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01 April 2015

'Deepening EMU' - Round-up of Key Events - March 2015

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Highlights included the future of banking, EBA publications, Capital Markets Union, ECJ's decision on CCPs, insurance contracts, EU reform, Grexit, Brexit, tax avoidance initiatives and the ECB's asset purchase programme.


All politicians want to reform the EU and make it work better for citizens. But, as Richard Corbett explained in an Op-Ed on Euractiv, there is no clear consensus on what reform is needed.

Besides EU reform, another hot topic in March was Greece. Der Spiegel published an interview with Tsipras covering planned reforms, the polarizing effect his government has had on Europe and the possibility of a "Graccident”.

According to Reuters, a third Greek aid package is not on the Eurogroup’s agenda. However, the country could be forced to resort to Cypriot-style capital controls, the chairman of the Eurogroup warned.

A piece on the Financial Times explained how Jeroen Dijsselbloem managed the deal to extend the Greece bailout.

As May 7 approaches, the possibility of a Brexit is also taking the headlines. Graham Bishop analysed the issue. Voters must be offered three options in an early referendum, he said.

"I can't believe in a European Union without Britain," Juncker said. But he warned he can’t change the basic treaty, Reuters informed.

Open Europe launched a report assuring a Brexit would cause Britain’s GDP to decrease 2.2%. In addition, Standard Life’s Chairman told Reuters that leaving EU would be 'disastrous' for Britain.

Euractiv launched a series on “Voting on Brexit - The EU issues shaping the UK election”. The website also published an interview with Lord Mayor of London where he discussed the single market, among other things.


Commissioner Jonathan Hill reported to ECON on progress made in implementing his priorities. He discussed financial reforms, banking union, CMU and the single market.

The European Parliament also examined the Commission’s EU Semester 2015 economic policies. The three resolutions were approved.

In an effort to tackle tax avoidance, the European Commission presented a Tax Transparency Package. Tackling tax evasion should be a top EU priority, the European Parliament responded. The institution also published an interview with MEP Lamassoure about the Parliament’s tax ruling committee.

ACCA welcomed the European Commission initiative and “in principle, the proposal to extend the automatic exchange of information on tax rulings with some reservations.”

In March, the ECB started its public sector purchase programme (PSPP). "The asset purchase programme may be shielding other euro area countries from contagion, which also helps the ECB achieve its monetary policy goals across the euro area," explained Draghi in a speech not long after the launch.

“Stepping into bond markets creates challenges and might have unintended consequences,” Coeure also mentioned in a speech. “One key principle underlying the implementation of the PSPP is the minimisation of unintended consequences, which can be ensured by obeying the concept of market neutrality.”

The think-tank Bruegel released a detailed manual of the programme: “The European QE programme, the PSPP, will last at least until September 2016. Purchases will be composed of sovereign bonds and securities from European institutions and national agencies.”

The EU budget was also a widely-debated topic in March after the ECOFIN gave France two more years to correct its government deficit. Irish Finance Minister Michael Noonan reacted immediately: "If you are giving discretion to six, seven European countries including France, we want discretion as well. But our discretion is in the application of the rules," Euractiv reported. 


Jean-Claude Juncker must involve the banking sector in his plan for integrating Europe’s capital markets to boost investment, said the European Voice. ECB’s Yves Mersch also discussed the future of banking:"We need a balanced approach – supporting the healthy forces of creative destruction, while at the same time protecting consumers and the essential functions of banks in servicing the economy."

But who will bear losses when banks go wrong? The ‘bail-in’ framework will put investors at risk but much remains unclear, wrote the chairman of the ICMA working group on bail-in for the Financial Times.

In its meeting on 24 February 2015, the Board of Supervisors of the EBA decided not to carry out an EU-wide stress test in 2015 and to start preparing for the next exercise in 2016.

Relevant publications of the EBA for March included its advice on resolution procedures for EU banks; the results of the Basel III monitoring exercise as of 30 June 2014; a benchmarking package; and a consultation on requirements for business reorganisation plans.


At the beginning of March, the ECJ annulled the Eurosystem Oversight Policy Framework published by the ECB. The ECJ decision avoids the main issue but pits the UK directly against the Euro area, wrote Graham Bishop: “It is the worst possible outcome.” By the end of the month the ECB and BoE announced measures to enhance financial stability in relation to centrally cleared markets.

Reuters argued that at this stage of the overall financial reform effort, regulators should take stock of what has been done so far to ensure the safety of CCPs and consider additional measures. During the same month, CPMI and IOSCO announced they had begun reviewing stress testing by CCPs. The European Commission also tackled CCPs by calling for U.S. collaboration to avoid a 'devastating' clearing house collapse.

Regarding MiFID II and MiFIR, ESMA presented its work to the ECON committee. The authority also published all responses received to consultation on the subject. AFME mentioned there is a risk that ESMA's recommendations will have an adverse impact on investors and corporate issuers and ultimately on economic growth.

Asset management

On asset management, an article on Tabb Forum assured that the European Commission’s unbundling initiative could drive an asset manager shakeout.

Financial services policy

Capital Markets Union (CMU) also took some space in last month’s news. Reuters informed that regulators will discuss plans to accelerate its implementation. “CMU will not be created through legislation, but with the market’s help to deliver solutions,” Commissioner Jonathan Hill told IPE.

Similarly, he argued at the 13th Annual Financial Services Conference that the sector can be an instrument for growth. "We at the European Commission are doing what we can to support the recovery. We are clear that our top priority is jobs and growth. So how will I support these priorities? And how do I think the financial sector can help boost growth?" Hill said in a speech at SIFMA.

ECB’s Coeure asked about the goal of CMU in a speech: "Capital markets are starting again to show some signs of de-fragmentation. Looking forward, the objective of CMU should be to support qualitative integration, rather than quantitative convergence."

In addition, MEPs commented on the aim of CMU in several articles on The Parliament Magazine. Peter Simon explained it is about better exploiting the EU single market. On a similar note, Markus Ferber said CMU can only work if it is compatible with Europe's existing financial framework.

The House of Lords also published a report on the topic. The publication supports the Commission’s proposals, saying that CMU is a timely and important initiative, but the Committee warns that it must be rolled out carefully, with the protection of investors’ money at its heart.

The FCA shared similar concerns, as Reuters reported: “The European Union's plans to boost market-based financing for its flagging economy risks harming consumers unless there is more emphasis on investor protection.”

Philippe de Backer, MEP and Chairman of the European IPO Task Force, told European Issuers that Unlocking IPOs is central to delivering CMU.


Regarding the insurance industry, Reuters reported companies believed the Solvency II framework could make it too pricey to help EU investment plans.

Insurance contracts were also among the relevant issues last month. “Improvements to accounting for insurance contracts have taken longer than planned - but the IASB is nearly there,” Steve Cooper from IASB said. A few weeks later they published an update on the project.

An Insurance Europe and CFO Forum letter to EFRAG noted that, due to insurers’ business model, it is important that accounting requirements for financial instruments and insurance liabilities are considered together as a package.

Corporate governance / accounting

On accounting, the IASB’s Hoogervost gave a speech highlighting that investors and managers are best served by accounting standards that reflect the economic reality.

In commemoration of the tenth anniversary of the application of IFRS in Europe, the IASB’s Philippe Danjou summarised which countries are making IFRS obligatory, authorised or prohibited.


© Graham Bishop

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