Still trying to recover from the failure of rating agencies, governments, banks and regulators who did little to prevent the worldwide economic crisis, the European Union has set up a new system of overseers and enforcers to make sure it doesn’t happen again. They hope, because they will have limited biting power.   The EU is keen to forestall any repeat of last year’s financial turmoil, but has been torn between efforts to create a strong oversight structure and the concerns of member states such as Britain and Luxembourg to protect their own banking systems. “With this decision, Europe has taken its responsibility to put in place important measures that reduce the risk of new crises,” said Sweden’s Finance Minister Anders Borg, who chaired the meeting as current holder of the EU’s rotating presidency. The agreement to set up a pan-European economic supervisor and three separate bodies to oversee banks, stock markets, and insurance and pension funds, represents “real progress” in the fight to stave off future shocks, French Finance Minister Christine Lagarde said. EU members first called for a new system of financial regulation following the global turmoil caused by the collapse of the US market for poorly secured subprime mortgages. “There have been cases in the last year ... where it would have been useful to have cross-border agencies within Europe,” the head of Britain’s finances, Alistair Darling, admitted. But the search for compromise threatened to turn into a row between critics of the “Anglo-Saxon” banking model, such as France, and major banking centers, above all Britain, which saw its financial status as potentially threatened by the new regime. “The days when people talked about the competition between London, Paris, Frankfurt are not so relevant today: in reality what we’re talking about is the competitive position of London vis-a-vis New York, Hong Kong and other global centers,” Darling said. The new system is meant to balance the demands of the two sides by creating an EU-wide regulatory framework, but by offering member states guarantees that the watchdogs will not be allowed to force individual governments to bail out failing banks. The system creates an EU-wide “systemic risk board” to analyze developments in the bloc’s overall economy so that it can warn of dangerous developments such as excessive debt or exaggerated value placed on risky investments. Below that body will be three supervisors charged with overseeing developments in the bloc’s cross-border banking, share-trading, and pension and insurance markets. Those supervisors will be empowered to order national supervisors to act if a major multinational institution appears on the brink of collapse, threatening to take related businesses with it. Britain, which has been particularly hard hit by the financial crisis, had warned that those powers could allow EU supervisors to force national governments to spend billions on bailing out banks.
“We wanted to ensure that there were those agencies capable of working across borders, but that whatever they did, they couldn’t do something that would have fiscal consequences for individual member states,” Darling stressed. EU ministers therefore agreed that the supervisors’ decisions would be covered by rules limiting their ability to impose them on member states. “The authority shall ensure that no decision adopted under these articles impinges in any way on the fiscal responsibilities of member states,” Darling quoted the compromise text as saying. The compromise also allows member states who feel threatened by the supervisors’ decisions to appeal to the EU’s Economic and Financial Affairs Council (Ecofin), which can vote to reject the decision. If Ecofin nonetheless approves the decision, the member state in question can then appeal to the next EU summit, where decisions are traditionally taken by unanimity. That is “effectively a veto” over the supervisors’ decisions, Darling said. The decision will have to be approved by the European Parliament, which can still revise the rules.