International

Last week the EU member states’ Finance Ministers came close to reaching an agreement on new legislation to counter irresponsible speculation.

Although our own Finance Minister Jeroen Dijsselbloem did say that the Netherlands wanted to go further, he also expects to vote to approve a watered-down compromise. This is the umpteenth example of the Commission’s uneven approach and that of the Council of Ministers: hard when it comes to reducing budget deficits and state debt, but those who really caused the crisis, the banks and financial institutions are still being handled with kid gloves.

SP Euro-MP Dennis de Jong.

The near accord among Finance Ministers concerned, amongst other things, bonuses and the amount of leverage which the financial institutions must maintain. For the bonuses, what’s proposed is a maximum of a year’s salary, but with an escape route, as with the assent of a shareholders’ meeting this can be increased to two years. These are of course still gigantic sums and, furthermore, the safeguards against linking bonuses to short term gains are minimal. Irresponsible speculation will thus scarcely be discouraged. A bonus maximum of 20% of annual salary proposed by the SP and the Labour Party in the runup to the Dutch general election, and included in Labour’s coalition agreement with the centre-right VVD, is a long way from the direction that Brussels is taking. Yet in a recent referendum the Swiss people imposed restrictions on bonuses.

Also in relation to the leverage that banks must maintain in order to be prepared for adverse results, no really thorough change was approved. Under pressure from the financial lobby the rules are, in comparison with the current rules, changed only slightly. Real, radical measures which would truly offer security instead of the appearance of such are absent. Mortgages, for example, whether or not bundled in opaque packages under pressure from the financial lobby, are now again exposed and may be resold in the event of bankruptcy. Yet it was the lack of transparency in relation to the selling on of mortgages that was at the root of the financial crisis.

The Finance Ministers aren’t alone in adopting this attitude. On 29th January the Financial Times reported that European Commissioner Michel Barnier, responsible for the reform of the banking sector, wants to soften rules governing the separation of banking activities, arguing that strict regulation will undermine European economic growth. In calling for such, the Commissioner was distancing himself from the report of the advisory body headed by Finnish former Commissioner Erkki Liikanen, which recommended just such a strict separation, in order to avoid banks having to be saved by the taxpayer on the grounds that they are ‘too big to fail´. Once again the Commission shows itself to be spineless.

In 2011 the SP drew up dozens of action points for dealing with irresponsible speculation and to bring stability to the financial-economic system. At the time the Commission promised extensive new legislation to bring the financial sector under control, a process for which our action points were relevant. Two years later, it’s apparent that all of these plans came to very little and that ideas behind which there was broad consensus have been watered down under pressure from the financial sector. That goes for the splitting of banking activities, the establishment of a non-commercial European credit ratings agency, but also for the introduction of a transaction tax, which has been put into place in only eleven of the twenty-seven member states.

We can go on like this for a limited time, but the fact is that financial institutions such as Goldman Sachs can continue to rake in the profits with little hindrance from any tightening of surveillance. They have the world’s policy-makers, and certainly those in Brussels, under the thumb. If the kid gloves aren’t removed and the financial institutions aren’t tackled, the public will continue to be disgusted by the structural flaws in the international financial system.

This article first appeared, in Dutch, on the website joop.nl on 15th March.