01 July 2014

Barnstorming Barnier: key speech at IMF; and defiance over global derivatives regulation

“The fight against all levels of excessive debt – by governments, households, businesses or the financial sector – was a major focus of this Commission’s mandate”. Commissioner Barnier at the IMF’s 14th Forum on managing public debt. He also laid down a challenge to the USA over derivatives markets.

Commissioner Barnier has made two important interventions in the past few days.

Before the IMF, he reviewed the finanacial landscape, in a speech focussing on the  debt challenge to EU states and citizens:

The average level of member state debt before the crisis was 60 per cent; it rose to 87 per cent in 2013. This was an increase in 27 points of GDP in six years.
Although the EU had lower debt levels than the USA, Barnier noted: 'However, we must not lose sight of the fundamentals. The indebtedness of some countries is now well beyond levels provided under the Stability Pact and should be gradually reduced.'

Indebtedness carries a heavy burden. He added 'It deprives, in fact, states leeway precisely when they should invest to support the recovery. In addition, excessive debt levels make us dependent on financial markets. And the crisis has shown how this dependence could be a serious weakness.'
 

Barnier argued for continued reduction in debt  and active reform. Effort is on-going: 'The overall average deficit in the EU should be reduced to 2.6% this year, against 6.8% in 2009. This is evidence that the EU is recovering gradually and out of the crisis but also that she is able to carry out reforms and to develop the tools to emerge stronger from the crisis. In this respect, the French debate sometimes seems surprising: France did not need any more deficits. She needs more reforms!'

Action at Member State and EU level has complemented one another and helped tackle the 'negative spiral between the difficulties of banks and sovereign debt.' Barnier considered the ECB's intervention in August 2012 as being a 'decisive weapon' to which the Union added its
reform of economic and fiscal governance in the Euro Zone, the financial regulation agenda and banking union.

His speech then focused on these last points, noting that the fight against excessive debt levels of governments, households, businesses and the financial sector has been a key issue throughout the mandate of the Commission European.
 

Read Speech (French original)

In a second intervention, he issued a statement on Global Derivatives Regulation in which he implied  that the EU grant of CCP equivalence will be withheld from the US pending the CFTC’s own recognition of the EU’s equivalency.

He stated:

'I intend to propose shortly that the European Commission adopt 'equivalence' decisions that will allow CCPs from five countries outside the EU – Japan, Singapore, Australia, Hong Kong and India - to clear EU derivatives trades.

This will be done in full deference to the rules and supervisory systems of those countries.

This is the right way and the only way to regulate this global market. Decisions for other countries should follow shortly afterwards.

I am confident that this will also include the USA whose CCPs are truly global market infrastructures.'

Speech

© European Commission