Category Archives: eurozone

Estonian European Semester to foster the Economic and Monetary Union

The strength of the EMU depends on the financial discipline. It is very important that the member states follow the rules we have already agreed upon for the EMU. It is also essential to use all of the opportunities afforded by coordination procedures,” said Minister Toomas Tõniste, Finance Minister of Estonia, in Tallinn.

Valdis Dombrovskis, European Commission Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, met with Minister Tõniste. Vice-President Dombrovskis and Minister Tõniste focused on the matters of deepening the Economic and Monetary Union (EMU), a topic that Estonia hopes to achieve good progress in during the Estonian Presidency of the Council of the European Union. They also discussed overall economic developments in the context of European Semester and Estonian performance.

“We should use this window of political and economic opportunity. This is a good moment to put in place the remaining elements of a well-functioning EMU,” said Valdis Dombrovskis at the meeting. “It is better than waiting for a new crisis to complete the work. The European Commission is taking the initiative in this discussion: certain options were outlined in a reflection paper in May; President Juncker elaborated on some of these ideas in his State of the Union speech last month; and we will come with specific proposals on the 6th of December”.

Minister Tõniste stressed that EMU plays an important part in strengthening the European finance sector and in harmonising member states’ economic development.

For economic developments in the context of European Semester and Estonian performance Finance Minister Toomas Tõniste said: “Estonia’s economic growth has gained speed due to the recovery in Europe. I also welcome increased business confidence and the pickup in investments that will allow rewards from the favourable developments in European markets. However, an accelerated growth rate should not lead to excessive increases in government expenditure.”

Vice-President Valdis Dombrovskis added that the Estonian economy is well on track. We see strong economic performance. Both the employment rate and the labour force participation are highest in 20 years. GDP growth is revised up to 4.3% for this year, according to government estimates. The Commission will issue its forecast next month, and we expect these to also point out a strong economic performance. However, in good times it is also important to maintain fiscal discipline in order to ensure stability in a long term”.

Minister Tõniste and Vice-President Dombrovskis discussed how Estonia could hold on to its economic momentum. They also focused on how Estonia could achieve good progress with EMU during the last months of its Presidency. As Banking Union is of the cornerstones of the EMU, Estonia hopes to reach to Council’s general approach on the risk reduction package by the end of the year. This would allow proceeding with the negotiations of the European deposit insurance scheme (EDIS).

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Less complex and transparent bad loan packages

 ”The question is, can a toxic product be turned into a medicine for the EU economy? I dare to say yes, but you have to take control of this medicine. We have tried to learn the lessons of the crisis by making issuers and investors clearly responsible for their actions. In future, no-one will be able to say that they didn’t know what they were selling or buying.” Said Paul Tang (S&D, NL), who leads on the new securitisation rules.

Packaged loans converted into securities will have to be made less complex and more transparent before selling them on to investors, say rules approved on Thursday.

Securitisation – a process of packaging together individual loans and other assets (mortgages, consumer loans or leasing contracts) to form tradable securities is an important source of funding, which enables banks to lend more to the real economy.

 

Harmonised rules for simple, transparent and standardised (STS) securitisation should help to protect investors, make markets more transparent and improve risk management, in order to prevent the resale of bad loans fuelling a financial meltdown. STS safeguards should also help to revive the practice of securitisation, in the EU which declined after the US sub-prime crisis in 2008.

 

Investment packages for professionals and knowledgeable individuals only

Investing in securitised packages should be restricted, e.g. to professionals and retail investors with sufficient financial knowledge and the ability to take losses, say MEPs.  After passing a suitability test, a retail investor with a portfolio of no more than €500,000 would be able to invest up to 10% of that portfolio but at least €10,000.

Aligning interests

To make the market more transparent and avoid moral hazard, MEPs sought to ensure that the interests of securitisation participants converge. Under the new rules, financial institutions will have to retain an interest of not less than 5% in any packaged securities that they sell.

 

Securitisation: no longer black boxes

MEPs ensured that “re-securitisation” – the bundling of securities that are themselves bundles of assets – would be banned.

Moreover under the new rules, a securitised investment package would have to meet tougher criteria to qualify as an STS securitisation and only EU-based entities could issue them.

Preferential capital treatment of STS securitisation

In a separate file, MEPs approved new rules on preferential capital treatment for STS securitisation, and a new hierarchy for risk calculation methods, including a differentiation between STS and non-STS. These rules aim to ensure a level playing field for securitisations in the EU, irrespective of their country of origin, while retaining financial stability as the overarching goal.

Capital Markets Union: stronger and more integrated financial markets

 

President Juncker underlined the importance of the Capital Markets Union, one of the Commission’s flagship projects, in his State of the Union Address.

European consumers, investors and businesses will benefit from stronger and more integrated financial markets, thanks to plans by the Commission to reform the EU’s supervisory architecture.The European Commission is today proposing reforms to pave the way for further financial integration and a full Capital Markets Union, to promote jobs, growth and investments in Europe and to strengthen the Economic and Monetary Union.

The proposals also include steps to foster the development of financial technologies (FinTech) and to make sure that sustainability considerations are systematically taken into account in supervisory practices at the European level. Once adopted, the proposals will improve the mandates, governance and funding of the ESAs for banking (European Banking Authority, EBA), for securities and financial markets (European Securities and Markets Authority, ESMA), and for insurance and pensions (European Insurance and Occupational Pensions Authority, EIOPA). To ensure a uniform application of EU rules and promote a true Capital Markets Union, the proposals also entrust ESMA with direct supervisory power in specific financial sectors. In addition, the Commission is proposing targeted changes to the composition and organisation of the ESRB, which monitors stability risks for the financial system as a whole.

EU promote sustainable finance for sustainable investment

The Commission is hosting a major event to explore how best to use finance to promote sustainable investments and facilitate the transition to a low-carbon economy within the context of the Capital Markets Union.

This is part of the European Union’s efforts to turn climate change, environmental and sustainable policy goals into tangible results. The EU is taking the lead in this area and needs to develop an overarching strategy to better align capital flows with a pathway to sustainable development and growth. That is why the European Commission established at the end of 2016 the High-Level Expert Group on Sustainable Finance as part of its commitment to the Paris Climate Agreement and its work on Capital Markets Union. After six months of intensive work, the Expert Group summarised its first results and policy options in an interim report.  Today’s public hearing will give a wide range of participants the occasion to share their views on barriers to and possible solutions to ensure an increased uptake of sustainable finance.  Vice-President Valdis Dombrovskis, responsible for Financial Stability, Financial Services and Capital Markets Union, opened the event in Brussels and Vice-President Jyrki Katainen, responsible for Jobs, Growth, Investment and Competitiveness, will give a keynote speech. The public hearing will be accompanied by the launch of a questionnaire by the High Level Expert Group.