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29 July 2015

Deepening EMU – Round-up of Key Events – July 2015

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Greece avoided bankrupcy thanks to a last-minute deal on 13th July that came after a still resounding ‘No’ to the latest creditor’s proposals on a referendum held by the Greek government. The roadmap to a complete EMU kicked off on 1st July, and François Hollande called for a 'eurozone government'.


Greece was again extremely topical, with a breathtaking last-minute deal to avoid bankrupcy on 13th July that came after a still resounding ‘No’ to the latest creditor’s proposals on a referendum held a week before by the Greek government. As Graham Bishop stressed, it was a “problem of social culture, not just finance, economics and politics”, that led 3.6 million Greek voters to claim they should be entitled to debt relief from the rest of the eurozone. Greek Finance Minister Varoufakis resigned the day after the referendum, but his successor didn’t even bother to bring a new ‘Trojan horse’ to Europe, in the form of a new economic proposal.

Intense negotiations took place until an agreement was reached after a 17 hours-long meeting between Alexis Tsipras’s economic work team and the European institutions’ leaders: Council President Juncker was relieved to confirm that “there would be no Grexit”. Eurogroup President Dijsselbloem reported about the ongoing process for achieving a new ESM programme for Greece. But the threat of a “temporary exit” from the euro for Greece from a German coalition had shaken the foundation of the euro in such a fundamental way, that the Greek deal could actually destroy the euro, according to The New York Times.

The Greek Parliament finally approved the third bailout package in a second voting that excluded Syriza’s rebel MPs, but it will need a serious and deep fight against corruption in Greek politics – as VoxEU authors argue -, and the way to do it is to sign a new agreement that combines debt restructuring and radical transparency reforms, including naming-and-shaming practices, to block clientelism in the medium and long run.

The Roadmap to a Complete Economic and Monetary Union (EMU) started on the 1st July, and the College of Commissioners had a first debate on the "Five Presidents' Report" to mark Stage 1.

European leaders debate between looser or deeper integration, and the muddled response to the Greek crisis has shown the flaws of an ‘insufficient’ Europe, in the French President’s words: Hollande called for a 'eurozone government' to further integrate member states, with a “government, a dedicated budget and a parliament to ensure democratic control.” Italian Finance Minister Padoan backed this suggestion, calling for a ‘political union’ to save the euro.

On Brexit, Iain Begg wondered “could it be ‘Brexpulsion’ rather than ‘Brexit’?”, mentioning the possibility that in the longer term the UK might be faced with the challenge of expulsion from the European Union, in a form of “constructive dismissal.”

Another survey by Deloitte backed EU membership, stating that three quarters of Britain’s finance chiefs are urging the UK to remain in the European Union.  Furthermore, some of the most prominent British businessmen expressed their support to UK in Europe, saying that “the UK has a vital role to play in shaping the future of Europe. Now is not the time to turn our backs.”

In Graham Bishop’s view, sceptics are finally starting to realise that `free  trade’ will not work without the coordination of technical standards that was the crucial insight by UK Commissioner Lord Cockfield in creating the  `1992’ Single Market programme. The wheel is in the process of being re-invented!


The Commission agreed a package of measures which will make sure that the EFSI takes off in autumn, such as communication on the role of National Promotional Banks (NPBs) in supporting the Investment Plan for Europe.  As for the European Council, the 2015 'European Semester' was concluded after the Council endorsed its recommendations to member states on economic and fiscal policies.



The European Commission launched a consultation on the possible impact of the CRR and CRD IV on bank financing of the economy: Commissioner Hill said it was the “time to ask whether the rules [that had restored resilience, stability and trust in the European banks] have unintended consequences”.

The Euro Retail Payments Board’s (ERPB) meeting provided productive outcomes in the field of new technologies applied to payments. The BIS’ Caruana complimented the CPMI on a fundamental accomplishment as part of the Basel Process; the Committee and IOSCO announced that they have started the first Level 3 PFMI Principles assessment.

Relevant documents published during the month included EBA’s final standards for notifying that a banking institution is failing as well as its guidelines on simplified obligations, the standards to ensure effective resolution under the BRRD, its assessment of the suitability of members of the management body and key function holders, and the final product oversight and governance requirements for manufacturers and distributors of retail banking products. For its part, the Basel Committee sought comments on its review of the Credit Valuation Adjustment risk framework.

The BIS’ 85th Annual Report called for a shift to a longer-term focus in policy-making, with the aim of restoring sustainable and balanced growth. However, the data published by the ECB in its structural financial indicators shows the European banking sector is still struggling on the long path for vigorous growth.


Capital Markets Union was in every European regulator and banker’s minds: Graham Bishop wrote that ESMA’s mantra on this topic is that "a high level of investor protection is essential for a successful CMU. Only when investors feel sufficiently protected will they be willing to enter financial markets", and that some of the CMU’s building blocks, such as the MiFID II, are already legislated. MiFID II/MIFIR were precisely the focus in the ECON scrutiny hearing, with ESMA’s Maijoor admitting that, although a balanced system is virtually impossible to accomplish, significant progress towards a more adaptable and better calibrated system has been achieved during the last half year. ESMA’s final report on DTS on MiFID II/MIFIR was also published.

The BIS’ Chairman Noyer shared his views on the CMU project, and the Deutsche Bundesbank's Dombret delivered a speech on financial integration in Europe focusing on diversification and strengthening of the single capital market.

TheCityUK published a report showing how  Europe’s listings regime could be improved to the benefit of investors and issuers across the whole of the EU. Other significant documents issued in July were EBA’s report on qualifying securitisation setting out the detailed advice provided by the Authority to the European Commission and ESMA’s consultation on regulatory technical standards under the CSD Regulation. The Securities and Markets Authority also published the responses received to its consultation on clearing obligation.

On Pension Funds, EIOPA consulted on a Pan-European Personal Pension product to encourage EU citizens to save for an adequate retirement income by creating a simple, transparent, cost-effective and trustworthy product.


The European Council confirmed an agreement with the Parliament on insurance distribution while the Commission reached a deal to improve consumer protection for insurance products.

EIOPA consulted on infrastructure investment risk categories and on its Solvency II risk free interest rate coding. According to Fitch, this proposal on capital charges for European insurance companies may boost infrastructure investment. The Insurance and Occupational Pensions Authority also delivered technical advice on product intervention powers regarding insurance-based investment products.

EFAMA commented on ESMA’s Consultation guidelines for the assessment of knowledge and competence, agreeing on an experience of five years or more among the staff.

Corporate governance / accounting

The Basel Committee issued its corporate governance principles for banks, which provide a framework to achieve robust and transparent risk management within the banking sector.

Financial Services Policy

The FSB issued an interim progress report on reforms to existing major interest rate benchmarks and in the development and introduction of alternative near risk-free interest rate benchmarks.


© Graham Bishop

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