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THE ATLANTIC COUNCIL OF THE UNITED STATES
LEADING POST-CRISIS FINANCIAL REFORM
WELCOME:
ROBERT M. KIMMITT
SENIOR INTERNATIONAL COUNSEL,
WILMER HALE
MODERATOR:
ANNETTE HEUSER,
EXECUTIVE DIRECTOR,
BERTELSMANN FOUNDATION
SPEAKERS:
MICHEL BARNIER,
COMMISSIONER FOR INTERNAL MARKET AND SERVICES,
EUROPEAN COMMISSION
FRIDAY, OCTOBER 29, 2010
8:00 A.M.
WASHINGTON, D.C.
Transcript by
Federal News Service
Washington, D.C.
ROBERT KIMMITT: Excellencies, ladies and gentlemen, good morning. My name is Bob Kimmitt. I’m the chairman of Deloitte’s Center for Cross-Border Investment, and a member of the board of the Atlantic Council. And on behalf of council president and CEO Fred Kempe, it’s my great pleasure to welcome you to today’s discussion with Commissioner Michel Barnier. This event is part of the series on mapping the economic and financial future, which is sponsored by the Atlantic Council and Deutsche Bank. We welcome especially friends from the European Commission and from the EU mission.
One of the fundamental goals of this series is to emphasize the importance of Europe and the United States working together on financial services regulatory reform. The council has just released a report, available to you as you leave if you didn’t pick up a copy, entitled “The Danger of Divergence: Trans-Atlantic Cooperation in Financial Reform”.
Our distinguished speaker well understands the danger that regulatory divergence presents to the recovery of financial markets so crucial to economic recovery and growth. Michel Barnier is commissioner for internal markets and services and leads the European effort on financial services regulatory reform.
His visit to Washington, as well as New York and Chicago, is intended to address areas of common interest including commodities and derivatives trading. Mr. Barnier has stated his objective in direct terms: to ensure that in all regulation, there is parallelism between the U.S. and the EU.
Michel Barnier is uniquely suited to his important responsibilities. Prior to assuming his current position, he had been a member of the European Parliament, headed four important ministries in the French government and served earlier as European commissioner for regional policies and reform of European institutions. No one knows better than how to bring together the council, the parliament and the commission to achieve difficult results, as was recently demonstrated by agreement in principle on alternative investment fund managers.
I think it’s especially timely to have Commissioner Barnier with us this morning, exactly two weeks before the G-20 leaders will be meeting in Seoul, Korea. As the commissioner has said, regulatory reform must be agreed at the G-20 level. Otherwise, we might avoid trans-Atlantic divergence only to find global arbitrage.
As we move to Seoul, I would commend to you Commissioner Barnier’s speech on Monday at the Solvay business school in Brussels, in which he notes regulatory reform must be complemented by stronger governance and enforcement. These are important but often overlooked parts of the G-20 agenda, which I agree will grow in importance in the years ahead.
After Commissioner Barnier speaks, he will engage in a discussion moderated by Annette Heuser of the Bertelsmann Foundation, followed by your questions. Mr. Commissioner, you’ve turned out quite an audience for 8 o’clock on a Friday morning. Welcome, and the floor is yours. (Applause.)
MICHEL BARNIER: Hello. Thank you very much to you, Bob, – (inaudible) – for your kind words, and good morning to all of you and thank you very much for being here for this dialogue. I’m a little bit sorry to be a few minutes late, but even a bomb scare can’t keep me away from you –
(Off-side conversation, laughter.)
MR. BARNIER: – and away from my intention to put order in the financial services. I used to be on time, and even five minutes – (inaudible). Involving my career, you forgot to mention the period which have been very important for me because I – and very unusual for a politician because I spend 10 years – (audio break) – my life to organize the winter games in ‘92, with a very famous triple-gold-medalist champion, Jean-Claude Killy. We were the two co-chairmen. And with Jean-Claude Killy, I learned to be always five minutes in advance, which is very unusual for a French politician. (Laughter.)
I’m very happy to be here – (audio break) – by your invitation – (audio break). Thanks to the Atlantic Council for your continuous work stressing the importance of trans-Atlantic relations here in the USA with policymakers. And at that point of importance of trans-Atlantic relations, President Barroso recalled that last night, at the very eventful meeting of head of states of Europe.
I’ve read with great interest your report on trans-Atlantic cooperation in financial reforms. Naturally, it is very clear and informative. It also contains analysis and recommendations I fully agree with. I think the trans-Atlantic relationship is more important than ever, not only to draw the lessons of the crisis but also on very huge important other fields like defense or foreign policy.
That relationship is the reason why I spent four days here in this United States in May this year, and why I’m come back in for almost one week now – New York yesterday and Washington on Monday and Tuesday in Chicago – and in between, I’ve continued to meet my American colleagues in person. And our services work together on a weekly, if not daily, basis at the technical level. I think this cooperation is essential. We have the same goals; we have the same objectives.
Today I will tell you where we are in Europe in financial reform, and I will also share with you some of my ideas on how make the EU single market, a unique construction, work better.
Let me start, ladies and gentlemen, with financial regulations. The title of this event is “Leading Post-Crisis Financial Reform”. It’s a title full of American optimism. (Laughter.) I like it, eh? (Laughter.)
Also, I am not sure that the crisis is completely over yet. There are signs of recovery. That is encouraging, but we are not out of the woods yet. That is why we need to continue working together on financial reform. In the interim, we are clearly making progress.
Here, a new side – I, of course, refer to the adoption of the Dodd-Frank act. It is a fundamental piece of legislation. We have been studying it with great interest. I know that this act is not the end of the story, and many additional efforts are required to put in place a new institutions and implementing rules. This act is an important signal – not only for you but for the whole world.
What are we doing in Europe on our side? Our legislative process and our tools are different from yours. Let me just take one minute to explain how the European process works. There is no European prime minister because we are not a federal state. And as a collective body, as a European collective prime minister, you can get a very original institution which is the European Commission. In fact, I am one-twenty-sevenths of a European prime minister, eh? (Laughter.)
And as a collective body, working as a European collective prime minister, the European Commission makes proposals. We are the only one able to make proposals in the system. And then, we need to negotiate and to obtain the vote, the approval of the two legislative bodies, which are, on one side, the Council of Ministers – there are several council of ministers for finance, environment, transport, agriculture – and the other side, the European Parliament.
There have been commissioned mixed proposals. And we are making real progress. In June, I outlined my complete agenda for financial regulatory reform so that Europe annuls all its G-20 commitments and committed to putting all the necessary legislative proposals on the table before the summer of next year.
In Europe we have already adopted legislation and credit-rating agencies. We are binding rules on compensation practices in banks. This rule will apply to bonuses to be paid out for 2010.
We have also conducted a wide-ranging consultation on corporate governance in financial institutions. And what can be improved? I think you will agree with me that real reform and perhaps, the (first ?) prevention begin – would start from within the companies.
A couple of weeks ago I presented rules on derivatives markets, I’ll just – (inaudible) – and short-selling practices. This proposal benefitted from a very close corporation with our colleagues here in the United States. This is extremely important because markets are global and move very quickly.
As regards financial supervisions, a fundamentally important issue, we have reached an agreement by unanimity on a new supervisory structure installed – (inaudible) – three new (pan- ?) European supervisory authorities for banks, for insurance and for securities markets. This will ensure better coordination, cooperation and consistency between national regulators in Europe and, in time it mean big closed-border institutions and regulators from countries outside of Europe have just one point of contact.
Importantly, we have also established European Systemic Risk Board which will monitor threats to financial stability. Our systemic risk board is very equivalent of the new financial stability oversight council on your side. We have to make sure that these bodies work closely together.
Finally, we reached this Tuesday – last Tuesday, a political agreement on our regulation of hedge funds. It is a proposal which has been followed with great interest here in the United States and I am happy to say that we have reached an agreement on an open, nondiscriminatory approach as regards firm managers and funds located outside Europe.
And now, ladies and gentlemen, where do we go from here? We continue our work, of course, and the reform of capital requirements for banks – the so-called Basel 3 rules – on the need to ensure efficient cross-border crisis management and tools for the cross-border resolution of banks, for the treatment of systemically important institutions and the convergence of accounting standards. All extremely important subjects where we need to work together and, as you said, will (impel ?) the EU and the U.S. together to avoid regulatory arbitrage.
I now want to say a few words on another subject close to my heart and linked with the first one: the hidden potential of the EU single market. The single market is a cornerstone of the European Union since the beginning. You must remember that the first – the very first step of the Union European project (ph) was reaching 1950 by the first pooling project of steel and coal, the combination of steel-coal.
And it was the first brick in the first step of the common market, and after, the single market. What it is? It is about creating an area where goods, services, capital and people can move freely throughout Europe. We have been working at it for 60 years, dismantling barriers and making our market more integrated. It has led to many benefits: more choice and cheaper goods for consumers, a single currency for 16 countries, making life for travelers and businesses much easier. And workers can now set up anywhere in Europe. For example, a French architect can get his credifications (ph) recognized in the U.K. and work there.
Although a lot of progress has been made, the fact is that the single market still remains too fragmented along national borders. This is an opportunity gap which is costing Europe some two (percent) to 4 percent of growth every year. That is why I presented the day before yesterday – (inaudible) – of the European Commission, a proposal-of-action plan. It’s a single-market act. It contains 50 measures to relaunch the EU single market, to boost growth, to boost competitiveness but also to restore citizens and businesses thrust in the single market because each citizen and each business matters.
I will not go into details about all these actions. But let me give you two or three examples. I think they should be interesting for you also because the single market also has an external dimension. It is in your interest that Europe is more competitive.
Number one, the example of the patent: In Europe today, registering a patent costs at least 10 times more than in the United States because the system we have for the languages is still fragmented along national lines.
Number two, the example of e-commerce of online retailing. It still accounts for only a few percent of retail, perhaps two or 3 percent. Did you know that currently there is no iTunes service in Poland? How can that be right? (Laughter.)
A friend told me recently for our generation that’s mine, a single market meant he could buy French wines in the British supermarket for his children. It will mean they can buy music on any website or get an mp3 purchased online delivered in any European country. And I think it is very possible to listen to music while drinking French wine, eh? (Laughter.)
Number three, let’s take one final example, that public procurement. Europe is and will continue to be open without any NIFTY (sic). It’s an American world, that’s all. With any NIFTY.
For instance, it’s a right that 75 percent of Europe public procurement is open to Japanese investors when only 25 percent of Japanese markets is open to European investors. We will reinforce our external strategy in order to increase the openness of markets in the spirit of fair reciprocity. Of course, we need to work together with you and others on this subject in the context of the WTO. Our 50 proposed actions are now up for debate for four months. We will animating a wide and open public European debate. And you are, of course, also invited to comment. We would strongly welcome your useful perspective.
So ladies and gentlemen, I’ve been too long, especially for my very bad English. And thank you for your comprehension. If there is nothing to be learned from the crisis, it is a need for ever greater cooperation across the Atlantic. It may not be sufficient to solve all global imbalances but it is certainly necessity that we lead together by example. It is our responsibility towards future generations.
Thank you for your attention and now I am ready to answer your questions. Perhaps (translated ?) by interpreter because it could be easier for me to use French or to switch to French if you don’t mind. Thank you very much for your attention. (Applause.)
MS. HEUSER: Good morning, (also, from my side ?) Of course I have to say I’m also a proud member of the board of directors of the Atlantic Council and thank you so much, Commissioner, for this very short and comprehensive overview about your agenda – the agenda of the European Commission.
Without any doubt, it has been clear that this has been a very busy week for you, not only that you’re coming to the United States right now but you have launched the single market act. You have made major progress on the – (inaudible) – regulations on the European side. The European Council last night has reached an agreement to look into title measures for a new kind of crisis mechanism. At the same time, on the U.S. side, we have the Dodd-Frank Act.
So it seems to me that we have two trains here operating full speed, going full speed, sometimes in the same direction, sometimes not that much. So where do you see in the next months to come the pitfalls –
MR. BARNIER: Pitfalls?
MS. HEUSER: – between Europe and the U.S. where both sides have to be on high alert when it comes to financial-market regulatory issues?
MR. BARNIER: Translate the word “pitfall”. (Laughter.)
MS. HEUSER: I think there is no perfect French translation for that. We have to work on that.
MR. BARNIER: But we might understand that this a very good, free English lesson for me, actually. (Laughter.)
MS. HEUSER: Okay. I’m happy to assist. In particular it’s a – I think it’s a very nice combination to have a French and a German talking about English here – (laughter) – but I hope we will not get lost in translation this morning. And the commissioner is answering the questions in French but he is more than happy to get your questions, of course, in English.
MR. BARNIER: Yes. If you don’t mind, it’s easier for me to answer in French – perhaps easier for you, too. (Chuckles.) And it would be more precise.
(Mr. Barnier’s remarks are delivered via translator.)
MR. BARNIER: First of all, we have a common agenda which is that of the G-20 and our duty is to implement this agenda. And it’s not by chance. This crisis was borne in the United States. It has an impact on the whole world and, of course, the whole world must benefit of the lessons that we’re going to draw from this crisis.
So ladies and gentlemen, my roadmap is very clear and I will execute it with total determination. It’s that of the G-20. And what I’m saying – I said exactly the same thing to the parliament when I entered into function on January 13th last year – January.
MR. BARNIER: No market, eh? Eh. (Laughter.)
(Mr. Barnier’s remarks are delivered via translator.)
MR. BARNIER: So no market, no actor, no product must be outside –
MR. BARNIER: No “territory.”
(Mr. Barnier’s remarks are delivered via translator.)
MR. BARNIER: No territory must outside of an intelligent regulation – and an efficient one too.
Every word counts. (Laughter.) Especially an intelligent regulation. No ideology there. It must be practical. That’s what I’m trying to do. I’m trying to surround myself with a maximum of consultations on all the legislation that I’m proposing.
That’s why we managed to get to an agreement on the hedge funds and private equity, which is a huge sector. It represents, at some times, 50 percent of all world transactions. And as we committed ourselves, this agreement is not discriminatory even if it’s very strict for third-(world ?) countries.
So I have two concerns. One is to make sure that there is a parallelism between both sides of the Atlantic. That’s what I’m coming to do here. And by the way, I recommend that we do not neglect other areas in the world, such as Asia, for instance, members of the G-20, and which are on the upswing as far as the economy is going.
If you wish, we could go into details as to the parallel between the Dodd-Frank Act and the European agenda, but I think we are moving in the parallel ways together. And it’s not by chance because we are working together. For instance, as to the regulation on the short-selling and derivatives, I’ve had regular conversations with Gensler and in-depth, also –
MR. BARNIER: Mr. Gensler.
(Mr. Barnier’s remarks are delivered via translator.)
MR. BARNIER: Mr. Gensler. (Laughter.)
Very constructive.
My second concern is that points of differences shouldn’t become points of divergences. Now, there are two cases where we have to be careful. One, the Basel measures which are the measures of capitalization in equity, quantity and quality for all banks. The United States have not yet implemented Basel 2. And Basel 3 is very strict and we have to see to it that we are in parallel ways.
And a second topic, which really kept me very busy in New York yesterday was my advisor, Mr. – (inaudible) – ’s accounting standards.
(Off-side conversation.)
MR. BARNIER: – where we have a different appreciation of these world standards that should yet converge. Another topic which is not a pitfall but where we have divergent opinions and divergent appreciations. It’s a question of securitization but we have different regulations; the reciprocal opening of our markets in the framework of the WTO.
But once again, all these topics have to be discussed among ourselves. And my idea, ladies and gentlemen, is that we should work together for the renewal of the trans-Atlantic relationship, as Mr. Barroso said last time.
I’ll go a little bit further if you like.
MR. BARNIER: And I’m sorry for the very long answer but I will do better for the next one. (Laughter.)
(Mr. Barnier’s remarks are delivered via translator.)
MR. BARNIER: I’m a politician. I was a foreign affairs minister of France. I’m passionately European at the same time as I’m a patriot. And I want to work at a double confidence – one that doesn’t depend on the Americans. It’s the trust that Europeans have to have in themselves in order to build a large market. We have not reached that point yet.
And beyond a free-trade area in Europe, a political capacity – the other trust depends on both of us. It’s the trans-Atlantic trust. And on this side of the Atlantic, you should understand very well that it is in the interest of the United States to have strong allies on the other side. So Europe must be strong for Europe itself but also for the trans-Atlantic relation and for the role that we want to play in the new global order.
MS. HEUSER: Thank you very much, Commissioner, for your very passionate statement about European unity. I think that is not at the best stage at the moment but I’m sure we’ll come back to that in the discussion later.
Before I open the floor, if you accept, I wanted to follow up with another question. You mentioned the three challenges – accounting standards – Basel 3 right now. What kind of timeframe do you have in mind when it comes to the implementation of Basel 2 and then of Basel 3 here on the U.S. side if you could forward a wish list to your American counterparts right now?
(Mr. Barnier’s remarks are delivered via translator.)
MR. BARNIER: So the last talk I had with Mr. Geithner in last May was that they had a commitment to implement Basel 2 by the middle of next year, 2011. I’m going to see him in a few minutes and I’m going to make sure and check whether it’s the right calendar or not. (Laughter.)
MS. HEUSER: Okay.
MR. BARNIER: As for Basel 3, I mean, we cannot say. It is not ready yet. We have to have recommendations in details. Only last week in Seoul, they made some recommendations but I have to translate that later on into legislative proposals.
We are committed to applying Basel. It’s a balanced, a strict framework. Old bankers are not enamored, I’ve noticed that. But no banker has any interest in having a short memory either.
We don’t have a short memory. And we know that this crisis keeps on producing very dire consequences in terms of politics, social and economic consequences. So we’re going to apply Basel 3 in the most intelligent way possible while watching very closely the consequences on the European financial industry. And I will take my time without improvising, measuring all the consequences. And we will implement it and I wish – and the word doesn’t really convey all that I think – I wish that we should apply it in parallel.
MS. HEUSER: Okay. I think that sounds like a very convincing plan and with having said that I think it’s time to open the floor right now. We have 30 minutes for Q&A and we have microphones in the room. Please make sure that you speak in a microphone because the event will be taped. And it would be also great if you can mention your name and your affiliation.
I have two questions in the back. And we start with the gentleman on my left. Please go ahead.
Q: I’m Brian Beary, a journalist for Europolitics. A question on accounting standards, the other issue where you said you’re worried about convergence and divergence. From my sources in the, sort of, industry here in Washington, they’re saying that what’s going to happen in reality is that the SEC will not adopt – just take onboard a lock, stock and barrel, everything from the international standards but rather will adapt them to the U.S. legal system and U.S. market which is different – very different.
I’m just wondering, how did your discussions on that issue go? And is that something from the European side you would be satisfied with, that they not simply convert them but rather adopt them to the U.S. market and the U.S. legal system?
MS. HEUSER: Thank you very much. Before we jump back and forward on different issues may I ask, are there any other questions on accounting standards so we can take them together? Okay, there’s a gentleman here on the right side.
Q: Thank you. Garth Trinkl, Department of Commerce. Not a technical question but I’m glad that in your answers you talked about private equity as well as hedge funds – the regulation of those.
My question – and it is relevant to accounting – is, after the reflation of the global economy, do you believe there will be a large divergence in the size of the shadow banking system in the U.S. and in Europe – the European market. Thank you.
MS. HEUSER: Thank you very much. Commissioner, why don’t you answer these two questions and then we go ahead?
(Mr. Barnier’s remarks are delivered via translator.)
MR. BARNIER: For accounting centers, for all enterprises that are concerned, it’s a major topic – that’s convergence. And it’s vital for all our economies, especially for competition, to be able to work on common rules and to apply common rules such as the one in Basel. So I’ve committed myself very personally in this exercise, in all confidence.
It’s not easy. We know that from the start we have different appreciations, especially the importance that one should attach to market, for instance, and on the other side, on the European side, the tendency that markets have to reach a certain cycle, also, and be more stable.
So I didn’t understand from the rules that – I mean I speak under the control of my advisors – that there was the capacity, at the margin, to adapt the rules to your own circumstances. Because if that were the case, then you could also adapt it in China, in Japan, in Europe, in the States and everywhere, and you would lose a lot of credibility in the exercise.
Yesterday, I was sitting at a table with Mrs. Shapiro, and we noticed that there was this convergence work that was going on right now. That’s all I can say about that. As to private equity and hedge funds, we know that all these sectors, all these products have been used with great opacity in the last 20, 30 years.
And for derivatives, for instance, we are talking about humungous numbers, since the transactions amount to about $600 trillion, most of it escaping any form of registration or compensation. So the object of this intelligent regulation that we are building together, on both sides of the Atlantic, is to shed some daylight on this.
Yesterday, I had a very, very interesting visit in New York of the main trade depository, which manages most of the CDSs in the world. So if we manage to do this intelligent regulation, we’ll have the capacity to know who is doing what. And that’s the very condition of taking responsibility, to avoid hyper-speculative movements and that everybody takes his own responsibility.
MS. HEUSER: Okay, thank you very much, Commissioner. We are heading towards the midterm elections, so I have to make sure that I take into account both sides of the aisle here. (Laughter.) So why don’t we go ahead with the left side – there’s a gentleman here in the front – and then we’ll move back to the right side. Please, go ahead.
Q: Thank you. I’m Doug Elliott from Brookings, and I was the writer of the Atlantic Council taskforce report you were so kind to speak of earlier. Commissioner, I was wondering, one of the things the taskforce members were deeply concerned about, as I am, is something you alluded to – which is while trans-Atlantic cooperation is very important, we need to make sure that the emerging markets in Asia have a common vision of how to do this.
And sometimes there has been a seeming passivity on their part in regard to the global financial re-regulation. I was wondering what thoughts you had about how we could ensure that we had a sufficient commonality of vision to make sure that we avoid regulatory arbitrage, as you mentioned.
MS. HEUSER: Thank you very much. Any other questions related to emerging markets and G-20, for instance? Okay, there’s another question that we can take.
Q: Ian Talley, Dow Jones. On the emerging markets, do you have any concern about, and particularly China, bubbles blooming amid the major surges in capital flows? And on the G-20, expectations for the leaders meeting – do you think that there will be full agreement on the Basel III backing?
MS. HEUSER: Thank you very much. Commissioner?
MR. BARNIER: Earlier, I said that we have a priority to ground trans-Atlantic relations in regulations, because 80 percent of transactions are among ourselves. But of course, the emerging countries are growing in importance. And I recommend that we, the United States and Europe, have a regular dialogue with the emerging countries.
We have many reasons to have a dialogue with them. There’s the question of monetary stability, for instance. If China wants to keep its rank at the table of big actors, which is its rightful place, they also have a responsibility that they have to answer to in the world. And I think the leaders of the G-20, especially the next chair of the G-20, are right when they ask this question about monetary stability.
On the EU side, it would be very hard for us to accept to keep on being the adjustment of a variable in a lasting way. We want to open the dialogue on this question, and also on the reciprocity, as to access to our market. And we also have to keep this dialogue, as we do in the G-20, on the lessons to be drawn from the crisis and on the regulations to be taken.
Of course, once again, here too there is no naiveté. And we want to establish the basis of this dialogue and this common work, and I myself have plans to go to Japan and to China to keep on this dialogue. And to answer your question about the G-20, of course, the G-20 – while I cannot prejudge what decisions they’re going to take – but I think they should make a decision about Basel.
But I’ll remind you that Basel, the proposals are not compulsory. And we each, in our own capacity, can implement them according to our own specificities, all the while respecting totally the general spirit and economy of Basel.
MS. HEUSER: Thank you very much. Before I give Boyden Gray the floor, Commissioner, you said China has a certain responsibility when it comes to its currency. Can you be a little bit more specific when it comes to this responsibility right now?
MR. BARNIER: No, I can’t. (Laughter.)
MS. HEUSER: Okay, that was a clear answer. I tried my best. So next is Ambassador Boyden Gray.
Q: On issues about “too big to fail” and resolution, are the U.S. and the EU on the same page, especially with respect to trans-Atlantic or transcontinental banking entities that do business across the world?
MS. HEUSER: Thank you. Commissioner?
(Mr. Barnier’s remarks are delivered via translator.)
MR. BARNIER: It’s a very important question, this question of “too big to fail,” which was mentioned by Paul Volcker, whom I’m going to see in my next visit, and which is also mentioned in the Dodd-Frank act. When I was first asked about this topic, I said that on the EU side, we were not about to duplicate exactly the American legislation because our banking system is not the same.
For two reasons: Number one, European banks finance the economy a lot more than American banks do. The market share is about two-thirds to one-third between the market and the banks, compared to what’s going on in the United States. And then we have universal banks, and they are not the origin of the crisis. They’re important, large banks that do several jobs.
So our choice, in Europe, was to work on the external and internal supervision and to work on the corporate governance of all institutions, whatever their size – and on resolution. And last week, I introduced a toolbox, a very precise toolbox, on the prevention and resolution of international crisis for transnational banks in Europe.
And this will be done whatever happens in the rest of the world, whatever you do here on this very question. Because when a European bank gets in trouble, it’s not the Chinese or the Americans who are going to come and bail it out. So we’re going to do it, whatever happens. But I pay great attention to what happens here, and I’m a militant of prevention. I think that prevention is always cheaper than to have to repair after the disaster.
I could go into details of my toolbox, if you wish. So I believe in this system, where you diagnose very early on the risks or the bad behavior. That’s the object of the supervisors committee, made up of four countries or six countries, if the bank is settled in four or six countries.
And then, once the diagnosis has been done, we know where the risk comes from and we take measures in order to prevent the crisis from – the risk from turning into a crisis, and a crisis into a disaster, which is in the end paid by the taxpayers. That’s why I decided to create a resolution fund where banks pay for the banks, and not the taxpayers pay.
MR. BARNIER: Not to create, to propose.
(Mr. Barnier’s remarks are delivered via translator.)
MR. BARNIER: To propose a resolution fund. (Laughter.) And this idea is going forward, but there are other tools, such as getting rid of the management, forbidding the payment of dividends or calling on the creditors, as the case may be. But I’ll keep on working on this “too big to fail” question, whatever happens.
MS. HEUSER: Okay, thank you very much. There is a lady here in the front, in the third row.
Q: Good morning. Sunjin Choi, Langham Partners. Commissioner, could I follow up on the “too big to fail” issue? And you mentioned that not all the bankers – (inaudible) – but also, when I look at the Swiss banks, and Swiss National Bank, that Philipp Hildebrand also mentions that Basel III does not adequately address “too big to fail” issues. And I’m interested in your views.
And second, dealing with the resolution mechanism, you mentioned you need two (for cross-border ?) resolution. However, when you look at EU-27, its member states have different insolvency laws. How are you able to harmonize? Would you consider national treatment?
MS. HEUSER: Okay, thank you very much. Any other questions related to Basel III and its implementation? Yeah, the gentleman next.
Q: Commissioner, I would like to follow up with a question on Basel III. I took to heart your comment that Basel III will be implemented with intelligence, and that is good news. And so that several in the banking community would think that Basel III, as announced in mid-September by the Basel Committee, would be a measured, reasonable, still challenging set of measures that banks can embrace.
However, the concern is that since then, several countries have tried to top up, and to increase and add on additional measures on top of the Basel requirement. And they have made statements which encourage market expectation of an acceleration of the implementation of Basel III, despite the fairly long and measured implementation timetable.
And the concern is that these additional developments would increase the risk of the impact of these regulatory changes on an otherwise already very feeble economic recovery. So I would like to ask your view on those developments.
MS. HEUSER: Thank you very much. Commissioner?
MR. BARNIER: So I will not make any comment on the details of Basel III, because once again, I need to see the details myself. And only last week they kept on working on it in full. So once we have all the proposals which will have been supported by the G-20, we’re going to do all the macro- and microeconomic impact studies that are necessary.
So with my collaborators, we so far think that what has come out of Basel is balanced, given the threshold of capitalization that has been mentioned and also given the timetable that has been proposed. So now, I have a few months ahead of me, without improvisation, in order to prepare the implementation legislation.
And I will do all this being very careful not to compromise growth, which needs, in order to feed itself, it needs financing. To answer the lady, I think that the Swiss institutions are equally concerned by all these instruments of prevention and regulation. Even if they are not exactly members of the union, we have cooperation agreements and tax agreements, and we are working very closely.
But you are right on one point about banking legislation is because we have come a long way. We have come from very far, in terms of converging banking legislation. And I’m not talking about Switzerland now; I’m talking about the 27 members. But that, I mean, is the whole history of the European project, to work on this coordination.
Let’s take an example which is linked to the resolution problem, which is the bankruptcy regime. We have 27 different bankruptcy regimes. So I’m going to start opening a work of reflection and thinking about trying to converge these regimes. Once again, as a commissioner, I work on proposals and I make proposals that are in conformity with the center of gravity in Europe.
MS. HEUSER: Thank you very much. Okay, there are two questions in the back. I think we can take them together.
Q: Hi, Commissioner Barnier. My name is Julie Chon. I’m with Sen. Dodd of the Senate Banking Committee. And first of all, thank you and your staff for being so available to us over these past few months, as we’ve been trying to finalize our legislation. We saw your advisor, Paula, recently, as she was completing the proposal for OTC derivatives and we know how much work you put into that.
My question is, referring back to your initial remark at the beginning of your statement, where you said that you’re not sure that the crisis is entirely over just yet. Could you provide us an assessment of the risks that you see throughout the EU, an assessment of the state of the banking sector around the European Union, as well as an assessment of the sovereign debt problems that we’ve been observing?
MS. HEUSER: Thank you very much. And the lady next to you, please.
Q: My question is pretty unrelated to that. I’m not sure if you want to have that go first.
MS. HEUSER: Okay, then we’ll wait a second and let the commissioner answer the question about the crisis assessment right now.
MR. BARNIER: First of all, thank you very much for your appreciation of the fact that we are listening and that we are ready to listen to people in all the regions of the world, actually, on all topics. My interpretation of what is an intelligent legislation is it’s a legislation that must be in the same logic as the one that is being built in other regions of the world.
And that’s exactly my state of mind with the Americans. I’m a militant of the alliance, but alliance is not allegiance either. And I’m striving for a balance in this alliance. All EU countries, in order to face a crisis, have had to dip into their budget. And for some countries, including some that I know well, already before the crisis, their budgets were under the stress of the debt and of a large deficit.
That’s the reason why at the time when we are coming out of this crisis – even if we are not totally coming out of the woods yet – you see that all Europeans are making a very courageous effort to try to clean up their budget.
And so you’ve seen this courageous effort being deployed in several countries in Europe, like Spain. I won’t even mention the United Kingdom. You have seen what Mr. Cameron is doing right now in terms of budget; that’s also the case of France and other countries. And what we want to achieve is this culture of stability, which Germany has reached earlier than others.
But we want to do it not in terms of the market, or in terms of the nature of transactions, but we are doing it in a political way in order not to write checks on future generations. It’s a political problem. I think that globally, in this crisis that put Greece aground and also created trouble for the euro, I think most European countries and governments have really made progress and have moved forward. I really think so.
Last time I came here was May 9th – not because it was the Day of Europe. It was four days after the flash crash on Wall Street, if you remember – an interesting event, by the way, because we still don’t understand everything that happened that day. But this is the very day also that European governments came together with the commission to bring about a very strong and credible and solid response to defend the euro – and the central bank, also.
MS. HEUSER: Okay, thank you very much. Before we start with the final round of questions, Commissioner, just on the European crisis assessment and the homework that the European countries have to do – one of the cornerstones of the Single Market Act that you launched this week is tax harmonization.
And if I’m correctly informed, you will visit Ireland next week. And you’ve already made clear that the time is over for Ireland to be a low-tax country. So where do you see, you know, the major challenges in the months to come, to really go forward toward this really much-needed tax harmonization in the European Union?
MR. BARNIER: When you’re talking about fiscality, you cannot talk about it in general. You have to talk in precise details. I will remind our friends here that this topic is treated under the unanimity rule in the council, so every single country has a veto right – so it’s a topic that really moves forward slowly. (Laughter.) So of course, there’s no question of ever harmonizing anything on personal fiscality. This has to do with the sovereignty of each –
MS. HEUSER: (In French.)
MR. BARNIER: So what we want to work on is the corporate tax, or on small and medium enterprises. So my colleague, Mr. Semeta, has really started reflecting on this, as had been recommended by Mr. Monti in his Monti report.
So two points, first, the VAT strategy, so it’s a tax which is a European tax, but which is applied very differently, with sometimes barriers to trade – and secondly, corporate tax. Not the rate, which will remain a national province, but the basis of the tax. We’re going to work on this harmonization and make a proposal to the ministers.
MS. HEUSER: Okay, thank you very much. So we’ll take two final questions. There is a lady over here in the front, and maybe –
MR. BARNIER: We’ll come back next time, huh?
MS. HEUSER: Yeah, of course. You have to come back. Oh, sorry. I forgot you, yeah.
Q: Bridget Neill from Ernst & Young, and thank you for addressing us today. I see my friends from the commission here who already have worked on the issue I’m about to as, but this is a topic that perhaps appears to be a micro-issue. However, if unresolved, it could have consequences on the capital markets more broadly.
And this is the need for cooperative arrangements to be finally agreed to among the independent audit regulators between the U.S. and Europe. And I know Pierre and others have been working overtime to try to remove the differences, but the deadlines are very real. And I just wanted to see if you felt that there may be breakthroughs in the near term. And I know this is also on Chairman Shapiro’s mind, so perhaps you had some discussions yesterday.
MS. HEUSER: Thank you very much. And the final question, from there.
Q: LaTasha Durrett, Thomson Reuters. Will the commission reconsider the decision to make the European Union’s contribution to the IASB’s funding in one annual lump payment? And if not, how will they deal with the standard-setters’ deficit?
MS. HEUSER: Thank you very much. Commissioner?
(Mr. Barnier’s remarks are delivered via translator.)
MR. BARNIER: I like you way you mentioned that you’re calling it a micro-question. I think in terms of the exchange on audit matters, I think during my last visit, I met the regulators, and it seems to me that we have come to an agreement in terms of exchanges.
In terms of the IASB budget – and the IASB, for people who wouldn’t know, is the institution that is dealing with accounting standards; it had a meeting yesterday in New York. At the outset, it was financed with some voluntary contributions from a certain number of the trustees, and finally the European members, as far is Europe is concerned, have decided to finance it through the European budget.
And we have a clause in the budget regulation that allows us to pursue this contribution. So I don’t see why we can say that we have taken the decision not to pay. The question is not whether we are not going to pay, but whether we’re going to be able to increase our contribution. And there we have the question of parallelism with other large institutions, which also have to contribute, according to their size, to the budget.
But yesterday, we had a discussion about that. And when I’m going back, I will talk to our partners, the European Parliament and the council, to see what this position is we can take, about increasing the budget.
MS. HEUSER: Thank you very much. Unfortunately, we have to close the session right now, but I want to close with a macro-question, adding on the micro-question right now – if you allow, Commissioner. We all know you are a proud Frenchman, a convinced European, committed European, and committed trans-Atlanticist. So what keeps you up at night if you think about trans-Atlantic relations? (Laughter.) Hopefully something. (Inaudible.)
MR. BARNIER: What keeps me up at night is jet lag, right now. (Laughter.)
MS. HEUSER: Okay.
MR. BARNIER: It’s a trans-Atlantic problem. (Laughter.)
MS. HEUSER: It seems we have to work on that. Maybe we can find a regulation on that in the future to avoid jet lag.
MR. BARNIER: No, seriously, I’m going to tell you what my conviction is. Today’s world is a world that is more unstable, more unjust, unfair and more fragile than 20 years ego, in terms of the ecology, especially. So this fragility, this instability, this unfairness is feeding different movements in the world – fundamentalists, terrorists, angry people. And we have to be careful with that.
We have to face this together, so that the world is fairer, so it is safer. And Americans and Europeans have to work together for that – not only to resist, fight and defeat these fundamentalist or terrorist movements, but to build together a fairer world order. And this is going to be possible only if the alliance is strong and balanced. And I want to make sure that on the American side – and I told that to George Bush, and to some Democrats – that it is in the interest of the United States itself that they have to deal with a strong –
MR. BARNIER: In the interests of the alliance.
(Mr. Barnier’s remarks are delivered via translator.)
MR. BARNIER: Of the alliance, the United States and Europe, that they are dealing with a strong Europe – if the Europeans want it themselves, to start with.
MS. HEUSER: Thank you very much, Commissioner. We wish you all the best for building this strong and forceful Europe in the future. And on behalf of the Atlantic Council, I thank you for your commitment today. Needless to say, we have to bring you back to Washington to continue this dialogue. And I thank you all for coming this morning. I wish you a great Friday and a wonderful weekend. Thank you so much. (Applause.)
(END)