Blog AnalysisEconomy Euro zone

Financial crisis: Europe has put its head in the sand

(BRUSSELS2) What 24 hours ago seemed unlikely has happened. By solemnly assuring, even before the meeting of European Economy and Finance Ministers, that the European Union would take all necessary measures to guarantee the stability of the financial system, Nicolas Sarkozy pulled the rug out from under all those in Europe who were still tempted to play solo. Even the German Chancellor, Angela Merkel, initially hostile to a European rescue plan, has come to terms with reality; the disaster takeover of the country's fourth bank, Hypo Real Estate, having made it clear that no European state was immune. It was time ! Because since the US subprime crisis burst into the light of day, a year ago, Europe has rather “hidden in the sand”.

The Barroso Commission did not dare to raise the alarm...

The European Commission, which normally plays the role of watchdog, did not dare sound the alarm. Whether it is the injunction of public funds in the banks, the regulation of financial markets, the guarantee of deposits for savers, and even golden parachutes, it has even rather delayed any proposal as much as possible. Not that it lacks specialists on the subject. The reason is more political. It must be said that the member states were not “enthusiastic” or even divided. It should also be noted that the commissioners in charge of these files are marked by a very liberal view and very personal agendas.

…all busy with other concerns

The European Commission led by the liberal José-Manuel Barroso is absent. The President of the European Commission, José-Manuel Barroso, has only been thinking about one thing for several months, his renewal at the head of the European executive next year. So out of the question of getting angry with anyone, especially not with a large state (like Germany or the United Kingdom, even if it means offending his friend Nicolas Sarkozy a little). As for the commissioner responsible for the internal market and financial services, the Irishman McCreevy, he has continued, since his appointment in 2004, to slow down any regulation of the market. Just a few days ago, in front of the European Parliament, he greeted the “ positive effects of hedge funds » or, in Dublin, attacked public services “ who need to reform ».

Delayed reactions...

It took almost a year for the European Commission to decide to learn the lessons of the mortgage crisis in the United States and propose some measures to strengthen the supervision of banks' capital. It was last week: too late to reassure the market, especially... as these measures will only come into force within a few months (a reading must be ensured in Parliament and the Council and then allow for a transposition deadline) .

Similarly, the Commission has only resolved, for a few days, to consider revising upwards the European directive which provides for a guarantee for bank deposits, up to 20.000 euros. Again, too late!

Several states – Belgium, the Netherlands, Ireland, Germany, Austria, Denmark… – all the exposed countries, one after the other, had to resolve to blow up the ceiling, or even to grant an “unlimited” guarantee to banks in difficulty. This is not without problems for States which have not put this guarantee in place. This is the first paradox: caught from the rear by States, which have become interventionists and legislators overnight, Commissioner McCreevy is thus forced to change his mind: to become the ardent defender of rules that he was still fighting yesterday.

…a generalized save-who-can…

As for the application of competition rules, on State aid in particular, it's quite simple, they are put aside... “State intervention in banks”, overall, the Commission finds nothing there to say again. “ We do not have to comment when it is not a question of state aid » (1) « The treaty imposes absolute neutrality on us if a company is privatized or nationalized. We have nothing to say. (This is) a matter where we have no jurisdiction » justifies the spokesperson for Neelie Kroes (the competition commissioner). We think we’re dreaming… “ The rules continue to apply flexibly while respecting the state aid framework. We are in an exceptional situation. So it's completely normal to act flexible » adds Johannes Laitenberger, Barroso's spokesperson. Finally for now! He thus distinguishes “the short term, we act, and the medium and long term perspectives where we must implement things in a coherent manner”.

The Commission has lost a battle, its own

These cascading reactions do not really give an impression of confidence but rather of total improvisation, of abandonment in the open countryside, of principles applied in a somewhat dogmatic way. Which is not really designed to reassure the markets or savers. In short, the European Commission has lost a battle... That of the general interest! Hers….

(1) This is not a question here of the application of article 87-3B (aid which can be declared compatible in the event of serious economic disturbance) – as my dear colleague Quatremer says – but rather of the Article 87-1 (definition of State aid).

(Nicolas Gros-Verheyde)

(redeveloped version of an article published in Ouest-France on October 7)

Nicolas Gros Verheyde

Chief editor of the B2 site. Graduated in European law from the University of Paris I Pantheon Sorbonne and listener to the 65th session of the IHEDN (Institut des Hautes Etudes de la Défense Nationale. Journalist since 1989, founded B2 - Bruxelles2 in 2008. EU/NATO correspondent in Brussels for Sud-Ouest (previously West-France and France-Soir).