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03 February 2015

`Deepening EMU' - Round-up of Key Events - January 2015

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The new Greek government was sworn in. The eurozone economy slipped into deflation in December. The Council decided to clamp down on corporate tax avoidance. BCBS will examine whether it should rewrite rules governing how sovereign debt affects banks’ capital positions.


On January 27 the new Greek government was sworn in. Few commentators seem to be aware of the major debt relief that the EU has already given Greece to open the way for it to grow into the position where the debt might seem realistic to manage over 30 years. Additional positive thinking by the EU can bring a transformation.

A classic ‘time to bury bad news’ is just ahead of the Christmas holidays. Suddenly, there it was: the biggest deficit in the UK became the current account of the balance of payments at £100 billion – 6% of GDP).

Shortly afterwards, Angela Merkel refused to endorse the UK prime minister’s demand for European treaty change, offering only limited support for his bid to renegotiate Britain’s relationship with the EU, the Financial Times reported.

European Commission Vice-President Dombrovskis presented a Communication providing new guidance on the Stability and Growth Pact: "We are delivering on the commitment made by President Juncker in his Political Guidelines to provide such guidance within the first three months of the new Commission’s mandate."

Also, the Commission and Norway faught over the country’s single market contribution, as Euractiv covered. Norway claims that the European Commission has asked the Scandinavian country to double the amount it gives to the European Economic Area over the next five years.


Die Zeit published a very personal interview with Mario Draghi covering the purchase of government bonds (QE) and inflation, since the eurozone economy slipped into deflation in December. Other economic highlights included the ECJ’s ruling that the ECB’s Outright Monetary Transactions programme is compatible, in principle, with the TFEU.

Tax was in the news again as the Council decided to clamp down on corporate tax avoidance by adopting an anti-abuse clause. Bloomberg reported a joint statement from finance ministers from 10 countries regarding the Financial Transaction Tax: “We renewed our commitment to the project,” they said.


The Basel Committee for Banking Supervision will examine whether it should rewrite rules governing how sovereign debt affects banks’ capital positions. According to the Financial Times, the move by the world’s top banking supervisor could reignite a politically sensitive debate on the relative safety and creditworthiness of different countries’ bonds.

Regarding banking regulation, MEPs debated new rules that could lead to some of Europe’s largest banks being broken up, explained the European Voice. A senior EU lawmaker, however, is seeking to dilute bank trading reform “to take national measures into account and avoid harming markets,” Reuters reported.

Regulatory reforms are, nevertheless, part of “the pathway out of the crisis,” said the EBA in its analysis of the challenges of EU banking. John Gapper, from the Financial Times, agreed that regulators should cut the biggest banks down to size. The Basel Committee updated its assessment methodology for global systemically important banks and EBA issued a consultation on ITS procedures, forms and templates for resolution planning. However, the Bank of England’s policy statement containing final rules on recovery and resolution planning, accompanied two supervisory statements which are effective immediately or 1st January 2016.

Another report from Reuters stated that the 20 largest European banks face $52 billion in litigation costs. The EBA also issued a report explaining why the impact of liquidity coverage requirements for EU banks is not likely to have adverse effects.


ISDA proposed a CCP Recovery and Continuity Framework. The association set out tools that can be used to re-establish a matched book following the default of one or more clearing members.  

Should banks bear the risk of derivatives losses? The debate has gone back and forth between CME Group and its largest bank members, Bloomberg published.

Reports suggested that derivatives watchdogs are expected to agree a swaps rules reprieve. ESMA’s chair said the European regulator hopes to agree a new timeline for introducing margin requirements for privately-traded derivatives in the coming weeks, said Reuters.

EBF and AFME responded to the EBA on simple, standard and transparent securitisations. The European Parliamentary Research Service published an analysis piece on covered bonds. Are they ripe for expansion?

Finally the European Commission announced that, with the support of both Council and Parliament, new delegated prudential rules for banks (under CRR) and the insurance sector (under Solvency II) will become EU law. The rules will help promote high quality securitisation, ensure that banks have sufficient liquid assets in testing circumstances and introduce international comparability to leverage ratios.

Asset management:

PensionsEurope responded to the EIOPA Consultation Paper on Further Work on Solvency of IORPs, while AIMA and CAIA launched a series of hedge fund papers for pension fund trustees. In their responses to EIOPA's latest consultation pension fund representative groups across Europe, as well as consultancies, criticised the HBS project, arguing it was 'undermined by its own flexibility,' as IPE described.

EFAMA responded to ESMA’s call for evidence on AIFMD passport and third country AIFMs

Financial services policy:

In the past month, the European Commission kicked off its project to create a Capital Markets Union (CMU) for all 28 EU Member States with a first orientation debate at the College of Commissioners. But what are the legal underpinnings of CMU? Graham Bishop examined it.

Just before Christmas, ESMA gave the capital markets a nice present of 1615 pages of light reading. The document relates to delegated legislation that the Commission must introduce to implement MiFID II.

In the UK, the latest House of Lords report concluded that the EU financial regulatory framework has been radically transformed in the wake of the financial crisis: “an impressive achievement, but weaknesses remain.”

© Graham Bishop

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