(Oct. 3, 2008) The repercussions of the recent financial crisis in the United States have already been felt across the European Union and in other markets as well. On September 30, 2008, in response to the failure of the U.S. House of Representatives to approve a US$700 billion bailout bill, Johannes Laitenberger, a spokesman for the European Commission, called the lack of agreement “disappointing” and stressed the significance of the U.S. Congress reaching an agreement soon. However, EU leaders turned down U.S. Treasury Secretary Henry Paulson's suggestion that they follow Washington in adopting a bailout scheme. Currently, the EU is focusing its efforts on restraining the problem within its borders by taking measured steps suited to the actual situation in Europe. (EU Prepares 'Structural European Response' to Contain Financial Crisis, AFP, Sept. 30, 2008, Open Source Center No. EUP20080930109202.)
On October 1, 2008, in a speech pertaining to the financial crisis, the President of the European Commission, Jose Barroso, recognized the gravity of the economic situation in the United States and affirmed his confidence, in light of the measures taken across the EU since the unfolding of the U.S. crisis, that the financial system of the European Union “can cope” and “has the ability to respond.” Barroso, while underlining the leading role of the European Central Bank in making sure that financial markets across the EU retain their liquidity, emphasized the need for credibility of the financial system. (Press Releases, SPEECH/08/479, Europa, José Manuel Durão Barroso, President of the European Commission, Remarks of President Barroso on Financial Crisis (Oct. 1, 2008), available at http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/08/479&format=
Barroso stated that the EU is getting ready to put forward “a structured, and a truly European response” (id.). It will consist of short-, medium- and long-term plans. The immediate plan is for close collaboration among all EU leaders, including France, which holds the Presidency of the Council; the European Commission; the EU Member States; and the Member States' central banks, along with the European Central Bank, to assist companies that are experiencing liquidity difficulties. For instance, on September 30, 2008, Belgium, France, and Luxembourg joined forces to grant €6.4 billion (about US$9 billion) to the Dexia group (a Belgian-French Fortune 500 financial services company) to prevent its collapse and ensure its viability. (Id.)
The medium-term plan entails the final adoption of a proposal put forward by the European Commission on October 1, 2008, in an effort to strengthen the stability of the financial system across the Union. The proposal, which was drafted after extensive consultation among the European Commission, international partners, industry, and the Member States, amends the existing EU rules on capital requirements for banks. The rules include two Capital Requirements Directives, 2006/48/EC and 2006/49/EC, whose main objective is to ensure that banks and investment firms are functioning efficiently and are financially sound. Highlights of the proposal include the following measures:
- establishing restrictions on the amount of bank lending to any one party; As a consequence, banks will not be able to lend money to other banks beyond a certain amount.
- improving supervision of cross-border banking groups through the establishment of clearer and more transparent rules on rights and obligations of the appropriate national supervisory authorities;
- improving the quality of banks' capital, through the
- establishment of criteria to evaluate whether 'hybrid' capital, which includes both equity and debt, qualifies to be included as part of a bank's total capital;
- improving liquidity risk management for banking groups that engage in business in several countries across the EU; and
- improving risk management for securitized products, thereby tightening the rules on securities debts.
The proposal is being forwarded to the European Parliament and the Council of the European Union for further review. (Press Release, IP/08/14333, Europa, Commission Proposes Revision of Bank Capital Requirements Rules to Reinforce Financial Stability (Oct. 1, 2008), available at http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1433&format=
For the long term, Barroso outlined the following critical elements suited to a European response to the financial crisis:
- refining the rules on evaluating complex assets, including adopting accounting rules;
- improving the consistency of deposit guarantee schemes;
- increasing the transparency of executive pay; and
- reaffirming the EU's commitment to increase economic growth and employment rates.
Barroso, while emphasizing the need for global solutions, stressed that the Commission supports the initiative of the French Presidency for an international conference on the crisis. (Barroso, supra.)
In addition, the French Presidency called for a European financial summit to be held in Paris on October 4, 2008. Barroso will attend, along with the chief of the European Central Bank and leaders from Great Britain, Germany, and Italy. Germany and Great Britain have already stated that they are against any European bailout plan. A BBC correspondent remarked that “Downing Street prefers the case-by-case, nation-by-nation solutions that have been happening so far.” (European Summit on Finance Crisis, BBC, Oct. 2, 2008, available at http://news.bbc.co.uk/1/hi/business/7648249.stm.)
Meanwhile, bank leaders in the United Kingdom became alarmed and expressed concern over the adverse effects that the recent unilateral move by the Irish government to protect all deposits, bonds, and debts in the biggest banks for the next two years may have on their own banks. (Id.)