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Economic and monetary challenges - Editorials - Last word

The European Union must accelerate urgently its financial projects – time is not on our side

By Wright David - President, EUROFI


Let me begin my remarks by thanking in advance the Netherlands Government and all its authorities for their cooperation, hospitality and warm welcome in Amsterdam.

This is my first EUROFI High level meeting in which I will be acting as your new Chair. I am deeply honoured to have been asked to fullfil this important function but acutely aware that I have a really daunting task to succeed Jacques De LaRosière. Jacques, as everyone knows, is simply irreplaceable. His leadership, great intellect and majestic contributions to financial policy over decades at the very highest levels of government and business and more recently as the driving force of EUROFI have been quite extraordinary. I will do my best to follow in his footsteps and ensure EUROFI remains, as it is today, the premium European gathering to discuss and debate the great macro and micro-financial issues of the day.

Let me thank all EUROFIs’ Members for their generous commitment to EUROFI and of course Didier Cahen and the EUROFI team for their very hard work and preparation of this meeting.

With EUROFI I am moving back to my roots – Europe and the European Union – from having been the Secretary General of a global regulatory body, IOSCO (the International Organization of Securities Commissions) for the last 4 years.

My years working at the global level have convinced me more than ever of the major benefits of integration and strong coordination of global and regional financial policy. This is becoming even more necessary as the global economy links up more and more every day with digital technology and as capital markets widen and deepen. It is fascinating to realize that almost all nations now realize they must develop their capital markets if they are to spread economic welfare and deliver much higher levels of per capita income to their peoples.

But whose standards will prevail? Ideally there will be cooperative outcomes for the key systemic issues, but not always. The enforcement tool box at the global level is weak – there is no Court to enforce, sanctions to apply or disputes settlement. I believe most countries around the world have quite similar ways of thinking as the Europeans – indeed they desire avidly more European leadership and coordination at the global level. There is I believe a huge opportunity for European leadership and leverage at the global level if the EU can express a strong, coordinated set of single views.

The main financial regulatory issues at the global level all have a major bearing on EU policy. Asset management-iquidity and leverage of funds; CCP resilience, recovery and resolution; wholesale market conduct, corporate governance and compensation; the “green” financing and infrastructure agenda and so forth. The EU needs to prepare leadership policies in all these areas. EUROFI can help identify the key points.

My third observation is that our understanding of the financial system remains sub-optimal at best. Data is partial, fragmented, tardy and unharmonized. How can systemic risks in complex, globally interconnected markets be identified in time with such a poor set of instruments to guide policy makers? A major effort needs to be undertaken to build real time data systems for the key indicators with an ambitious deadline. The new technologies, such as the blockchain, may be able to provide the way forward.

In the European Union the banking and capital market unions are of paramount political and economic importance. To build confidence and resilience. To widen the supply of financing instruments and strengthen the EUs banking system. They both need acceleration. Regrettably the EU does not have the luxury of time. 25 million people remain unemployed; public debt levels are still increasing and have risen tremendously since 2007 when this financial crisis began. European economic growth is on average still very low and has not recovered post-crisis; monetary policy is facing severe headwinds; and the European population is aging. Somehow demand has to be stimulated with the key structural reforms needing to be undertaken quickly.

There are no easy solutions. Certainly facilitating infrastructure investment (a global issue) with new financing techniques, standardization wherever possible to facilitate the buy-side etc. has to be one priority. Another, much less talked about, but I believe a hugely promising one is for the European Union to aggressively seek to capture all of its potential, substantial network benefits. What am I thinking of?

Jack Ma of Alibaba has said recently he wants to link every SME in the world to his trading platform, which is linked to the financial markets in China. Ambitious. But should we not in the EU be urging the EUs’ technology and telecom providers to build the seamless platforms so that any business in the EU can trade as easily with a company in the far reaches of the Union as it can with a company next door? In a common language; with transaction rating systems and full transparency? That vision could lead to a totally connected up EU, which if linked to the capital markets and the new financing technologies and techniques could provide much more innovative and cost-effective ways of not just trading, but also, for example, helping finance European SMEs which still remain Europes’ financing Achilles heel. It will also build large pools of investable capital. We should galvanize this debate immediately and encourage technology to help drive forward the development of the EU single capital market.

Another CMU policy area of prime importance for the EU is to build the pan-European, transferable pension funds it needs which, inter alia, could loosen some important rigidities in labour markets.

New risks are appearing in global financial markets: slower growth in China, deflation and commodity price falls, capital flight from emerging market countries, higher liquidity risks in bond markets, political tensions rising in many parts of the world, the proliferation of cybercrime along with enhanced market volatility which is not properly understood. The EU will be much stronger to face these threats, and others, if it is united, working constructively together and positioning itself for the future, not the past. “Chacun pour soi” is a recipe for failure.

So let us all debate openly these great issues and try to emerge from Amsterdam with a few key major themes for the future – those policy priorities that will make the European Union undoubtedly stronger for the future.

I look forward to seeing you all there.