquid, even though the sub-prime crisis came from the United States. Were the European banks more gullible? Did the supervisory authorities fail to do their job properly? The Socialist group demands that the Commission should learn lessons from the financial market, which has become too opaque and therefore extremely dangerous for the real economy.

(Applause)

  Margarita Starkevičiūtė, on behalf of the ALDE Group. – (LT) Firstly, I would like to answer Mr Goebbels’s question about why the European Central Bank allocated more money than the US Central Bank. It is because the EU economy is now the largest in the world. This is a great challenge for us all. The fact that the OECD and the European Commission assessed the potential outcomes of the financial problems in the market differently on the same day surprised and saddened me. This means that the European Commission should probably adjust its economic assessment models, especially since they are likely to be based on mathematical methods. It is worrying, as forecasting economic policy is a complicated matter and the instruments used must be flexible.

What should we do now when we meet new challenges? I would not like to comment here on the problems that arise; my fellow members have done this so well. I would just like to emphasise one point. Firstly, the crisis occurred because of the aggressive monetary policy within the EU’s boundaries when it was attempted to solve the problems of the Internet bubble. Thus we cannot influence various decisions of third countries. We can strengthen the dialogue and cooperation with supervisory bodies, but the European Union faces a dilemma: a global merger of financial institutions is currently taking place and it is possible that we will no longer have a single market. We will have a transatlantic market in the area of securities; perhaps we will have some other market in the area of insurance. This means that we need to decide whether we consider Europe to be a single market and require all agreements to be made at European level. Can we accept pilot projects when one of our markets enters the world stage independently? We need agreement on this, otherwise it will be very difficult to manage this crisis.

I would like to emphasise one more thing. Financial markets are under reconstruction. We ourselves acknowledged the role of non-banking institutions in the SEPA Directive. We need to admit that various Islamic banks and foundations are appearing and finally that trading networks are entering the financial market. Thus the regulation of non-banking institutions is also necessary – common regulation, which would make the rules of the game the same for both banking and non-banking institutions. This is today’s reality.

The third issue that I would like to emphasise is that I am worried that we use only risky models as a basis. This principle of risk assessment has proved to be very subjective, and I therefore have doubts about the Solvency II and Basel II directives. We cannot trust rating agencies; we can criticise them, but the problem will remain. We should trust market instruments – that is, liquidity. If we cannot sell particular securities on the market or if they are rarely traded, no rating agency can evaluate them. This should be properly understood and we need to reduce the dependence of our legislation on the opinions of rating agencies.

To conclude, I would certainly like to say that there is no need to rescue financial institutions. I can say from my own experience after the financial crisis in Lithuania that when bankers spend a couple of weeks in prison they very quickly understand how to manage banks.

(The President cut off the speaker)

  Brian Crowley, on behalf of the UEN Group. – Mr President, I should like to ask the Commissioners for their response.

The events that took place in August in the sub-prime market highlighted a number of issues for all of us. First of all, the globalised nature of the financial markets which we are now dealing with, and the issue of how quickly regulation or supervision can keep pace with the way new products are being developed and new ideas are being developed. But it also brings to mind something an old farmer in West Cork in the south-west of Ireland once said to me: there is no such thing as an oil that can make your hair grow – apologies to those folically challenged within the Chamber; there is no such thing as a pair of glasses that can let you see through clothes and, also, there is a fool born every day. The reality is that the products made available were high risk, and no matter what anybody says, the idea of caveat emptor is one that should have been at the very core of any decisions with regard to banks or other funds that we were going to invest in these high-risk products. It brings starkly into contrast the role of the credit-ratings agencies and their responsibility, not only with regard to the advice they give, but, in particular, regarding their informing us in a transparent manner as to whether they are representing these funds themselves or whether they are actually giving clear, independent advice.

Colleagues will remember that, a number of years ago, we discussed a directive on consumer credit, and the whole area of transparency and of having independent advice available to the consumers was one key element. Now, it is laughable that some of the biggest financial institutions in the world – and some in Europe – who are the people who spend so much money on buying-in expertise and telling us in Europe how we should run our economies, can be the ones who are now caught because of their bad investment policy.

I congratulate Commissioner McCreevy on his willingness to take on this issue and to tackle some of these areas. I also think it is essential now, not only in looking at credit-rating agencies, but also with regard to the risk that European banks are being exposed to because of the policies of some of those investments, and next week ...

(The President cut off the speaker)

  Alain Lipietz, on behalf of the Verts/ALE Group. – (FR) Mr President, Commissioner, ladies and gentlemen, the crisis demands that I highlight three points.

First, it comes from a hardship crisis among North American national officials. It should be understood that all US officials have very serious deficits, described by what we call the US twin deficits. We have had this crisis, we will have others, either from large US companies, US states or even perhaps from the Federal Government. We should expect some more very serious crises to come from the United States over the coming years.

Second, this crisis happened in the United States in March. It spread throughout the world through hedge funds, the first two of which failed in June. It only affected European banks in late July, early August. We did have time to realise that the flames were spreading. Mrs Merkel, our President-in-Office at the time of the G8, told us to take measures concerning hedge funds, and nobody listened to her. Worse still, the Netherlands are in the process of developing a policy to deregulate the establishment of hedge funds within the country. At the same time as it is speaking against hedge funds, the European Union is encouraging their development in its own territory. This shows a genuine failure of attempts by the European Union to impose supervisory measures and prudential rules upon itself.

As a former rapporteur in favour of prudential rules and supervision of financial conglomerates, I experience this as a personal failure. I recall that we needed more than one parliamentary term to write the simplified prospectus on issuing securities in Europe. Today, one bank is not capable of reading the complex prospectus that another bank publishes on the content of the funds it is selling. That is what it has come to.

The third problem, as I told the Central Bank years ago, is that you cannot regulate the monetary system solely with measures aimed at the lending rate. I think the crisis in Europe was precipitated by the increase in the European Central Bank’s interest rate at the end of the last quarter. I do not think it is enough to say you should reduce the rate by 0.5% or keep the same rate or increase it by 0.5%. We have a genuine problem to sort out, which is the reintroduction of a selective policy for lending, so that the interest rate can be set at 0% for necessary investments such as fighting climate change and can be much more expensive for lending directed at speculation.

  Godfrey Bloom, on behalf of the IND/DEM Group. – Mr President, I would like to address my remarks to the gallery, which is a lot more filled than this Hemicycle is with Members. I hope you have got your headphones on because decisions are being made here today by people with absolutely no knowledge of international finance at all.

I have been 40 years in financial services; I am a professional economist – we are talking about hedge funds, we are talking about international currency. If you want to look up the books and see what expertise the Members of the European Parliament have, I think you will be bitterly disappointed. But here we are, making decisions for global finance. Forty percent of British GDP is the City of London. We have people from Poland, the Czech Republic and Latvia who have absolutely no knowledge of these sorts of things whatsoever, deciding where we are going to go for the future in international finance.

(Uproar)

They do not understand about these things. They do not know anything about these things, any more than they do about agricultural policy, fisheries policy – the lot – but here it is.

Ladies and gentlemen in the gallery, if you want to see international finance, go to Dubai, to New York, to Los Angeles, to Bermuda. You are looking at the people down there – look at them. None of them have ever done a real job in their lives. This is a Mickey Mouse assembly, and we are going to lose the lot.

  President. − May I draw your attention to the fact that when you are speaking in the Hemicycle, you address the President and the Members, while those who are taking part in the session are the audience. Please have respect for those who are showing you the respect of listening to you.

(applause)

  Luca Romagnoli, on behalf of the ITS Group. – (IT) Mr President, ladies and gentlemen, the collapse of the US market in high-risk loans has caused a splash that is still being felt on the stock markets today and which has thrown speculators and savers into serious crisis.

What the US real estate operators did is common knowledge: they offered loans, which were then defaulted on, to high-risk individuals, thus placing not only the financial products but also many banks in crisis. This year a very high percentage of borrowers has stopped paying the instalments owed, placing the entire system in crisis.

In Italy, apart from the stock-market movements, it appears that the crisis has only had a slight effect on the national banking system because Italian banks, apparently, are not directly exposed to sub-prime loans. This was not the case for many German, British and French banks and that is why we are having this debate today. Therefore the least we can hope for is the opening of an enquiry into the largest international credit rating agencies on their role in these events and thus action on financial instability and on the impact on the real economy.

Ladies and gentlemen, allow me to tell you what happens in Italy – because loans and home purchases in my country are significant – and let me recount to you what an important Italian weekly publication, L'Espresso, said about the ethics of some Italian politicians (who, by the way, have also been our colleagues) in the face of the sufferings of so many savers and those who clamber to pay loans, when in fact a simple institution such as the social loan could make owning a house a reality. In the face of all this, listen to what L'Espresso reveals about some Italian left-wing politicians – a fact that is worth emphasising – as well as some centrist figures, but above all left-wing ones.

These gentlemen, whose first and last names and addresses are listed, benefited from exceptionally favourable terms for purchasing property in Rome. Recommendations, you may say, are a practice, perhaps an accepted practice, and perhaps an ancient practice, in my country – and not just in Italy, but perhaps worldwide. However, when a recommendation is requested and the favour is obtained from a bank or insurance company, I ask myself, what is given in exchange by those in power?

According to the weekly publication, Mr Veltroni, Mr Prodi’s successor, Ms Cossutta, daughter of one of the most radical and committed communists, Mr Violante, former Prime Minister and among the most well-known arbiters of other people’s ethics, as well as Mr Marino, Mr Mancino, Mr Mastella, Mr Casini, Mr Proietti and Mr Baccini purchased houses in Rome with at times as many as 25-30 rooms at a quarter, if not less, of the market price, given these special terms by owners who, strangely enough, are banks and insurance companies.

Democracy has its costs, you may say, and as the proletariat had its costs so today does progressive socialism, which has inherited from its predecessors the ability to be specific in the pursuit of its own interests. If you are strangled by your mortgage month after month and, like me, you have the good fortune to suffer from it a little less thanks to this seat in Parliament and the activity of your spouse who now contributes, you should blame the communists, old and new, who have decided to liberalise taxi licences and the opening hours of barbers and to sell medicine in supermarkets, but have left the banks free to decide what sacrifices to impose on your families, to mortgage your futures and your lives.

You have only yourselves to blame, Italian and European citizens, if you have decided to do something other than pursue a career in one of the Italian parties that govern or have governed cities, regions and nations, and which in governing are governed by the banks.

  Cristobal Montoro Romero (PPE-DE). – (ES) Mr President, President-in-Office of the Council, Commissioners, I would first of all like to express my thanks for the words of our authority figures regarding maintaining an optimistic stance in the face of the crisis that we are experiencing.

At the same time, however, I would also like to bring as much realism as possible to this debate, as concealing the seriousness of the facts will only lead to confusion when it comes to seeking solutions.

Firstly, we are facing a crisis that was predicted. We are not facing a surprise crisis. It was known that this would happen at least one year before, and there has been a lack of care, a lack of capacity to react.

Secondly, we are facing a serious crisis. The President of the Bundesbank said so himself just over three days ago. We may be on the verge of a classic banking crisis of withdrawal of confidence.

Thirdly, Europe has been infected by financial institutions in countries that have been unable to make profits because their economies were relatively stagnant, and have therefore sought profit at a greater risk. It could therefore be said that the supervisory authorities, the European prudential authorities, have failed to prevent this from happening.

The European Central Bank is therefore the first to intervene in the crisis, the one that is injecting the most money, precisely because it is in Europe, in the heart of Europe, which is now recovering economically, where this crisis could become most serious. We therefore need more clarity as to what the actual repercussions are and how major this crisis really is.

Undoubtedly the fourth characteristic of what we are experiencing, the circumstances that we are in, is, in short, the reaction of our monetary authorities, the reaction of the European Central Bank.

In my opinion, it acted correctly when it made these injections of liquidity, because what we are seeing is a withdrawal of liquidity. However, it is also true that it is paradoxical that this should happen precisely when Europe is raising interest rates in order to restrict the liquidity of the system, to restrict credit. This is a major paradox that needs to be explained properly, without the confusion that arose from the explanations given throughout August.

Clarification is essential, because we are talking about millions of families and millions of small and medium-sized enterprises, which depend on variable interest rates in Europe, getting into debt. Therefore, it is essential that we clarify the interest rate scenario and ask for caution in interest rate rises in Europe, in order to strengthen the economic growth and job creation that we need so much at this stage of EU integration.

  Pervenche Berès (PSE). – (FR) Mr President, Commissioners, ladies and gentlemen, we must be realistic: despite being the powerful European legislator that we are, we will not be able to do anything about the origin of this crisis. We are powerless against US legislation that fails to understand consumer protection in mortgage lending, whether by banks or by other institutions.

Let us be realistic: we are facing a crisis of which we urgently need to correct the effects, but also learn the long-term lessons.

Let us be clear: our European citizens are, quite rightly, worried about the consequences of this crisis for the financing of the real economy. Let us be clear: our fellow citizens do not understand that, to cope with the risk-taking of a few, whose method of remuneration does not follow any economic logic, public institutions like the European Central Bank are at the end of the day forced to intervene to guarantee the liquidity of the market.

Let us cope with the situation. Let us stand where Europeans should stand, grounded in realism and proposals. In the end the Central Bank did its job as lender of last resort. However, as a supervisory body, it is powerless to find out the reality of the risks taken by the market players. We must improve the supervisory powers of the European authorities, and it is your job, Commissioner, to play an active part in this too.

Let us cope with the situation: we have been talking for many years about fair value, and this same fair value has today worsened the conditions for valuing sub-primes.

Let us cope with the situation: as regards the credit rating agencies, the IOSCO code of conduct, Commissioner, does not meet the demands of the current situation. We need a truly competitive market, in which there are no conflicts of interest and which is characterised by greater transparency.

Finally, let us be utopian and hope that the use of the financial bubble created in this way will finally start to release finance for the long-term investment Europe needs to cope with the climate and energy challenge. Sometimes utopia can be the best form of realism.

  Andrea Losco (ALDE). – (IT) Mr President, ladies and gentlemen, we find ourselves in this Parliament facing once again a problem we faced back in July. At that time, some uncertainties were expressed concerning the crisis which was then about to strike the euro area. This was a crisis foretold, as indicated by the news coming from the USA.

It had already been clear for some time that property prices in the USA were excessively inflated and that the US system allowed loans to be granted too easily to insolvent persons, or to be granted at very high interest rates, and the resulting turbulence in the global market was inevitable.

Who has played a part in this game? Investors, citizens, mainly from the US but also Europeans, are suffering its negative impact; citizens and investors, savers. Thus the question is whether this Chamber, and the institutions in general, have the protection of savers at heart. Protecting savers means understanding the role played by the other operators within this framework or in this scenario, the role of the credit rating companies, which often display a great inconsistency and have conflicts which at times go unchallenged. I believe that rules and standards ought to apply to all of this.

The crisis has also highlighted a marked contradiction at a time in which the ECB has been forced to make financial movements in the market and at the same time to raise interest rates to tackle the risk of inflation. Let us hope that this situation will not persist.

The fact that this is happening, however, means that we must ask ourselves how the standards governing persons on the world stage – since this is a crisis which has once more highlighted the aspect of globalisation – ought to define the conduct of every person.

  Guntars Krasts (UEN). – (LV) Mr President, the current financial instability should not have come as a surprise, but when it materialised, everyone was shocked. Insecure consumer and property loans gave rise to a growing demand for liquidity. Market corrections are occurring because for a long time money has been too cheap, and this has eroded standards for evaluating investments. A lack of confidence in the market has damaged even attractive assets, which ought not to have been subject to the downward price correction. We can now be sure that easily accessible, cheap money does not create stable growth. The foundation for stable growth is the proactive reform of systems, effective investments and markets that function more freely and more transparently. At the moment the main fears revolve around the liquidity crisis turning into an insolvency crisis. Instability that starts off in the form of a liquidity crisis can degenerate into an insolvency crisis, since market participants, convinced that their level of knowledge is inadequate, will be unwilling to lend to each other. The property crisis may create serious complications in several EU Member States, not just in the United States. Investors and depositors will not recover confidence in the financial market until they are convinced that evaluations are correct. This means that risk premiums may increase, and as a result company and household consumption will decrease. This could reduce investment movements or, in some cases, even bring them to a halt. Europe’s fiscal and monetary policy makers must be ready for this. The main responsibility for stabilising the situation will fall to fiscal policy makers. In the monetary policy sphere we can expect lower interest rates, which many European politicians have been longing to see. At the same time the market should not harbour the misleading belief that risky investments will remain. Both loan rates and demands for collateral should reduce the moral damage that such a belief could create. In the long term, the central banks need to improve regulatory mechanisms for the financial markets in order to establish greater clarity and certainty within them. Thank you.

  Karsten Friedrich Hoppenstedt (PPE-DE). – (DE) Mr President, Commissioner, ladies and gentlemen, the full extent of the instability sensed on the global financial markets is not yet clear. The weak points of global finance are the poor creditworthiness of borrowers on the US mortgage market and the errors made in assessing credit risks of assets and/or in auditing these. We could ask what happened to Basel II in this phase in the United States; I realise that it has not been brought in yet, but it would have been helpful.

In the United States, a mortgage volume of USD 120 billion has been adjusted up to now. This fact alone has triggered rate-adjustment shock of the proportions known. Approximately 700 billion more mortgages are to be adjusted in the next two years. Heightened investor sensitivity has exacerbated the dilemma, with confidence and the appetite for high-risk investments down. Even boards of directors of banks are now admitting that they did not know what they were doing. Lack of investor confidence and realistic assessments are currently preventing a return to normal levels – a process that will undoubtedly take some time and will not even spare the professionals of banking supervisory bodies.

Confidence cannot be expressed statistically by mathematical formulae. However, transparency builds and maintains confidence and facilitates risk control. Commissioner, you mentioned Solvency II. The risks from hedge funds and sub-prime mortgages have tended to be low thus far in the insurance sector; and that is the way it should stay. That is why Solvency II is intended to provide the right starting points and incentives.

Under the present proposals, alternative investments such as hedge funds and asset-backed securities, which are often also exposed to sub-prime risk, will be subject to own-capital backing of 45% as a standard consequence of Solvency II. This may seem high at first glance, but it provides a clear incentive for enterprises to push an envisaged hedge fund to disclose its investment to the investor. In my opinion, one principle applies here, and that is that only those who have the necessary know-how themselves should be making higher-risk capital investments.

The European Parliament has long been calling for transparency in specific financial products and mechanisms. A response by the Commission to the creation of further transparency rules for the 9 000 and more existing hedge funds is overdue. Transparency rules for credit rating agencies are also needed. A more realistic assessment of global credit risk would benefit both.

Over the past few years, European budgets and the economy have been incurring multiple debts. The sin of taking out loans at enticingly low rates of interest automatically produces imbalances between monetary and real-economy performance.

  Ieke van den Burg (PSE). – Mr President, there is a lot to say about this financial crisis, but I will use my two short minutes to focus on three areas where I think we need to take action.

The first is the lack of regulation. Several members have said this already. Complex new products, and particularly the diversification and securitisation of risks, is something which is a key element in this crisis. It was sold to us as a perfect method to get rid of risks, but it is now clear that diversification has also meant a proliferation of risks and of the insecurity that is now everywhere.

The second element concerning regulation is that these operations largely take place outside the regulated market: over-the-counter activities and hedge funds, as has been mentioned already. I really think that we have to investigate where these blind spots are leading. I know Mr McCreevy does not agree, but I think it is really high time now to look into possibilities of regulation – not to over-regulate, not to panic, but really to conduct a serious study. That is what the Commission should do.

Another element is the lack of information and transparency. This has also been mentioned by several people. I want to mention the ratings agencies as well, and the accounting rules which Mrs Berès also mentioned – the fair value issue. This is linked to my third point, which is the lack of coordination and cooperation. That is an element which we have seen now in the actions that have been undertaken by the ECB, which correctly provided liquidity but did not have the information and does not have the tools to punish those who caused the crisis. There should be a much closer link between the ECB and its knowledge and the supervisors. A very important element is cooperation and the strengthening and reinforcing of European-level supervision, which really has a grip on these phenomena at the top of the market and these new phenomena.

I have mentioned several times that we need such European-level supervision. People then tell me, even if they agree, that you have to wait for a crisis to appear because the sense of urgency is not there. I think now it is high time, and the crisis is there, so now we should act.

IN THE CHAIR: MR MARTÍNEZ MARTÍNEZ
Vice-President

  Olle Schmidt (ALDE). – (SV) Mr President, this summer’s financial unrest has clearly shown how closely integrated the markets are. The global financial market literally runs around the clock, with millions of transactions that affect us all. New technologies create entirely different conditions. The possibility of creating better prospects for development in investment has increased dramatically. Access to venture capital is vital here. Many new financial instruments, which some have called into question today, have been largely good and increased liquidity and investment opportunities.

During the turbulent past few weeks on the financial markets it has been shown that it is good that Europe has a strong central bank. The ECB was able to act more quickly than its counterpart in Washington and could take rapid action to calm the markets. For that the ECB deserves praise.

We still do not know how far the US mortgage crisis will continue to spread. The autumn will be crucial as new statistics emerge. Hopefully there will be a normal market adjustment without any great convulsions that might affect the regional economy, which is essentially healthy within the European Union. I hope – unlike some of my fellow Members here, obviously – that in Europe we do not overreact and think that the solution always demands more regulation and decisions taken in too great haste, as Mr McCreevy said. Despite the US Sarbanes-Oxley Act, with extensive regulation, the risky mortgages were not discovered in time. A smoothly functioning financial market requires a balanced approach, and space for new methods combined with legislation that strengthens the interests of consumers. I think that MiFID is a good example here.

For me as a liberal, openness and transparency are key in the financial markets. I would also like to see more cooperation between the EU’s financial authorities to combat crisis situations and to provide a rapid response.

Mr President, Commissioners, I must make one comment: when things are blowing up around the world, it is clear that a small currency and a small market like Sweden’s are hit lightning-fast. The events of the summer have given me further reason for Swedish entry to the euro.

  Mario Borghezio (UEN). – (IT) Mr President, ladies and gentlemen, the grave spectre of the debacle resulting from the sub-prime loans also hangs over European banks. Many of their management funds irresponsibly stuffed themselves with derivative products. There is a serious risk of contagion via private equity. The banks have irresponsibly palmed mortgage bonds off on institutional investors and thus also on savers, presenting them as having a triple A rating – theoretically risk-free like national securities – instead of at a very high risk of default, like negative equity loans.

Speculation, set free to lord it over the globalised financial market, has led small savers to believe that derivatives are the philosopher’s stone of the third millennium. Nothing could be further from the truth. This chain of events is definitely not over and those who are really responsible remain unpunished – the hidden schemers of high finance. Here speakers have been restricting themselves to pointing the finger of blame at the credit rating companies, but why have we permitted the assessment and control of the riskiness of financial products to be entrusted to companies closely involved with and with an interest in the growth of a market that is under the intoxicating influence of speculation?

Please, have the courage to face it clearly: not only is the improper use of derivatives harmful, but the derivatives are harmful in themselves. Derivatives are to the real economy as usury is to savings and the productive economy, as a great American poet, Ezra Pound, taught us in his canto: ‘With usura hath no man a house of good stone each block cut smooth and well fitting that design might cover their face, with usura seeth no man Gonzaga, no picture is made to endure nor to live with but it is made to sell and sell quickly, sin against nature. Pietro Lombardo came not by usura, Duccio came not by usura, nor Pier della Francesca, Zuan Bellin’ not by usura, nor was ‘La Calunnia’ painted. Came not by usura Angelico. Usura rusteth the chisel, it rusteth the craft and the craftsman. Usura slayeth the child in the womb, it stayeth the young man’s courting, it hath brought palsey to bed, lyeth between the young bride and her bridegroom.’ Usury is not the way to govern the world, to protect the widespread interests of honest people who work, produce and save.

(The President cut off the speaker)

  Poul Nyrup Rasmussen (PSE). – Mr President, this financial crisis is a wake-up call for all of us and also for Commissioner McCreevy. Only a few months ago Mr McCreevy assured us that the talk about financial risks and crises was theoretical and we would never run into new bubbles. Now we have just been confronted with one, which has serious consequences, according to today’s Financial Times, the OECD and other qualified institutions.

I have four questions for Mr McCreevy.

Firstly, if we look at the derivatives – credit derivatives, credit market – you blame the agencies and say that they are not good enough; I say that we do not know anything about what is going on. Are you ready now to propose a public classification of the complex derivatives in such a way that the public and private agencies can give us guidance on the risk connected to them? Because that is impossible today.

My second question is about the conflict of interest. If we take the prime brokers, the hedge funds and private equity funds, we see that they are mixed up in a complex set of interests: they earn income from each other, they trade with each other and we do not know what is going on. Are you ready now to introduce rules of transparency, disclosure and accountability which give us a real chance of regulating the market?

My third question concerns pension funds. We know that wage-earners and workers are having losses connected to putting money into hedge-fund speculating in this derivative market. Are you ready to introduce rules which can protect the pension funds and insurance companies trying to administer wage-earners’ money in the future so that they have an interest in saving and knowing that the losses are limited?

My final question is: how can you defend the fact that the hedge funds, private equity and investment banks are the last resort on the international and financial markets without any regulations? We have the usage to regulate the banks and the mutual funds, why should they – hedge funds, private equity, investment banks – be the last resort? I cannot explain it, you cannot explain it. It is time to put the common interests at the front, and that is why we need regulation.

(Applause)

  Antolín Sánchez Presedo (PSE). – (ES) Mr President, following the storm, the skies have not yet cleared, and in the midst of the uncertainty there is a demand for economic stability, financial security, growth and job creation.

This crisis is a great opportunity to take action in four major areas.

Firstly, we need to act to limit its impact on the economy as a whole. The market has reacted with turbulence in share prices and a tightening of financial conditions. The European Central Bank’s response of providing liquidity was a positive one.

Financial institutions have already increased their interest rates to their clients, in anticipation of the predicted rises within a few months, taking into account the growth of the economy and the announcements made by the European Central Bank. I hope that the European Central Bank will act in a balanced, prudent manner for our economy.

Secondly, we need to act to improve risk management and economic governance. There is symmetry between a global financial services market and a national regulation and supervision system. If within the European Union we do not promote these objectives in an integrated way, we will not be able to put them forward at global level, and we will not be protecting our citizens or defending their interests.

Thirdly, we need to act to make the market more transparent. The diversification and dispersal of risk can be positive if it does not prevent risks from being controlled in the market. We need to adopt measures in order to map out financial risks.

Finally, we need to act to make the operators more responsible. Trapping people with limited resources into debt with very expensive mortgages that could even be described as predatory during a period of interest rate rises and the end of the growth trend in the property market is bound to generate problems.

The banks that relaxed mortgage conditions because of the possibility of transferring those mortgages, the rating agencies that did not warn about the quality of the securities, the investors that purchased securities imprudently and the institutions that financed them without additional guarantees all have a responsibility, and we need to make sure that this does not happen again.

  Peter Skinner (PSE). – Mr President, the process of sub-prime lending has definitely been a huge problem causing the financial turbulence which we have witnessed this summer. That was clear, but what is less clear is the identification of investors and counterparties which may be, and continue to be, under stress, and that identity is absolutely vital for us to clear up.

This is due by and large, as we have heard today, to the sophistication of financial instruments which are viewed by some as akin to alchemy. However, we need to take a careful and cautious look at what to do about these and the effects that have been caused by that turbulence. Over-reaction may be equally as damaging as what has already occurred, as we find the price of credit rising as a result. This is not good for the Lisbon Process, we should be reminded.

So what has actually happened in the USA to close the door on some of these issues? It might be said that the barn door has just been closed when the horse is in the field, and that would be true to say. However, largely speaking, the sub-prime mortgage lending area was unregulated. That is a fact now which has been addressed very directly as industrial regulatory and legislative initiatives, I am told, are under way. At the same time, a high level working group has been set up under the auspices of the White House to look at credit rating agencies and sophisticated financial vehicles.

What we can draw from that is that it is vital to work closely with the United States and other global markets as we share the same conclusions about the transparency in these markets. If we do not, because the global markets are intertwined so closely, we will stand to lose so much of the benefit that could be added by the conclusions which we would have to share.

What has happened within the EU and what has happened within the US? I share some confidence now in the Commission, and of course with the ECB as well as with the Federal Reserve in the United States, in what they have done. They have helped to settle down the markets, which was exactly what we needed to do.

I can agree, however, with some of the speakers here today on calling for proportionate responses and I can maintain that in the sense of the confidence that I have. I believe that the securitisation and special purpose vehicles, which will be under scrutiny along with the credit rating agencies, do need to be opened up to greater scrutiny and transparency, that is clear, as Ms Berès has already said. But let us be clear that the sophistication of financial instruments is difficult for many of us to understand, and the role of credit rating agencies is open.

(The President cut off the speaker)

  Udo Bullmann (PSE). – (DE) Mr President, as Europeans, our share of investment in the market we are discussing today is nearly 10%, or approximately EUR 300 billion. We do not know what exact proportion of this EUR 300 billion consists of bad risks, but EUR 300 billion is no trifling sum: it represents nearly three times the EU’s annual budget, and the impact of the current crisis can already be felt. In my home country, Germany, the largest economy in the European Union, our expectations of future business conditions have been revised downwards. Three-month funds have become significantly more expensive, which means that enterprises that are healthy but require intermediate financing can expect difficulties.

I should like to know what lessons we have learnt from this. Almost all the speakers in this debate have mentioned credit rating agencies. As a citizen interested in the state of affairs in this discussion, I found the following on the Internet, referring to a speech given by Commissioner McCreevy in Dublin on 5 April 2005:

“Credit rating agencies will not be subject to EU regulation for the present, said Internal Market Commissioner Charlie McCreevy in a speech in Dublin on 5 April 2005. Commissioner McCreevy said he did not intend to issue specific regulation for credit ratings agencies (CRAs) but the possibility would be kept under "continual review". He warned that he was putting the industry "on watch".”

(DE) Commissioner, when will the observation phase come to an end, when will we be ready to act; when will we be in a position to cast some light into the black box of credit rating agencies, so that we are able to draw up a public scoreboard of their performance and errors? Our system is self-referential, ineffectual and clearly a legacy of previous times. I should like an honest answer. We cannot appear before the public at the next elections in 2009 and say: we did have a Commission; it spent five years doing a great job of observing where the problem lay.

  Harald Ettl (PSE). – (DE) Mr President, that was a clear enough message to the Commission. We can already foresee that the US mortgage crisis will have noticeable adverse effects here, too. The volume of outstanding mortgage loans already exceeds US public debt. Even speculation based on future property appreciation and low interest rates on mortgage loans has clearly proved to be a bubble. Now, fears of recession are being voiced ever louder in the United States. After all, eight out of ten recessions start with a property crisis. We now know that the crisis was foreseeable but that credit rating agencies did not carry out their role of watchdog. High-risk forms of capital are capable of doing all of us and the economy very great harm and thus must not be left to their own devices or to speculators. The principles of transparency and duty of disclosure, and also controls, must be guaranteed. The Commission is now required to present proposals on this.

  Benoît Hamon (PSE). – (FR) Mr President, this crisis is the third major crisis in 10 years. Could it have been avoided? Mr McCreevy tells us it could. To do this, we would need to teach the poor not to borrow money when they have none.

What is the reality? US sub-prime mortgage lenders are the main culprits and players in this crisis. To increase their profits, they have turned to households in great financial difficulty. In 2006, half of the loans granted were made without a check on income. These lenders have earned money with loans that should never have been made. They have been supported by their banks; however, these are controlled by their board of directors, auditors and regulatory authorities. That has not prevented the banks from lending money to credit agencies, or from selling their customers lucrative though risky financial products on the back of this mortgage lending.

These securities, backed by the sub-prime market, were bought on a massive scale by hedge funds mostly domiciled in tax havens, which are exempt from any regulation. So it is the whole control and supervision chain that failed.

My question is simple. What serious initiatives is the Commission now going to take to prevent the rush of the financial markets to the American property market from happening with new assets tomorrow, ending up with the same results: a stock market crisis then loss of growth?

  Elisa Ferreira (PSE). – (PT) Mr President, Commissioner, ladies and gentlemen, financial crises are never confined to the financial sphere. The current crisis will have the effect of further restricting credit and it has already started to push prices up in anticipation, irrespective of the decision the Central Bank takes tomorrow.

The confidence of economic operators has also fallen substantially and, despite the optimism of Commissioner Almunia, economic growth is neither generalised nor guaranteed. There are even many regions with serious economic difficulties.

Today it is difficult, but I should like to know how to explain to citizens that the alarming increase in household indebtedness, the disincentive for public investment, the over-estimation of exports of goods produced in Europe due to interest rate management, among other factors, are inevitable sacrifices. That was the traditional remedy for controlling non-existent inflation. Nowadays the options are more limited for dealing with the perfectly predictable results of excessive risk taking by financial operators, and which we could not or would not regulate in time.

I think there are two conclusions to be drawn. Firstly, there is a need for improved regulation, transparency and cooperation in the financial markets, as has already been mentioned. Secondly, there is an urgent need to review the relationship between monetary policy and its impact on the real economy, families, investment and employment.

  Manuel Lobo Antunes, President-in-Office of the Council. – (PT) Mr President, ladies and gentlemen, I shall be very brief, particularly since I already stated the Council’s basic position on this matter in my first speech.

I should like now to thank everyone here for all the speeches and suggestions you have made and to say that I have taken note of them and of your concerns, particularly those of what I would call a more social nature, that is, the possible consequences that the recent financial turbulence might have for citizens. We shall keep that point in mind as a concern voiced by several Members.

I should like to reaffirm that we, as the Presidency and as the Council, shall continue to work on the convergence of supervisory practices and also on the schemes and mechanisms that will make it possible to constantly improve the prudential framework.

Both the Council and the Commission mentioned here that all the data available at the moment indicate that we have achieved our economic and financial objectives: deficits, economic growth and employment too are on the increase. We are remaining totally realistic about this, however and – since realism has been mentioned here – I should like to say that the Presidency and the Council will be realistic. We shall pay attention to all these matters, to the developments which the future might bring, and the Presidency and the Council, as it behoves them and where justified, will not fail to take the appropriate action and initiatives to provide a response to any misgivings and problems which might arise.

  Joaquín Almunia, Commission. − (ES) Mr President, with regard to the impact on the real economy of the turbulence, or the crisis, if that is what you wish to call it, in the financial markets in recent weeks, I repeat that according to our initial estimates – we will be publishing forecasts on Tuesday – but also according to opinions that are being made public by other bodies and public and private institutions, the impact of this turbulence on economic activity, economic growth and employment in European economies in 2007 will be felt, but it will be very slight.

A large proportion of the results for 2007 are already guaranteed by the results produced in the first two quarters, by the information available on what is happening in our economies in this third quarter and by the positive inertia of economic recovery based on the good, solid foundations that we inherited from 2006.

The risks will be more evident looking towards 2008. In our forecasts in May the growth rates for 2008 were already affected by a maturing of the economic cycle and by the impact of the decisions adopted on monetary policy by the central banks. In Europe and beyond, this financial crisis, this financial turbulence and the subsequent tightening of credit conditions are going to increase or are increasing the risks of a decline in results for 2008, but I still think that it is too early to make a definitive analysis from which to draw some final conclusions on the subject.

We need to hope that, insofar as many of the factors that have been encouraging the turbulence of recent weeks are related to confidence, if we recover confidence and if we all contribute to a rigorous vision and diagnosis of the situation in order to improve confidence, or to consolidate confidence, the 2008 results will be better or less concerning than some imagine they will be.

I think that most of those who have spoken broadly agree on what led to this increase in volatility and to the turbulence in the financial markets, and I also think that there is agreement that solutions need to be found. However, the solutions are not simple, and we should not overact.

Just like good actors in the theatre, good politicians should not overact at times of turbulence. We need to do more detailed analysis and understand the facts more fully, and we need to try to seek effective solutions to challenges that exist, those that are evident, and those that we have not yet discovered.

If we look back over the debates in Parliament or the reports on financial stability by the Monetary Fund or the Central Bank, the analyses by the European Commission and our own speeches in the recent past, we did not know where or when, but we did know that turbulence of this kind could occur, given the evolution of the financial markets, and the sophistication of the instruments and techniques used by financial institutions.

I repeat what I said at the start: the European economy is still on solid foundations. The euro is protecting us. Once again it has proven its ability to protect and to absorb shocks that under other circumstances, before the launch of the euro, would have created much greater difficulties for us, both from a monetary and financial point of view and in our real economy, and, to finish, I think that the European Central Bank, in exercising its responsibility, acted sensibly and correctly in August.

  Charlie McCreevy, Member of the Commission. − Mr President, I shall be brief. I fully agree that we cannot be complacent about the supervisory challenges that are presented by increasingly complex financial products and off-balance sheet vehicles. Neither can we be naive and believe that Basel I, Basel II and Solvency II will solve the problems that have occurred. There are important lessons to be drawn, which I will be taking up with all concerned in the time ahead.

As I said in my opening remarks, I believe a light-touch, principles-based regulation is the best approach. I am certain that more regulation now would be the worst thing we could do for financial markets. In any event, I do not believe that there is a need for more regulation. It might surprise Mr Rasmussen to know that I agree with something he has advocated, i.e. more transparency. However, there are other ways of achieving this than through regulation.

  President. − The debate is closed.

Written statements (Rule 142)

  Ilda Figueiredo (GUE/NGL), in writing. – (PT) This debate was intended to clarify the essential issue of the moment, that is the reason for this situation of financial instability. It is not enough to identify the problem after it has already become apparent. It is even less helpful to propound remedies, which in practice serve only to alleviate certain consequences for the moment but which, in the short and medium term, will not change anything.

We all know that the real economy is based on production, distribution and the consumption of goods in accordance with people’s needs, whether those needs be real, imagined or created by advertising. That means that the money in circulation ought to match that real economy; and yet the greed of those who want ever higher earnings has led to the creation of stock exchanges and speculative profits in a type of casino economy, putting the production sector in second place and encouraging financialisation of the system.

That is the root of the current problem which the central banks are trying to alleviate by placing even more money in circulation or putting up interest rates. These processes have their limitations and run the risk of creating new speculation bubbles or of further damaging the real economy, thus increasing costs for families.