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04 November 2015

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

Brexit and Brexin campaigns were launched, and British PM Cameron geared up EU reform talks. The ECON updated EU rules on online payments, and BCBS' Ingves said that the Basel III policy response to the financial crisis is complete.

By Paula Martín Camargo, Editor


Stage 1 of the June Five President’s report on Completing Europe's Economic and Monetary Union is now underway with a new package of measures - including an advisory European Fiscal Board; a more unified representation of the euro area in the IMF, and specific steps towards completing the Banking Union via a European Deposit Insurance Guarantee Scheme. The Commission also presented the roadmap to deepening the Single Market - President Juncker’s drive for the European economy to thrive in the global field.

The long British EU-referendum campaign began with several polls from the business world favourable to the ‘In’ option, and vague reform measures outlined by PM Cameron’s Government – Commission President Juncker made Cameron commit to unveil his ‘list of demands’ in November. The best statement so far of what the UK wants was Foreign Secretary Philip Hammond’s letter in POLITICO saying that “UK's government wants a renegotiation of market regulation, ‘ever-closer union,’ subsidiarity and welfare. David Cameron seems to have ruled out a second referendum in case of a Brexit vote - “leave means leave”. The newly-elected Labour leader Jeremy Corbyn might influence the campaign: he wrote in the Financial Times supporting EU membership but only if reforms were made to improve worker’s rights. Graham Bishop analyses what Corbyn’s amazing rise might mean for the Labour Party’s policy towards Europe.

The Pro-EU In campaign launched with politicians in the shadows and business in the front: former M&S boss Lord Rose chairs the Britain Stronger in Europe movement and his best argument is that outing would be ‘a leap into the unknown’, argued Hugo Dixon. The Confederation of British Industry (CBI) supported ‘In’, making the case for being in a reformed EU. This was the argument the BoE’s Governor Mark Carney made between the lines in his speech presenting the report ‘EU membership and the Bank of England’. Carney said that “the openness of the UK economy has almost certainly increased as a result of EU membership,” and that “necessary EU reform must safeguard non-euro members.” But the balance might be shifting from Stay to Leave, according to the latest Ipsos-Mori Political Monitor, which shows that over half of Britons could be persuaded to change their mind in Europe vote depending on the effects on Britain of remaining or leaving the EU. The outcome of the UK Treasury Committee’s inquiry on the economic impact of the UK’s EU membership may be influential.

In the ‘Brexit’ side, a cross-party ‘Out’ group was launched at the same time, with support from the political and business worlds and some serious financial muscle. Cameron is concerned that many hedge fund chiefs will throw their financial muscle behind the “Brexit” campaign, and urged Angela Merkel to accelerate the talks for EU Treaty reform to support Britain staying.

Consultant in EU law Jean-Claude Piris made an exhaustive assessment of the legal options for the UK, concluding that "the adoption of reforms by the EU, which would not require a revision of the EU Treaties, appears to be the only realistic and politically and legally acceptable solution" to the Brexit issue. The ‘Norway model’ might be another alternative but PM Cameron criticised this approach.

Spain is warming up for the General Election on 20th December. Although the electoral campaign will not kick off until the 4th December, many opinion surveys are being published and show a very fragmented outcome, with current PM Mariano Rajoy probably needing the support of C’s new party. Its extraordinary rise from 8% of the estimated vote to 20% in just over a year might make it the key to Rajoy’s re-election. Poland celebrated its General Election at the end of the month, with the right-wing Law and Justice party returning to power and upending one of the most stable political scenes in Europe: what does it mean for the EU?



Payments systems were very topical in October, with a number of proposals and new rules being issued by European payments and financial institutions: the ECON updated EU rules on online payment services to reduce fees and fraud risks. ECB's Mersch delivered a speech on the challenges of retail payments innovation and said that for the Eurosystem, the main focus is on pan-European retail payment solutions in euro and that he expects the adoption of instant payments to be set shortly.

BCBS Chairman Ingves reiterated that the Basel III policy response to the financial crisis is largely complete and the overall architecture of the regulatory framework is now clear. The Basel Committee published a report on RWAs for counterparty credit risk, a part of its wider RCAP which is intended to ensure consistent implementation of the Basel III framework.

The ECB issued a report on Financial Structures that shows that the median Tier 1 ratio in the banking sector increased to 14.4% from 13%.  It also set a higher capital hurdle for Greek banks in stress tests, which would potentially require them to raise billions of euros in extra capital.  This has been seen as a test for Greece's four largest banks to determine how much capital they need after the recent downturn in the Greek economy. After the Greek example proved that it is possible to lose money on sovereign debt, Bloomberg reported that Sweden’s Financial Supervisory Authority has told national banks to add risk weights to government bonds.

The EBF and AFME responded favourably to the European Commission consultation on the possible impact of CRR and CRD IV on bank financing of the economy. The Commission has referred six European countries to the Court of Justice over failure to transpose into domestic law the rules on BRRD - which goes hand in hand with CRD IV.

European regulation continues to pose problems for some financial actors: The heads of Deutsche Bank, BNP Paribas and the seven other biggest lenders in the euro area have claimed that ECB plans for tougher rules give advantage to US rivals. Europe’s prosperity and its influence on global capital markets are now at stake, according to the Financial Times, which claimed that larger European bulge bracket banks were unable to rebalance the American investment banks’ role in financing the global economy. But European countries may also ‘rebel’ against global rules such as those provided by the TLAC agreed by the FSB: Several European countries are taking action to water them down for their biggest financial institutions, causing concern among investors and EU officials. The FSB Chair Carney published a letter to G20 on financial reforms, noting that the FSB is making considerable progress towards its post-crisis reform objectives.


ECB's Mersch reviewed the Eurosystem’s Vision 2020 over the coming years, and said it will complement the Commission’s project to establish a CMU in Europe – a project which the ECB and the Eurosystem fully support. FESE, TheCityUK, German financial industry CFS, as well as British-Italian group AIFSD welcomed the CMU Action Plan.

European Think-tanks also assessed the final CMU Plan: CEPS deplored a lack of ambition and said the detailed proposals didn’t address the main problem in Europe’s capital markets; however Bruegel was more optimistic, and agreed on the need for more developed capital markets and less dominance of banks in financing.

Commissioner Hill outlined the urgent measures under the CMU: relaunching securitisation markets, establishing a European market for simple personal pensions, overhauling the Prospectus Directive, supporting venture capital, and developing a pan-European venture capital fund of funds.

The PCS explained the five key issues in the Commission’s securitisation proposal, and proposed solutions to the problems of the current proposals impact on bank capital. While AFME welcomed the Commission’s action plan for securitisation, Reuters reported that the French Banking Federation chief was sceptical about them.

The BIS published a paper on the impact of CCPs' margin policies on repo markets, and the Bank of England issued a report on OTC derivatives, central clearing and financial stability, saying that the concentration of risk within CCPs highlights specific challenges. ESMA published the responses to the Consultation on Review of EMIR Article 26 of RTS 153/2013, including a regulatory technical standard for CCPs on the time horizons for the liquidation period.


The European Commission adopted a number of amendments to Solvency II, concerning infrastructure investments, European Long-Term Investment Funds, the equity transitional measure, and Multilateral Trading Platforms. Fitch Ratings said that Solvency II infrastructure asset class with lower capital requirements would attract insurers.

ESMA published the responses to the Consultation on draft RTS under the ELTIF Regulation, one of them being that of EFAMA, which considers the ELTIF framework to be a concrete step forward on boosting long-term investment in the EU.

Bruegel produced a report assessing the options for European deposit insurance, given the problem of transition.

Asset management

PensionsEurope responded to the EIOPA consultation on the creation of a standardised Pan-European Personal Pension product, and commented that it was a matter of national competence. The Dutch and German industry organisations criticised the proposal and argued that demand for such plans would come only from the “happy few”, and fail to encourage workers to save more for pensions.

EFAMA and ALFI replied to the ESMA consultation paper on guidelines on sound remuneration policies under the UCITS Directive and AIFMD. EFAMA said it supports and endorses ESMA’s course of action to seek a proper alignment of the UCITS-specific draft remuneration Guidelines with the existing ones for AIFMs.

Financial Services Policy

The Joint Committee of the ESAs published its Work Programme for 2016, in which it will continue to give high priority to Consumer Protection and Cross-Sectoral Risk Analysis.



© Graham Bishop

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