Toespraak eurocommissaris Rehn over het toezicht op de financiële sector (en)

Ladies and Gentlemen,

Let me welcome you from my part to the conference as well.

I agree fully with Michel Barnier i's views on the new supervisory authorities. In particular I strongly share the wish that the new architecture should bring about a cultural change in supervision: learning to see not only beyond the individual financial institution but also beyond the national borders in our Union.

Let me explain this further from a macro-financial point of view.

In the European Financial Stability and Integration Report that we present today, we underline the importance of financial integration in the EU. A larger and unified capital market should lead to a better risk diversification and efficiency, and thus contribute to stable growth. This should, in principle, also true on the global scale.

However, the crisis has demonstrated that this did not function well. During the last decade, our integrated financial market channelled the savings from countries with slow growth in domestic demand to countries with current account deficits, where domestic demand was thriving with credit booms and increasing wages and prices.

In Europe, to some extent, this was sign of our integrating EU economy, as some Member States have been catching up and for whom the euro allowed better access to international capital markets.

When the subprime crisis started to unfold in 2007, we were first concerned with the health of individual financial institutions. Only post-Lehman it became clear that the crisis was systemic.

At that time also, the macro-economic imbalances in the EU were at their peak. Soon it became evident that the financial sector could not absorb the risks it had taken, and subsequently the public sector needed to step in. This exposed to crisis those countries where imbalances were large, where public finances were not in a good shape and where there was a lack of structural reform.

Yet, there had been warnings. Professor Martin Hellwig, who will speak in this conference in the afternoon and who is well chosen to chair the Advisory Scientific Committee of the European Systemic Risk Board (ESRB), has warned about the increase of systemic risk in integrated financial markets for (at least) the last 20 years. The Commission has initiated many excessive deficit procedures and consistently reminded Member States of structural reforms. But neither markets nor politics provided the necessary discipline to prevent the accumulation of these harmful imbalances.

It may have taken time, but eventually Europe has demonstrated its capacity and will to act on all fronts. Precisely one year ago, on 2 May 2010, the euro area agreed on the loan package to Greece in order to prevent a meltdown of our financial system. This has come with strict conditionality for fiscal and structural reforms. Within this one year:

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  We have created effective stability mechanisms, first temporary and then to be turned permanent as of 2013;

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  We are implementing a very systematic programme of fiscal consolidation, and undertaking unprecedented structural reforms;

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  We have addressed the systemic weaknesses in EU economic governance to prepare for a profound change in the policy-making landscape in the European Union;

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  We are addressing the shortcomings of our integrated financial market by toughening financial regulation and implementing the new supervisory architecture.

All in all, we have given a comprehensive response - in the language of supervision, I should say we have given a systemic response. Let me stay with the last point (supervision) for a moment, before I turn to financial stability at the current juncture.

With the strong support from the European Parliament, and here I want to thank Sharon Bowles and other members of the ECON Committee present here today, Europe succeeded in making the new supervisory architecture operational within just one year. It is absolutely important that the new EU micro-prudential supervisors maintain a high level of credibility from day one, and I warmly welcome the firm stance Andrea Enria has taken in the ongoing EU bank stress tests. The stress tests are a key step for resolving the crisis and indeed a litmus test for the new supervisory architecture - and culture we are implementing.

With the ESRB, for the first time an EU body has been exclusively mandated to look at macro-financial stability, crossing the boundaries of micro-prudential supervision or monetary policy. The combination of very different actors (central bankers, supervisors, Commission, academics) of all EU Member States should ensure much better knowledge of information, ideas and best practices. As a member of the ESRB I see this combination as one of its great assets.

The ESRB warnings and recommendations can be addressed to the Union as a whole, to individual Member States, and to supervisory authorities. The identification of emergency situations is important also because, if confirmed by the Council, the micro-prudential authorities have some more direct powers (in contrast to the ESRB).

One could say that the ESRB has "soft" (i.e. non-binding) powers. But we have proposed a policy framework as part of the economic governance package, namely the Excessive Imbalances Procedure, whereby imbalances and macro-financial risks can be addressed - and even sanctioned - at the EU level. Achieving consistency with the ESRB is an obvious challenge of which we are fully aware, and I am confident these two analytical instruments can be made mutually reinforcing and thus help us to prevent harmful imbalances in the future.

Ladies and Gentlemen,

Before concluding let me say a few words about the current situation.

In the present juncture, financial stability is safeguarded by the stability mechanisms and by the actions that the vulnerable countries are taking. But some people argue that the crisis management strategy with regard to Greece in particular is failing.

I disagree with this analysis. The aim of the strategy has been to prevent repeating a cardiac arrest in the financial market that followed the failure of Lehman Brothers in September 2008. We have done that, and this has safeguarded the ongoing recovery in the real economy.

Secondly, we have been able to largely contain the distress in the sovereign debt markets to three more vulnerable countries, Greece, Ireland and Portugal. As seen in the bond spreads, Spain is decoupling from these three countries, thanks to its determined policy action in fiscal, financial and structural fronts.

Thirdly, the programmes in both Greece and Ireland are still in early stages. Both countries have started very ambitious fiscal consolidation programmes, structural reforms and financial sector restructuring. Our analyses show that the debt-to-GDP ratios stabilize and start to decline, on the condition that the programmes are fully implemented.

In this context, I have to say that the proponents of debt restructuring seem to ignore the potentially devastating financial stability implications for the country itself and the euro area as a whole. I repeat that debt restructuring is not part of our strategy and will not be.

Ladies and Gentlemen,

To conclude: Improved financial regulation and the reform of economic governance in the EU are profoundly changing the economic architecture in Europe. A whole new set of rules will provide the basis for more stable and sustainable growth.

In the meantime we need to continue our fire-fighting to safeguard the financial stability in Europe.

Thank you very much!