This newsletter is part of the project “Towards a Global Finance System at the Service of Sustainable Development”, implemented by six European NGOs with the aim of ensuring that European economic stimulus packages do not impact negatively on development. Please follow the instructions on our mailing list server to subscribe or unsubscribe.

24 June 2010
The turmoil during the last months in the bond, derivatives and currency markets in the EU has shown how few financial reforms have taken place. Governments remain to have very limited control over financial markets, or even fail to have a good insight into the workings of those markets. The financial markets also exposed the weaknesses of the governance of the Euro and dangers of budget deficits that followed the bank bail outs, making governments react out of fear of further meltdowns. The budget cuts by many EU governments will hurt public and social services and are feared to undermine economic growth and job creation. No instruments for redistribution of wealth are being officially proposed, except for a bank levy and a financial transaction tax, which EU leaders finally endorsed and will promote at the G-20 after long pressure from civil society.

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On 18 May 2010, the European Parliament (EP) committee dealing with financial reform (ECON) adopted its position for a new directive regulating hedge funds and private equity funds, the so-called Alternative Investment Fund Managers (AIFM) Directive. On the same day the European Council of Finance Ministers (ECOFIN), which has co-decision making powers, agreed on a position regarding the draft Directive, which differed from the EP position. The main point of contention is the question of how to deal with funds and their managers domiciled outside the EU, who want to market their funds within the EU (‘third country’ issue). Jean-Paul Gauzès, the ECON Rapporteur on the AIFM Directive expressed his hopes to come to an agreement before the end of June, as the final EP vote in plenary on the Directive is scheduled for 6 July 2010. However, it is not sure the difference will be sufficiently resolved by then.

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May and June 2010 have been turbulent months on the currency and financial markets in Europe. Despite an enlarged EU-IMF 110 billion Euro package, announced on 2 May 2010, that allowed Greece to cope with high governmental debt repayments, financial markets remained sceptical. The Euro depreciated against major currencies because of increasing fears of large debts (not all governmental) in Spain, Portugal, Ireland and Italy. On 10 May, after the regional elections in Germany, the EU and IMF agreed on another 750 billion Euro package, with EU countries providing 440 billion Euro, as part of a three-year stabilisation mechanism that provides government-backed loan guarantees and bilateral loans to countries in the Eurozone which struggle to raise funds on commercial markets. However. more measures were necessary to keep the Euro more or less stable.

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The G-20 Ministers of Finance and Central Bankers met on 5-6 June in Busan, Korea, in preparation of the G-20 Summit meeting of Heads of State on 26-27 June in Toronto. They agreed that new proposals for strong capital requirements should be proposed by the next Summit in Seoul on 11-12 November. On other issues, differences have erupted between the different G-20 members, amongst others, about a transaction tax or bank levy, which EU member countries agreed to push on the G-20 agenda, budget cuts, which might restrict economic growth, and currency controls.

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As part of financial reforms to ensure financial market stability as well as equity, the EU has officially committed itself to tax governance, which the Council of Finance Ministers (ECOFIN) defined for the first time in its 14 May 2008 Conclusions as transparency, exchange of information and fair tax competition. On 8 June, ECOFIN adopted a Resolution to coordinate anti-abuse provisions in member states' tax policies, and required that the existing Code of Conduct Group on business taxation, which aims to stop measures that constitute harmful tax competition, continued its work, including starting a dialogue with Liechtenstein and Switzerland to apply the Code of Conduct in these countries. The European institutions increasingly acknowledge that tax governance is also an issue outside the EU, especially for development, since between 256 and 366 billion Euros “fly illicitly out of developing countries for commercial reasons related to tax avoidance and evasion […] by transnational corporations” (Eurodad). The Foreign Affairs Council on 14 June passed Conclusions that largely supported the Commission Communication on tax and development from April this year. This conclusion by the Foreign Affairs Council (FAC) served as a basis for the development of an EU joint position on the Millennium Development Goals (MDGs), discussed by the European Council meeting of Heads of State and Government on 17 June. However, civil society organisations argue that the FAC conclusions are insufficient in addressing key issues on development finance that works for the poor.

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The Greek debt crisis that continued in May and June 2010 has focused political attention on better control over the volatility and speculation of derivatives markets, which were blamed for making it more costly for governments to raise funds and making the value of the Euro slide. The European Commission, which has the mandate to initiate derivative legislation, has been under pressure by EU governments to regulate derivatives markets, especially credit default swaps, and abusive practices such as naked short selling. On 14 June, the Commission presented its first ideas on how to make derivatives more transparent and less risky by limiting defaults of payments. Written comments on these Commission proposals can be sent to the Commission by 10 July 2010, after which proposals for regulatory legislation are expected. A public hearing on commodity derivative regulation will take place in Brussels on 21 September, which different NGOs want to attend. In addition, the Commission intends to propose regulation on credit default swaps in autumn 2010. Other financial reforms announced by the Commission also aim at limiting too much instability and excessive risk or speculation in derivatives markets.

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In addition to regulating derivatives markets themselves, EU institutions and member states have focused on abusive and excessive speculative practices which were seen as exacerbating the Greek debt crisis and the Euro crisis in May and June 2010. The European Commission (EC) has launched different initiatives, in particular on short selling and naked credit default swaps, and is under pressure from member states to regulate more quickly, among others from Germany, which took unprecedented unilateral action and banned naked short-selling on 19 May 2010.

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On 10 May 2010, the European Parliament (EP) Committee on Economic and Monetary Affairs (ECON) adopted a stricter version of the Commission proposal on the creation of four new European supervisory authorities. These Members of the European Parliament (MEPs) demand more powers for European watchdogs, including the authority to suspend trading in certain products. One of the main reasons for the critical stance of the EP is the recent crisis and devaluation of the Euro, which was mainly triggered by the Greek governmental debt crisis. In contrast, the co-decision taken by the Council of Finance Minsters in December 2009 watered down the authority of the European supervisory bodies to keep more national supervisory powers and avoid having to use national tax payers’ money  for decisions or mistakes by EU supervisory bodies. Once the EP has reached a compromise with the Council of Ministers, the legislative procedure will be finalised with a full plenary vote in the EP, set for 5 July 2010.

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These past months, credit rating agencies (CRAs) have been heavily criticised by governments about their ratings, arguing these often do not assess existing problems and are swiftly downgraded once it becomes clear a financial crisis is looming. Such swift downgrading happened again with the rating of Greece, which had a major impact on Greece’s capacity to finance its debt, e.g. through the issuing of bonds. Spain, Portugal and Ireland had similar problems. The new EU Regulation on CRAs, adopted in 2009, is not yet in place, a new proposal by the European Commission (Commission) on 2 June 2010 to deal with CRAs will do little to solve the problems, and many solutions to the fundamental problems of CRAs might not be proposed before Spring 2011.

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June, Brussels (EC, ECOFIN), overview of future work on financial reforms until 2011
22 June, Brussels (EP), vote by ECON on reports on cross-border crisis management in the banking sector, remuneration in the financial services sector, and developing the job potential of a new sustainable economy
25 June, Basel (CPSS-IOSCO), deadline for commenting on OTC derivatives central clearing proposals
25-26 June, Canada–Muskoka (G8), Summit
26-27 June, Toronto (G20), Summit
28 June, Brussels (EP), ECON discusses report on CRD 4, and votes on a report on Quality of statistical data
2 July, Brussels (EC), Public hearing on the review of the Market Abuse Directive to include derivative markets, amongst others
6-7 July, Strasbourg (EP), plenary debate and vote on AIFM directive, new financial supervisory bodies and CRD 3 (indicative date)
10 July, Brussels (EC), deadline for submitting comments on proposals to regulate OTC derivative trading
1 September, Brussels (EC), deadline for comments on corporate governance in financial institutions
6 September, Brussels (EP), vote by ECON on CRD 4 report by Karas
20 September, Brussels (EC), hearing on Financial Instruments Directive (MiFiD)
21 September, Brussels (EC), hearing on commodity and carbon emission derivatives
October, Brussels (Council), final report of the Task Force on economic governance
October, Brussels (EC), proposals for measures on short selling/credit default swaps
6 October, Brussels (EP), plenary vote on CRD 4 report by Karas (indicative date)
9-11 October, Washington (World Bank/IMF), Annual meeting and probably meeting of G-20 Ministers of Finance
22-23 October, Gyeongju - Republic of Korea (G-20), Finance Ministers and Central Bank Governors meeting
11-12 November, Seoul (G20), Summit
December, Brussels (EC), proposal on review of capital requirements (CRD 4)(expected)
December, Brussels (EC), proposals to revising Market Abuse Directive (expected)
Spring 2011, Brussels (EC), proposal to review directive on financial instruments (MiFiD) (expected)
Spring 2011, Brussels (EC), proposal for further amendments to the CRA regulation (expected)

Click here > for more information and links to the NGO activities listed here below.




Campaign for a Financial Transaction Tax (FTT)
Many organisations inside and outside Europe have campaigned in favour of an FTT. This includes the petition which 45.000 people have signed online so far (an additional 10.000 people have signed on paper). The Robin Hood Coalition has collected almost 90.000 supporters.

Many activities by ATTAC Spain
ATTAC Spain has been very active on the FTT and many other issues related to reforms of the financial system, the economic crisis and alternatives, together with national movements and trade unions, and European networks.

NGO campaigns against tax avoidance and tax evasion from developing countries
The networks and many of their members have been making statements, writing letters to decision-makers (see for instance on 15 June 2010) and organising meetings against tax havens, capital flight and tax evasion. See the tax and development pages of the following websites: Eurodad, TJN, Action Aid and Christian Aid.

Campaign started on food commodity derivatives by WDM and other NGOs called to join
World Development Movement (WDM, UK) has started a campaign stopping banks and hedge funds gambling on food markets. Many interesting materials are supporting the campaign.

Jubilee in UK works on debt court
Jubilee UK is working towards an international campaign on a debt court (fair and transparent arbitration mechanism) and especially linking this into the EuroZone crisis.

BankTrack continues to work on more sustainable banks
BankTrack and its members decided on 8 June to continue to work on the EU reforms of the capital requirements for banks, and related risks assessments, as one of the ways to incorporate more sustainability in the banking system.

Some news from the US
On 17 May, a coalition of community organizations and labour unions, led by National People's Action, the Service Employees International Union, the AFL-CIO and Jobs with Justice led 3000 people in several hours of demonstrations and direction actions in Washington DC.

Some dates for your diaries