Back to Event Page for Neelie Kroes

FREDERICK KEMPE:  Welcome, everyone.  I’m Fred Kempe, president and CEO of the Atlantic Council of the United States.  I’m delighted – well, except for the turning-out of the lights – I’m delighted today to launch a new series of events mapping the global economic and financial future.  This series will be a platform for discussion about the rapidly shifting changes presented by the global financial and economic crisis.  We’ll bring together the highest-level policy and business minds here to explore approaches and solutions to the current economic turmoil as well as solidify transatlantic cooperation in leading the global economy toward the future.

One of the coming events here will be May first at 11:00 with the CEO of Deutsche Bank, Joseph Ackermann.  But I’m particularly delighted that the first event of this series, we’re hosting Neelie Kroes.  And I’m delighted for three reasons.  One of them comes out of my own history as editor of the Wall Street Journal Europe, because it was really your DG that made the U.S. Wall Street Journal take notice of coverage from Brussels.  Had it not been for Mario Monti’s actions during the General Electric-Honeywell adventure and Jack Welch’s discovery of the city of Brussels – (laughter) – I think I would have had far fewer square inches of space allotted to me in the U.S. Wall Street Journal.  So I think what’s clear – whoops – I don’t think it’s a – okay – ah, somebody tried to get into the door illegally.  I just want to show you, commissioner, that security is very good here.

The – and I think what’s important about that is it is the – and I hope I don’t embarrass you with this – but it is the one commissioner position that has true global power.  And we knew that, and it was the earliest sign of the European Union in its role as an economic, as a regulatory superpower.  This commission position is responsible for mergers and acquisitions, cartel, antitrust and state aid.  I’m not going to introduce the commissioner; that will be done by Ambassador Boyden Gray, which is the second reason I am so delighted by this event.  And that is that we have been able to welcome Boyden Gray back to Washington.  It’s a loss for the European Union, it’s a gain for the Atlantic Council, where he’s come back onto our board.

There’s a third reason why I’m delighted about this event tonight, and that is to highlight the work that we’ve been doing on the European Union.  Everyone knows the Atlantic Council as a place where people talk about NATO, where people talk about hard international-security issues.  The fact is, we’ve been doing just as much, nearly as much work on European Union business and financial issues all along, but we haven’t done as many public events around this.  And so this is also a launching of a public event series that will focus much more on European Union leaders and European leaders as they come through town, to provide them a platform.

And I’m going to cheat and give a fourth reason why I’m delighted about that, and that is of course launching this speaker series to do with the global and financial crisis.  I’d like to thank our distinguished board members and representatives of the diplomat community for being with us today.  I’ve just seen Bruton, ambassador of the European Union delegation come in.  Thank you so much for joining us tonight, and to other members of the diplomatic community as well.  And we hope you’ll all participate in the discussion.

So with that, it’s my great pleasure to introduce C. Boyden Gray.  He is a former U.S. representative to the European Union.  We would call him in shorthand the ambassador to the European Union, and a member of the Atlantic Council’s board of directors.  He served until recently as the special envoy for Eurasian energy diplomacy and was previously the special envoy for European affairs at the U.S. Department of State.

In his extensive career in public service, he served the U.S. government as White House council in the administration of George H.W. Bush, who we’ll be honoring on April 29th with our Distinguished International Leadership award, and he’s been one of the principal architects of the 1991 Clean Air Act Amendments.  And you know he’s always been soft-spoken on any issues to do with the economy and energy in Brussels.  So we’re delighted that Boyden could be with us this evening for this special occasion, and I turn the podium over to you.

C. BOYDEN GRAY:  I always get nervous about people introducing people to introduce people to introduce people, and so, Commissioner, I will try to be very, very brief.  I want to point out to everyone here that I was special envoy for a period.  I actually double-hatted, I had two special envoy tasks, which now of course has become quite fashionable with Senator Mitchell and others, Dick Holbrooke, but my last night in Brussels – you probably don’t know this – I couldn’t go because it was my last night, but I was invited to a dinner given by the commander of the European Defense Force, and a British general.  And it was very, very nice of him to send me a copy of the guest list, which identified me as C. Boyden Gray, U.S. special convoy.  (Laughter.)

I think Fred has given you a brief indication of how important her responsibilities are.  It is, in many ways, the most important, most powerful position among the commissioners in Brussels, because it is really the only authority that is totally within the control of the EU commission.  Everything else is a shared authority in one way or another, with the possible exception of the trade negotiator, but it is really unique in its sweep.  And it is the glue that holds the European internal market together, it is a very, very important position.

It’ll be of increasing importance in this economic slowdown as we try to guard against protectionism.  Protectionism will come in, not in the form of tariffs, but in the form of very, very clever regulations, very, very clever forms of subsidy.  And I know that Neelie Kroes will be on her guard about this, but this is where we must focus attention as we work through the financial difficulties.

I would also like to say that the cooperation between the EU and the U.S. on antitrust-competition matters is probably the best example of EU-U.S. cooperation, and if we could replicate that, clone it for all segments of the regulatory world, we would really be in great shape.  And I remember going to – always, for me, the best party in Brussels was Paul Anderson.  He’s head of a think tank, would have this RAND party, and it would be like, you know, a commissioner or staff safari because you didn’t have to walk more than two feet before you would meet some very, very high-ranking staffer.

Philip Lowe was there the three or four nights after some unnamed country did a midnight raid on the competition authority in the Lisbon Treaty.  And this was a topic of intense discussion throughout the evening.  People were in absolute panic mode when that happened, so it’s an example of how important this power is viewed in the European Union.

Personally, she has offspring here in the United States, so she’s sort of American.  She has been an economics professor, she has been a university president, she has been on many corporate boards, and there’s no one more qualified to do this job than she, and I have had a great deal of fun with my intersections with her when I was there.  So thank you very much for coming here.


NEELIE KROES:  Good evening, everybody.  Thank you so much for giving me this opportunity and let me start that I’m delighted that my DG competition could be of help for the Wall Street Journal.  So anyhow, I’m aware that at that time, it gave you performance in – not only in Europe, but also in the U.S.

If you allow me just to make a few remarks up front for – and I’m aware that this is a most distinguished audience and that are you are well informed, but just let me explain to you what is remarkable for me in Europe.

It is what has happened in the ’50s.  In the ’50s, when six men, no women, they were at home at the time, but that – when six men took an initiative to just take the first step into a united Europe.  And at that time, the founding fathers, six member states, were taking the initiative to come to a close cooperation, close cooperation and especially in the economic sector.  And those six were already improved, improved – improving and impressed by what was going on in the United States.

One of them, Jean Monnet, had great ties with Harvard, and he was influenced by a couple of professors in Harvard, so when they were writing at that time, at that time the Treaty of Rome, they were just focusing on a special chapter on competition policy.  And I need that remark to give you a bit of background what is really in the competition policy portfolio.

At that time, in the ’50s, and I think it’s remarkable and I’m impressed by that, they took the initiative to put into that chapter the phrase that state aid is forbidden.  Can you imagine nowadays that in the ’50s already, those wise men were taking that line?  State aid is forbidden, and they were aware that it perhaps was not completely in line with real life, and they add to that line, it is only allowed – and that was what they got from the Harvard professors – when a market failure is noticed and when it could be a medicine for a market failure.  But – and they went on in that line – then, it should be very timely, limited and it should not be a big disaster for competition.

So that taking into account in the ’50s, it is still very here important nowadays.  And when I am mentioning to you what’s all in portfolio, I could of course explain to you that it is about mergers and acquisitions, and you were already touching upon that one.  It is about antitrust and cartels, and you are aware of that, that is also one of those quite important issues.  And it is about state aid.  I am always saying, my shareholders, if you allow me to say it that way, my shareholders are taxpayers, for state aid is all about taxpayer’s money.  So we should take into account that that is spent in the correct way, and I am always discussing it with my own people that when I am walking in the street or when I am entering a pub or whatever – no time for entering pubs, but now and then I am passing one – (laughter) – at that moment, when someone would ask me, how are you spending my tax money, that I should give an answer that is convincing.

Having said that, while the epicenter of the current crisis was the financial markets here in the U.S., the ripples have spread across the oceans, and ripples is a bit of an understatement, so to say.  And every country is now struggling to keep its hat above water and out of the riptides of this first truly global recession of modern times.  It is indeed facing us with globalization, and then not the positive part of it, and I am very much in favor for globalization, for our world is now so interconnected that it can bring the other side down, so to say.  So as we face this recession together, and it is together, we need to fight it together, and it is a combination.

And on that front, I am relatively optimistic.  We may differ in details, but you and I are never sure we share the same strategy.  And we are, roughly speaking, applying the same tools.  The American and the European approaches to this financial and economic crisis are increasingly converging, and I will get back shortly to some of the tools I think it’s important that we agree not to apply.

President Obama has struck a course of action, and the course of action here, which involves helping the economy back on its feet with increased public funding investing in a greener and brighter future.  In November, we, Europe, adopted a recovery plan with essentially the same core messages, also about stimulating and talking about money.  For those who are not in favor of fiscal expansions, this plan is clearly a step out of the comfort zone, and I am sure it was also a step out of the comfort zone for the U.S. to spend taxpayer’s money to save ailing financial institutions.

We have come through similar experiences on our side of the Atlantic.  As a lifelong believer, and some of you who know me a bit more, and the ambassador is certainly aware of that, for we have fairly conversations, discussions on that issue, I am a strong believer in free markets.  With the job that normally involves fighting for less and better-targeted state aid, I can tell you, ladies and gentlemen, that approving dozens of bank rescues was the last thing I expected to do in 2008.  And to do this, we had to activate a special provision in our constitution that allows for state intervention when there is a serious disturbance to our economy.  And that was already a line from the ’50s on.  But special times call for special measures.

I often think that 10 or 20 years from now, my granddaughter, and the ambassador was already touching upon her, who, by the way, is an American citizen, I am aware that she may ask me about this crisis, and that she will ask me, Grandma, did you stood up and did you do all what we could do to fix it for me and for all my generation girls and boys, so to say?  And I want to be able to tell her that I did.  So that is my main issue today.  And my stock, my members of cabinet, my members in the Directorate General will be able to say the same to their children –  and I’m not saying their grandchildren, they are much younger than I am, so I am talking about their children.

And as a matter of fact, we expanded our crisis team so quickly that we are now working in part – and you won’t believe it, Mr. Ambassador, time have been changed – we are working in part out of temporary containers in our courtyard, for the building is too small and I badly need more space, so to say.  And that was one of my worries at a certain moment.  My people were working seven days a week, day and night, so to say, and that means also during the weekends.  And none of them need a retention bonus.  (Laughter.)  They do it because they believed in getting our markets working again.

That is one of those issues that I am fascinated by, for we are paying our people not too bad, not at all, so and some of them are joining me, so I will be in line with diplomatic language, so to say.  But when I compare their wages, their salaries to the law firm salaries, I can assure you that they are earning not that amount of money.  So in the outside world, they can earn three or four times more, and still they stick to their job or they are joining our services.  Why?  Because they believe in Europe, because they are intrigued by our responsibility, because they think it is a must to deal with this crisis in a positive way.

And I am grateful for them, and that is one of my absolutely straightforward arguments.  It’s not only about money in this world, it’s also about a involvement in what you can do.  And Mr. Ambassador, you are one of those examples of the U.S. who also served your country without taking account if you got a bonus, yes or no.  So let’s follow that type of examples.

Last week, Professor Paul Krugman, the economist, paid us a visit in Brussels, the Nobel Prize winner, and I invited him for a cup of coffee in my office.  And I’m sure many of you are New York Times readers, so you will know, Paul can be a harsh critic of U.S. policies.

Last week, Europe came in for a special treatment by Paul and he called us a continent adrift and I said or I shared with him a discussion in – first in a panel but later on when he came over to my office – and I mentioned to him, Paul, are you aware the differences between the U.S. and Europe?  And, of course he said, yes, I’m aware.  And I said, well, just give me one split second to mention again that Europe and talking about the European Union, we are 27 member states; we are not one country and we are one single market.  Yes, we are and we are proud and I think it is incredible for within a bit more than 50 years, we indeed are a single market and we are filling in that one.

But having said that, I understand why an outsider also, Paul, may look at Europe and may wonder if we are up to the task.  But let me make it clear:  We are not adrift and we are just doing our utmost to tackle this crisis too.  Europe already has the medium-term and long-term policy settings right: an efficient, single market that fosters equality of opportunities rather than outcomes.  And that is what has delivered us the most prosperity for the longest period of time in Europe’s history.  So within a bit more than half a century, we indeed gave a lot of welfare to 500 million Europeans.  We have, also, relatively strong, wealthy states.  And let me add to that, with our quite strong welfare status, there is an automatic stabilizer that will help cushion some of the things that a recession brings.  And more importantly, we understand what is at stake.

While we lack some of the benefits of a centralized federal system, we also have advantages.  As European’s competition enforcer, I have a seat at the decision-making table of Europe’s administrative body, the European Commission and I’m aware that competition policy is the instrument in building Europe in a stronger position.  And that ensures a voice for open markets, backs up our constitutional obligations when the big decisions are made and our structure means all 27 commissioners must take responsibility for defending our open, competitive markets.  And it is a challenge to be a member of such a group, so to say.

That was one of my biggest positive surprises, for I saw this bit of business experience from former days that being a member of a commission where 27 members were joining the table, that’s a bit too much to come to a decision-making process, so to say.  I can assure you that it’s not only the number that is impressive at the table – 27 different cultures, different languages – 23 different languages – we are not using all 23 languages but it is the background of my colleagues and myself, and of course, different political backgrounds.

And, still, with all those impressive points, it is going well and you wouldn’t pick out this organization scheme for your business or for your bank or for your institution.  But, anyhow, it is working and what is more, as an appointed body, we operate without bending to the popular, short-term pressure that many politicians now face to protectionism or yet more earmarks.  And as I look at the top three tasks on my desk right now, that is absolutely crucial.

The first task is fighting to ensure that we all stay out of the protectionist trap.  We need to fight this temptation at all costs and I can assure you it is a tough job.  The second one is taking drastic measures to repair the damage to our financial systems.  We have avoided meltdown but that’s not enough.  Until we fix the banks, no amount of government spending can fix the real economy and the sword is not going soft on competition enforcement, cartels, antitrust, and so on and so on because it will help us out of recession.

I understand why politicians are tempted by protectionism, of course, and I get your situation in the U.S. but I can mention to you that quite a number of member states are doing the same or trying to do the same.  I feels like a quick fix to the human pain around us but telling your citizens to buy American or buy Spanish never ever works.  Protectionism is addictive and don’t ever listen to those who propose temporary measures.

History tells us who proposed and that, I think, that the only temporary part is the commitment to repeat it and it is, if you allow me to say so, like pregnancy.  You think it’s about nine months but I can assure you, there are decades of consequences.  (Laughter.)

And real leadership requires that we stand up for the policies that will help the most people over the longest period and protectionism never does that.  And that is my discussion with President Sarkozy now and then, so to say.  (Laughter.)  And I’m fighting, I’m fighting against it on my side of the Atlantic and I hope you are on yours.

The next stop is avoiding the threat of zombie banks and giving the surviving banks the best of chance at long-term health.  The lesson from the long Japanese recession is that that it is essential to get back on our feet.  Europe’s rescue and restructure system for government aid means all eight must be following by restructure to minimize distortions of competition.  And that is the most challenging part of the whole operation we are facing now.

But to make those restructures effective, we need full transparency about the state of banks, imperiled and toxic assets, and that’s what we discussed just before this meeting.  It’s not only about money.  It’s not only about impulse in fiscalization or whatever.  It is, in my opinion and that’s my personal opinion, it’s made to restore confidence and you can only restore confidence when you have the correct information.  If you don’t really know what is in the closet, then how can you talk about confidence?  How can you when you are not aware of how your own closet is in engulfed in this one?  How can you restore your confidence?

So half transparency and half solutions won’t help for a split meter.  Banks will have to share all of the information about their imperiled and toxic assets if they want the public purse to be available to them.  And that is one of those issues that I sincerely hope – and I am aware that some of you are bankers and you are the good ones rather than – you wouldn’t chair this event.

But, having said that, how can we be transparent to each other and we need to know what’s it all about for, otherwise, we can’t make deals.  And some banks may have been too big to fall and to fail but they are not too big to restructure.  Get that line, please.  And not all of them accept that reality and it has to be reality that is accepted.  And what I did in the past few weeks after all those dossiers that we have to judge and that we had to approve and it was not a rubberstamp operation, so to say; it was really a tough negotiation with the governments and with the banks and financial institutions involved.

And after all those more than 45 dossiers, at a certain moment I asked one of my cabinet members to join me in bilaterals and we invited CEOs of banks and financial institutions.  It was really an experience.  So, of course, it was confidential.  It was not to be quoted.  It was to get more information and it was opening and hold new roles.  For then, we were even more aware that if we are not successful in giving the right information at the right moment that we are not solving this crisis for the moment.

And if I am mentioning that not all of them accept the reality that you can’t ask for taxpayers’ money, so to say, and not giving complete information, well, that is, anyhow, what I was discussing with those CEOs.  They all told me that their own bank is sound but that everyone else is in trouble.  (Laughter.)  Obviously, some of them are still in denial and that was – if you were asking me what was the most surprising point, after all those 15 meetings – the bilateral meetings for you, it was that some are still in denial.

But if it takes some tough love to make them face up to their responsibilities, that is what they will get.  Taking a longer-term view, ladies and gentlemen, I think it’s clear to everybody that we need better regulation, tighter supervision of the banks and so on and so forth.  In Europe, we believe in free markets but it’s now clearer than ever that we can’t leave them on autopilot; we need tougher regulations.  There can be no more room for tricks and circumventions.  We need more transparency and accountability and we need closer cooperation in the international community.  We all denounce the greed that brought us this mess but we should not kid ourselves.  The greed does not go away just because we ask it to.  We have to rebuild our systems.

And banks aren’t the only ones on the receiving end of tough messages.  Everyone must be told that there are no quick fixes and it would be appalling to make light of the pain people are suffering but this recession also has to be a wakeup call.  And what I am sometimes saying, it is a catharsis, one that shakes up the ideas that can get something for nothing.  There are is no free lunch.

And it is a good thing that hard work and innovation is what make your country great because that is what is needed now.  Competitive markets are, by definition, hard work but they offer the best chance of recovery.  We need them so that those who seek the opportunities in the midst of the crisis can grow and deliver the jobs that we need to get out.

That won’t please every person that has lost a job or politicians being hounded to save this company or that plant but the point is that nobody is pleased by the situation and we shouldn’t expect to be pleased.

Just let me conclude, ladies and gentlemen, by saying that while I have no illusions that next year or two will be messy and hard, I remain fundamentally optimistic.  I could be an American.  History has posed us with greater challenges, so to say, than this and we met them.  Sixty years ago, Europe stood amidst of rubbles of the Second World War.  You were of help.  You were giving your second people, the younger generation, for our freedom.  Back then, things looked far more helpless than they do today.  Yet, with hard work and support from Marshall Fund, we secured, at that time, a better future, a future that brought us decades of prosperity and the European Union that has sent me here today.

And today’s stimulus packages on each side of the Atlantic are much bigger than the Marshall Fund ever was.  We can do great things with them too and that is what is really motivating me.  I was born during World War II and I remember being a very small girl at that time when you did the job with the Canadians and with the Australian guys.  But we owe you, at that time, quite a lot and that we, indeed, with your help at that time, we built up a position for a part of Europe.

And later on, after the ’50s – after the positions of those six member states, if you would have mentioned to me in the ’70s and the ’80s, when I was a member of the Dutch government and when I was joining the European Council from minister of transport, when you had mentioned at that time that in 2009 we would not be anymore with just a small number of member states but that we would be with 27 member states – and that means that 12 of them from the former communist system that we are one family now; that we do have a single market; that we do have a euro – then if you would have mentioned that and adding to that that I would be a commissioner for the competition policy in 2009, I can assure you that I would have advise you to psychiatric hospital.  (Chuckles.)

And still it is reality and I think with that reality that we could make out of such a different system of way of approaching economic systems at that time that nowadays in Europe, we can deal with this crisis too and that, at the end of the day, if we stick together – and I mentioned that it is a global problem – that we, together with the U.S., we will find our way through this crisis.  And at the end of the day, my granddaughter will say, Grandma, you didn’t do it that badly.  Thank you so much.  (Applause.)

MR. KEMPE:  Excellent comments, clarity in vision, very powerful, characteristically, and also with a very interesting historical perspective.  So thank you for that.

Let me ask a first question and then I’ll go immediately to the audience.  You speak with great optimism.  There are some who believe this is the first test by fire of this magnitude for the sort of postwar European Union.  Do you agree with that?  And if so, what aspects of this disappoint you?  And let me make that more specific because I’d like you to answer that generally but also specifically.  How are member states with healthy banks responding to bailouts of – in the member states with not-so-healthy banks?  And here I’m also thinking, in particular, about the new countries of the European Union.

MS. KROES:  Just to start with your intriguing question: is it the biggest challenge, so to say, after World War II and after starting the European Union, it certainly is but don’t underestimate and it is, of course, always your last impression is making the most impact.  When the 12 member states were in their former situation, they were already looking forward to a membership of the family and I’m talking about all those members of the family in the eastern part of Europe under the communist system.

Don’t underestimate that those people, and rightly so, did have the courage to resist that communist system and that they were expecting that at a certain moment, they could join the European family.  And that was not only joining the European family; of course, they were thinking of the welfare that was connected with that.  And I think that we could manage that process to give them the position within the family is also something that is a challenge that can’t be underestimated.

And there is no way of treating them in a different way, at the moment, so it is a challenge.  It also can have a positive point.  If you allow me to say it, I’ll take a bit more time for that.  We were all used to a situation that, every year, was more welfare, was more opportunities, was more and so on and so forth.  It was not any more that we were critical if it makes sense.  And at a certain moment, we were faced with the environment that, if we were going on like that, that the consequences for the next generation should be a disaster.  And therefore, I’m so happy that also, in your country, there is the recognition of the importance to come to a global deal on the environment.

Just coming back to your point, we need to be quite clear what has to be done for tackling the crisis, but never ever go back to a situation where we weren’t taking the lessons out of this situation – bailout and the Eastern European member states.  I think that it is, if you allow me to say so, it’s too easy to say that their banks are more in problems than the banks in the Western part of Europe, and that we have to take – it depends on what member state you are talking about, but quite a number are faced with the daughters of the mothers in the western part of Europe that are in trouble.  So it’s not only in their country, their own banks that are in trouble, and we have to just see the reality; it is all over the place that banks are in problems and that there are bailouts, you know.

And then I’m coming back to the remarks I made:  We have to be aware that with restructuring of our system – of our banking system, and I’m talking about every individual bank – that we have to take into account that those who are in problems now, getting help of governments – taxpayers’ money by the way – that they have to give a restructuring plan, a business plan and, in most cases, selling-off plan, also with consequences for their activities in other parts of Europe.

MR. KEMPE:  Thank you very much, Commissioner.  Ambassador Gray, were you wanting to step in here?  But the – and open up to the audience as well.

MR. GRAY:  Yes, in terms of the restructuring effort – which is a different issue than stimulus – but in terms of the restructuring effort, given the interrelationship between Europe and the United States in terms of these financial institutions, my question is, are we coordinating well enough on the structural problems of the banks?  Are we doing enough – U.S. and EU – so that we are approaching this in a unified fashion?

MS. KROES:  No.  We could do quite a bit more in our coordination, absolutely.  And certainly, taking into account them, we are so close via the activities, the flow of capital, that we have to face more coordination.  So I am absolutely looking forward to the G-20 – beginning of April in London – the summit, that there will be a coordinated program how we have to deal with this type of activities.

MR. KEMPE:  What dangers does that pose, that we’re not more closely connected on a lot of these questions?

MS. KROES:  Well, it is, of course, one of those challenges that we are all surprised by what’s going on, and every day, there is a new situation.  So we should be aware that it is indeed dealt with in a policy – in a system in which we are aware of each other’s approach.  And that doesn’t mean that we all need to have the same system of dealing with it, but that we are aware that it is not counterproductive.

And talking about Europe, our systems are tailor-made nearby, so we did have the temporary framework, we did have our action plan, we just had our communication on toxic assets.  It’s clear what the rules and regulations are.  But in every member state, there is an opportunity to make it tailor-made, so to say, and then we have to approve it again.  And that type of communication should be even more dealt with between the United States and Europe.

MR. KEMPE:  Questions from the audience?  Please.  If you could identify yourself as well.

Q:  Garth Trinkl, Department of Commerce.  Thank you for your comments.  To follow up on the last two comments, you talked about, during your crisis consultation in Europe, meeting with a member of your cabinet and holding bilateral, private consultations with, I believe you said 48 corporations.  I assume many of them are banks.  Could you compare that – can you tell us any more, without divulging confidential information, about what you are aiming at in that process?  And could you compare that to the U.S. stress testing process that the Treasury and Federal Reserve set up with 20 U.S. banks?

I ask this going into the London, April 2nd meeting.  They will probably say that in a few months, they will come out with a program for banking – greater banking and financial regulation.  Are you having contacts with the Bank for International Settlements in cooperation with U.S. colleagues to try to lay the groundwork for the technical framework that needs to come out of the April 2nd meeting, perhaps drawing on Malcolm Goldstein’s work at the Peterson Institute for International Economics?  Thank you.

MR. KEMPE:  Not to make this excellent question even more loaded, but how does the commission, ECB and national governments interact on this?  Who’s the boss?  It’s – you know, I sometimes apologize for not understanding the European Union well enough to know the answer to these questions, but since all my friends in Europe also don’t know the answers to them, I don’t feel quite as bad.  (Chuckles.)

MS. KROES:  I will tease and say even some commissioners are not understanding.  (Laughter.)  No, I’m grateful for you question for anyhow I can just hopefully explain a bit more what I really meant, for there is a misunderstanding.  We did deal with far more than 40 dossiers on financial institutions, I will just say, in the last couple of months.  And that was not rubber-stamping, so to say.

After that experience – and we, of course, had our own approach for that, but within our temporary framework, within our plan of the European Commission that we have put on the table, and in close cooperation with, anyhow, two of my colleagues.  So one is the colleague who has the responsibility for the internal market – Charlie McCreevy – and the other one, Joaquín Almunia, who is the one who is responsible for the financial issues in the European Commission.

We, the three of us, are closely together so we are a trio with dealing with this in close cooperation with the president.  When I had that experience – when we had that experience with all those dossiers, then I took the initiative to invite a couple of CEOs of banks and financial institutions.  That was a personal initiative, so to say, and not to get a official line out of that experience, but just to check if what we had with all those dossiers for an overview, that was reality.

There was one quite clear point that we could still find out, that there was still no confidence and that the banks, to put it in a very simple line, were still not doing what they are expected to do – lend money to those who are interested in doing an economic activity.  And that was the bilateral background for me – why aren’t you doing what we are expecting?  And at the end of that 14 or 15 bilateral discussions – and that was what I was mentioning in my remarks – there was still no confidence because there was not the knowledge of what was in the closet.

And that is what is really worrying me, that so far, we are still in a position, you are expecting me to be open, but because you are aware of your own attitude – and that is human being – if you are not completely aware of what is in your closet, then you are thinking she won’t have the same view of what is in the closet.  And as long as we are not aware what is that part of information, then the next very challenging point – how are you evaluating the information – what’s in the closet, so to say, in the toxic assets – then you can’t expect that there is a confidence.

So the motor is not going on what we are waiting for it.  And therefore, I’m impressed by what your president is doing.  I’m also impressed by what we are doing in Europe – it’s 3.3 percent of GDP that we are spending – and every member state is doing the utmost.  But it’s still not giving the results, and then, the main question for some is, you should spend more?  My opinion is, let’s first get the confidence.

And the confidence is connected with the information and the information is connected, and so on and so forth.  So I’m quite clear we have to come to a situation where all those information that we badly need is at the table and via our restructuring approach now, we are getting more and more.  Still it is a very difficult job to do.

MR. KEMPE:  Just a quick question to answer:  What I’m hearing you say is, because you haven’t been able to look deeply enough into banks’ closets, you still don’t really have enough confidence at this moment, and the public doesn’t have enough confidence in this moment that you can get your arms around this?

MS. KROES:  It’s not about my confidence; it’s not about the confidence of the commission, or whatever.  It is about the confidence of bankers to each other.  And as long as that is not there, then the system is not working and that is what is worrying me.  So what we are pushing – for we are aware that there are the in-part assets and we are aware that that is a problem that can be tackled.  So if we know what’s in, then we are – and now, it is step-by-step and bit-by-bit that we are getting that type of information.

And every time, there is a new surprise, so to say.  So therefore, when someone is asking me, what’s the situation, then I’m asking, what day are you talking of, what location are you talking of?  Otherwise, I can’t give you the answer.

MR. KEMPE:  Questions?  Time for one or two more questions.  Please, in the back.

Q:  Commissioner, Bert Foer, American Antitrust Institute.  When you emphasize banks are too big to fail but not to big to be restructured, how far do you carry the idea of restructuring?  Are you including the idea of breaking up banks into smaller parts, for example?

MS. KROES:  I don’t like to be limited up front.  Let’s first do the job and then – so every possibility should be taken seriously.  And not blaming that, later on, people would say that couldn’t be done.

MR. KEMPE:  Let me ask you a question on your approach to government bailouts for failing industrial firms – maybe I’ll put it provocatively:  What would your approach be if you were here, to the U.S. auto industry?  And maybe you can translate that, also, into what your way of thinking and your way of acting on industrial bailouts in Europe will be, as opposed to financial bailouts.

MS. KROES:  I’m laughing, and I’m not a diplomat, so I’m reacting, also, with my body language on that type of question.  You don’t need to take me to the U.S. for getting that dilemma, so to say, for we are faced with the same.  And we had an opportunity to meet some of your guys, so to say, who are active in Europe, too.

And it was a interesting meeting – and now I’m using diplomatic wording – for me, and of course, I’m quite often faced with a situation where people are saying – and I’m abusing your question – where people are facing me and saying, if you were allowing the banks to give the opportunities using the state aid while we are in trouble – shipyards, interesting discussions with Polish shipyards.  Can you imagine Gdansk shipyard abusing state aid in a certain situation, while it’s touchy, so to say.  There were another couple of shipyards.

So they are coming to demonstrate and confronting me and saying, we are only asking for so much billion state aid and you are giving the possibility for the banks.  So we should first make the difference between industrial activities and the financial world.  Why?  Because the financial world is a basic block circulation for an economy.  So having said that, don’t expect that we are saying, because it’s the blood circulation, you can get what you want; that’s not the way we are dealing with it.

But talking about industrial sectors, that is a different type of stuff.  And in Europe so far, we are keeping the line – and I’m absolutely defending that line – is that you should make a distinction between those results before the crisis and not doing your job properly and during the crisis, in which there are, of course, consequences for certain industrial sectors.  If certain sectors didn’t do the job properly in restructuring – and I’m an economist and my first lesson, so to say, was supply and demand are not separate issues; you are combining supply and demand – if you are not taking signals when a market is changing, then you should take the risk yourself and not putting the bill at the desk during the crisis and saying we are in trouble and it’s crisis and so on.

So the line for us is, okay, talking about the car industry, if you are coming with proposals in which you are, for example, connecting your question for state aid to energy efficiency, to environmentally friendly businesses, more research and innovation, retraining and what have you, then we can discuss it, but not just operational aid, for that is not what we are looking for.  And then, I have to think of my shareholder is the taxpayer and I have to just explain to the taxpayer that if that’s the case, then the answer is no.  And why should I make a difference for the European market, when I am comparing the situation in the U.S.?

MR. KEMPE:  Thank you very much.  Last question, Phil?

Q:  Fran Burwell, the Atlantic Council.  In visiting Europe recently and reading European columnists, one thing that seems to have emerged out of this is a feeling that the Anglo-Saxon model of economics is largely perceived as if not dead on its death bed in Europe as far as the population is concerned.  So my question is more about the future and pulling back from some of the steps that we have taken on both sides of the Atlantic.  You mentioned the clause that you activated for severe economic dislocation.  Do you have guidance either in the treaty or elsewhere or in your own mind and way of evaluating this?  What will look for to say that this is over and it is time to pull back from an acceptance of perhaps more state aid and other emergency measures than one would want?  And are you confident that other European politicians will accept that, or are we going to see a major battle on our hands after this is over because of what has happened?

MS. KROES:  There will certainly be a very interesting discussion, to put it mildly.  And I’m always in favor for communication, so when I am in line with a certain policy, I have to explain it to my people.  And my people are 500 million Europeans.  I need to explain why, how and when.  And if I’m clear, then we can still have a conflict of (well, effort ?).  So If I’m mentioning that the system we have should be implemented in a different way, then I’m not talking – but now I’m talking about my personal view – I’m not talking about different view on the market economy; I’m talking about the implementation of – the system itself is okay – but the implementation of those who were taking advantage, at a certain stage in a certain way, I think that we have to correct.

And it is the only way we can deal with it.  You can’t explain – I can’t explain, anyhow – that people who are taking advantage of a certain situation and only looking at themselves and not being responsible for their organization or for – then it’s over.  So there will be tough discussions and therefore, I think we need to give an eye to our regulation, to our supervision, to our systems in which we are checking.  And it’s not enough to have the rules, but you have to check, and that is what we found out by a very tough process, so to say.

MR. KEMPE:  Commissioner, I think I can speak for the audience, as I’ve been looking around the people listening to you and hanging on to your words and hearing them clearly, that first of all, we have a lot to thank you for tonight, for this powerful presentation and then, a question-and-answer period.  And I think also, should you, at the end of your time in the commission, be looking for a new perch, Washington would welcome you.  (Chuckles.)  So thank you very much.


Transcript by Federal News Service, Washington, D.C.


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