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| Speaker: | Charlie McCreevy, European Commissioner for Internal Market and Services, European Commission |
|---|---|
| Presider: | Stuart E. Eizenstat, Director, International Trade and Finance, Covington & Burling |
February 7, 2006
Council on Foreign Relations
Washington, DC
Council on Foreign Relations
STUART E. EIZENSTAT: Good morning. I’m Stu Eizenstat. I want to welcome you all to the Council on Foreign Relations for a very special meeting.
Mr. Commissioner, I want to welcome you and wish you a good stay in Washington.
This is a meeting which is part of the C. Peter McColough Series on International Economics, sponsored by the Corporate Program and the Maurice R. Greenberg Center for Geoeconomic Studies. The meeting is on the record.
Just a few quick introductions. We’re very pleased to have the new DCM, deputy head of delegation, Angelos Pangratis, from the European Commission. We welcome you and wish you a long and successful tenure.
I’d like to give a special introduction to a very dear friend of mine, one of the first people I met when I was ambassador to the EU in 1993, and we’ve been fast friends ever since—Alex Schaub. Commissioner McCreevy has the pleasure of having Alex as his director-general, and before that he was director-general of competition. He’s had some of the most senior civil service positions in the commission and is one of the most respected permanent members of the civil service, and also a very dear person.
And, Alex, it’s wonderful to see you again.
There are many people in the audience, I don’t want to recognize all of them or we’d take all our time. But Congressman Jim Moody, now with Merrill Lynch; Michael Andrews, vice president of Citigroup. And I mention Michael in particular because his company is the U.S. co-chair, Mr. Commissioner, of the Transatlantic Business Dialogue that just meet in Davos with Commissioner Mandelson and Verheugen. And Michael has been, and his company, very active on the transatlantic scene.
The European Union obviously has gone through a very difficult period with the defeat of the EU constitution in both France and the Netherlands, and with the difficulty of reaching a budget agreement for the next several years. The most important way in which the EU can work through these problems is in fact to act, and that they’re doing. In December, they broke the budget impasse and successfully passed the budget—no mean feat with 25 countries. They’ve shown an enormous amount of cohesion both internally and with the United States on perhaps the most difficult challenge to world peace, and that is the Iranian nuclear program. They’re working together to make the WTO agreement come to fruition by the end of this year.
But in no area is their action more important than the area in which Charlie McCreevy has the domain, and that is in internal markets and services. The internal market is not a perfected market, and the area of services is an area in which making the internal market work is perhaps the area in which there is the biggest economic payback for Europe, for European companies, for American companies in Europe, and may I say, for transatlantic international economic relations. With the all the emphasis that’s given to DG Competition and some high profile antitrust matters, for all the attention that’s given to DG Trade, on a day-to-day basis, the work that Commissioner McCreevy is doing to help make the internal market work and to extend the internal market to services will have perhaps again the longest-term and most important economic payback of any. And we could have no better person in this crucial role than Commissioner McCreevy.
By way of background, he is himself a chartered accountant, and this gives him the expertise to work on the very difficult services market. He has held a position since 1977 in the Irish Parliament, which he resigned only in 2004 to take his important position now. Since 1992, he held a number of Cabinet positions in Ireland: minister for social welfare, minister for tourism and trade, and minister for finance.
I think we all know—and the commissioner and I were discussing this before we began this session this morning—that no country, literally no country in Europe or anywhere in the world has had the dynamic economic growth over the last 15 to 20 years that Ireland has had. And Commissioner McCreevy is one of the leaders who’s made that economic miracle possible. There is twice as much foreign direct investment in small, tiny Ireland by American companies as there is in China—just to put that into perspective. Twice as much on an annual basis. And for the first time in decades, and indeed, in generations, there is an influx of people coming back to Ireland. And again, this man is one of the major reasons for that.
So we’re very pleased to have you. Again, we know we couldn’t have better hands working on this crucial area than yours, more experienced. And I think if I can just close with this, this services area that the commissioner will be talking about is one of the most politically difficult, sensitive issues involving the sovereignty of member states, and yet the need to complete the single market.
Charlie McCreevy has a unique combination of Irish and great political charm and savvy, together with substantive capabilities. And that combination is going to be necessary over the next months to make this directive work. He faces some early tests in the European Parliament, almost even as we speak.
And with no further ado, I give you really a great European, great supporter of the transatlantic relationship, and a man of enormous political and substantive capability, Commissioner for Internal Markets and Services Charlie McCreevy.
CHARLIE MCCREEVY: Well, thank you very, very much, Stuart, for that very glowing introduction and your very warm remarks about myself and my team.
I, too, would join with you in—when you mention my director-general, Alex Schaub, just note that Mr. Schaub was actually going to retire from the commission in June of this year because even we can’t break the rules when you reach a certain age in the European Commission. But he’s been a very great European and done tremendous work and all of—
EIZENSTAT: You seem to have a 55-year-old retirement age. (Laughter.)
MCCREEVY: He doesn’t look it, but—(chuckles).
Even though I am the European Union’s Commissioner for the internal market, much of my work involves external aspects of our policy. And my belief is clear: open markets work, closed markets do not.
We are at a fork in the road. As international economic integration accelerates, the concept of open markets and a globalizing economy have come under attack. Of course, there are legitimate concerns about globalization. Few dispute that there have to be proper structures, democratic and balanced, which can help developing and emerging economies in particular. There is also a clear need for appropriate forms of governance. We need to manage globalization. Markets, especially financial markets, are based on one thing in particular: trust. And trust is at its strongest, and markets work best and are confident, when there is transparency, reliable information, legal certainty and carefully calibrated levels of consumer and investor protection.
However, there are those who abuse these arguments and try to undermine the whole concept of economic freedom. There is the tendency to blame each and every economic problem on globalization and the competition we face from abroad. I am not disputing that many industries go through difficult and often painful transitions. But some seek to shift the blame abroad. The doomsayers bleat it is the fault of globalization. Foreign take-overs. Cheap imports. Migrant workers. In many of the European member states you can hear these arguments. The debate, which preceded the failure of the referenda on the EU Constitution in France and the Netherlands, was mainly about these issues.
Only three of the so-called old member states have fully opened their labor markets to citizens from the new member states. And lately we have also seen a few attempts by governments or regulators to favor uncompetitive domestic mergers over efficiency-enhancing cross-border ones.
But protectionism is not the answer; it never was historically—and led to great tension between nations—and it isn’t now. A simple correlation of the degree of openness of countries’ economic systems with their economic growth and development will show that openness pays: for people first, with jobs, with thriving businesses, and by releasing human energies, not capping or constraining them.
In Europe in particular, we have been faced with a challenging economic situation: high unemployment, low growth, high government debt, low birthrates—not an optimal mix. But these problems are not caused by foreign competition. They are caused by structural problems in the labor, goods and services markets. Foreign competition just shines a very bright light on what has been there for quite a while. So instead of trying to erect new barriers to the outside, we need comprehensive structural reforms internally that will free our economic energies: to compete more, to give people freedom and space to innovate and to take risks.
But it is not just Europe where protectionism rears its head. Even though the United States has higher growth and lower unemployment, there are also debates here about restricting outsourcing or Senate initiatives to impose tighter controls on foreign investment. A careful eye needs to be kept on the effects of the Exon-Florio bill.
The real danger is that negativism about globalization and enhanced competition can be mutually reinforcing both in the European Union and the United States, with each side pointing the finger at the other and using it as a cheap excuse for its own mistaken policies.
All this rings a very unpleasant bell for me. As a politician in Ireland I was a witness to several decades of policies that were based on the idea that prosperity could only be achieved by keeping the chill winds of international competition out. I never believed in it. But Ireland learned its lesson, although it took a major economic crisis to wake us up. However, within a decade, a country that for centuries had seen mass economic emigration was transformed into the booming destination of many immigrants. Whilst it previously lagged well behind the OECD average in GDP per capita, Ireland is now more than a fifth above.
And this is why I defend the idea of open and competitive markets vigorously and will fight the protectionists tooth and nail. And I fully agree with what President Bush said in his State of the Union Address. He said, “The road of isolationism and protectionism may seem broad and inviting, yet it ends in danger and decline.”
Now, just for a moment let me outline our program for more open markets in Europe, across the Atlantic and globally.
Over the last few years the foundations for an integrating financial market in Europe have been laid. Here there is good news. We are now seeing real progress on the ground. A large and well-functioning euro bond market has been created. International issuance in euros is increasing exponentially, almost reaching the level of the United States. Merger and acquisition activity is high. IPOs and private equity are strong. We don’t have policies that dissuade outside investors from investing in our capital markets. Today EU companies have a much larger range of financing options in the EU than ever before. Our equity markets are solid, financial market players are realizing exceptionally good profit levels. Pan-European financial business is developing, although not fast enough.
Since 1999, almost half of all merger volume in the non-financial sectors in Europe was cross border. In the financial sector this figure was only one fifth, suggesting sub-optimal market functioning. Only a Europe which is competitive internally will be so externally. Europe has over 450 million consumers, more than one and a half times the number of the United States. To reap the full economies of scale of this huge market, companies must have the possibility to find optimal organizational structures and sizes. And they should be able to do that on the basis of sound and rational economic reasoning, and not by adapting to restrictive rules and biased supervisory practice.
I have therefore made clear that tackling obstacles to cross-border consolidation is crucial. But don’t get me wrong; I do not favor specific market structures, nor do I follow an industrial policy credo to create European champions. I do not believe that governments should tell people in the markets where to go and what to do. We have neither the information nor the skills to substitute for the role of entrepreneurs.
Instead, our role is to sever the knots which tie up business and allow them to take decisions for themselves. I’m working towards simplifying supervisory structures and requirements in Europe—common reporting requirements, better home-host cooperation, convergence of supervisory practice across all of the 25 member states. But it is not an easy process and there are no overnight quick fixes, but it is a practical agenda that will pay off.
And I will also vigorously attack any misuse of supervisory powers or political interference in the process. The European Commission is in the process of drawing up amendments to the relevant insurance, banking and securities directive dealing with cross-border mergers and acquisitions. There are legitimate reasons for which a national supervisor should have the right of review; suitability of potential acquirers, protection of investors and, of course, financial stability, but we have to minimize the scope for abuse of these rules for less well-meaning purposes. In this respect, I will also closely watch the national implementation of the take-over bids directive in the European Union and go after any unsavory practices.
But what is true within Europe is also true in our relationship with the United States. For many years, people thought that all economic issues between countries were dealt with by trade talks and trade agreements—tit for tat, reciprocity, cross-sectoral linkages, et cetera. In an age of global enterprise, that is no longer the right way forward. When U.S. legislators cough, EU companies will sneeze, and vice versa. Rules do not stop at our borders any longer; they have repercussions way beyond them. Look at Sarbanes-Oxley, or the EU Financial Conglomerates Directive, or accounting rules.
So how do we deal with cross-border spillovers of legislation? What is important is to work upstream, informally and in a non-conflictual way to find mutually acceptable solutions that take into account the differences in our regulatory structures and, of course, our histories; to reduce compliance cost for business by eliminating duplicative frictional requirements.
This is the agenda the European Commission, the United States Treasury, the SEC and the Federal Reserve have been pursuing in the EU-U.S. financial markets regulatory dialogue over the last few years; close cooperation, upstream information, early detection of regulatory conflicts, and a mutual commitment to try to find practical and efficient solutions.
During my visit here this week I hope that we will make further progress on some of these issues which are of concern on both sides of the Atlantic at the moment. They are issues which form the nuts and bolts of a transatlantic capital market. Let’s call it the A, B, C, D agenda: Accounting, Basel II, Collateral and Deregistration:
In my talks with SEC Chairman Cox, I will be looking for further agreement on how we can eliminate accounting reconciliation requirements in the United States and in Europe. When I was last here, the SEC body—boldly issued its accounting roadmap, stating that the U.S. reconciliation requirement will be dropped by 2009 at the latest. Now we have to take stock and agree on the remaining steps. In my view, full convergence of standards cannot be a prerequisite for the elimination of the reconciliation requirement. Instead, we should make sure that our standards are understandable to investors on both sides of the Atlantic. We also need to establish a new level of cooperation on the implementation of our standards and make sure that no conflicting decisions are taken.
Basel II will equip banks with state-of-the-art risk allocation and prudential rules. The European Union has already adopted the Capital Requirements Directive to implement fully the Basel accord by 2008. In the United States, implementation is progressing but will take one year longer, until 2009. Implementation is, of course, partly a domestic issue, but again, difference in timing and rules have repercussion for domestic and foreign industry. It is important that differences in timing or modalities of implementation will not lead to additional burdens for industry on either side.
Now, the European Union only recently adopted its Directive on Reinsurance, eliminating the small remaining number of national collateral requirements for cross-border reinsurance business. In our view, this is an excellent opportunity for U.S. insurance regulators to take the initiative too. We are working with the National Association of Insurance Commissioners towards a roadmap that would define the steps and set a target date for ending collateral in the US.
And on deregistration, again I favor open capital markets, where companies decide on business grounds where they want to raise capital and when they wish to leave a market. This is as valid for the U.S. capital market as it is for ourselves. Inward IPOs have dried up in the United States in the last few years. Part of this is due to the Hotel California rules, which mean that they can check in but they can’t check out. Just before Christmas, the SEC came forward with its proposal for a reform of deregistration rules in the United States.
We much appreciate that the SEC has delivered a proposal on this important issue. The proposal covers a lot of the issues which have been raised by European companies and it has the potential to make a substantial contribution to more openness. But preliminary numbers also show that even with the new proposal, only a small fraction of European companies could deregister; even they are subject to first-class home-country and reporting requirements. I will be discussing this issue with the SEC and I hope that a solution can be found.
Now, EU-U.S. cooperation in service industries and financial markets plays a crucial and central role on the global stage. The European Union and the U.S. financial services industries lead the way worldwide. EU-U.S. regulatory cooperation should do so too. After all, somewhere between 70 to 80 percent of the world’s capital markets are tied up in our economies.
Jointly, we have a window of opportunity to facilitate the smooth integration of China, India, Brazil and others on the world economic stage. The European Union and the United States should lead by example and show how open and competitive markets with sound standards of investor and consumer protection can deliver a thriving transatlantic financial marketplace. In accounting, in auditing, in our securities and other markets, the European Union and the United States can make a special contribution to the emerging global regulatory system.
If we cannot resolve our differences, what sort of example are we giving to the others? This is a question of mutual interest and leadership.
And I’ll just make four points for the future.
Firstly, let’s make the WTO negotiations on financial services a success. Everyone will benefit from that, but it will need teamwork between the European Union and the United States.
Secondly, let’s help the emerging markets to establish up-to-date regulatory structures and rules—a much better way to ensure stability and fairness than by locking doors or bolting the exits.
Thirdly, let’s improve international structures and standard setters to help devise rules that work for business. Standard makers who listen and apply what I call the better regulation agenda, including looking at the economic impact of their work.
And fourthly, let’s also move beyond a pure trade agenda. The European Union and U.S. regulatory dialogue shows that cooperation works. I’m no Maoist, but let a thousand forms of global economic cooperation bloom between regulators, between parliaments, between trading blocks and countries. The way forward is not some harmonized global superstructure but practical, issue-driven cooperation that achieves results.
In conclusion, we are at a point where we have to make a choice between charting a bold economic future or harking back to the past. Do we make the most of a globalizing world by opening up to the new opportunities, or do we give in to scaremongering? It’s the type of choice your Founding Fathers made and the early settlers took.
Of course there are legitimate concerns. Of course there’s need for sound governance, reliable rules which are developed for a global marketplace.
But there is also the need for leadership and strength to defend open markets. And we all have much to do. What the people in the European Union, the United States and elsewhere want is economic prosperity and new opportunities in a peaceful world. The way to achieve this is to keep on opening markets and societies by encouraging cooperation and market integration in the European Union, in the United States, across the Atlantic and beyond.
Thank you very much. (Applause.)
EIZENSTAT: Thank you for those remarks and the vision that you’ve set out which, I think, is a very important one.
Let me just start the question period.
Now you have a great challenge facing you and the commission with the new services directive. Can you give us some perspective on what we can likely expect in the European parliament and with the member states, why this is so divisive, and why it’s so important?
MCCREEVY: Well, for those that wouldn’t be following the activity of the European Union that closely, can I just say—and if the—what it is about—this directive has generated an awful amount of political heat in the European Union. We published this directive in January 2004. It has become known as the Balkanstein Directive, rhyming dramatically with Frankenstein because my immediate predecessor was Frits Bolkestein. He prefers to—he’s always called himself Frits Bolkestein rather than—(changing pronunciation)—Bolkestein, and he produced this in January 2004, and it has proved ferociously controversial.
Next week, after two years and one month, the European parliament in plenary session will finally give its vote. Then we’ll have to see where we are at that stage because it’s being divisive in the European parliament, and it’s equally divisive among the member states. So we’ll have to assess what type of amendments we get from the parliament because in our structure, things are—this is a bill of co-decision between the parliament and the Council of Ministers, so we’re a long way from having any directive at all, even at this stage. But at least we will jump one important sense next week when the parliament finally gives its vote, and it’ll accept some amendments, it’ll change other things, and then we must assess it.
Now, what did the directive attempt to do? Well, it—we will describe it as an overarching directive to allow businesspeople to provide services across border. Now, those from outside of Europe would be forgiven for saying, “Well, I thought that’s what Europe was about, its foundation,” because the three—four pillars founding the EC and then EU are the freedom of movement of people, capital, goods and services. So you could rewrite it—“Well, what are you talking about after 50-odd years”—(chuckles)—“that you have to have a services directive?” Well, the reality is in Europe between the member states that there are the most unbelievable obstacles in its many member states to providing services; all types of bureaucratic machinery—rules, regulations—to stop services being provided across border. So services, as Stuart has said, is the most apart thing Europe does.
Up to 70 percent of the EU’s economic activity is in the area of services. And at a time when the average unemployment in the EU is 9 percent, the major countries have very difficulties with their—with their budgets. Many of them are outside the rules of the stability and growth pact. You have low growth—an average of little over 1 percent for the past seven to 10 years, and that includes countries like Ireland. The U.K. have been way above that, but the average is a lot lower. The core—the older European countries have this declining population, these aging problems. Our much beloved European social model will fall into disarray if we don’t generate economic activity. So you don’t have to have a degree in mathematics to have worked out that if services make up 70 percent of your activity, well, you had better do something in the services area. And that underlay, then, why we have the services directive.
Now the reason—I’m certain sure that if the unemployment rate in Europe was 4 percent, you would be having no great no debate about the services directive because people would—people—what’s happening at the moment here, people are fearful of their economic futures, and politicians have to face their electorates on a regular basis. But when your electorate is very fearful, you’re inclined to put up the barriers to protectionism and stand before your workers and say, “No, we can’t do it like that.” And there’s a fear across Europe that the cheaper labor areas, such as the new member states that have joined us, are going to flood and provide services and drive down standards of wages and social protections, et cetera. And it’s got to involve the whole (lot of ?) areas which I needn’t go into here. But it’s important that we get a directive. You know, the directive that we will get soon will not be the directive which was published because that ain’t going to fly. And ultimately, all the member states with few exceptions wouldn’t go along with that particular document. So in politics, as those that know, like Congressman Moody, you have to cut your cloth according to your measure. And so therefore, there’ll have to be some changes. But hopefully the parliament next week—that’s the first big fence to cross. And we have to see what we get out by way of amendments.
By the way, there were over 1,600 separate amendments in the parliament, so it’s going to be a bit of a job to kind of make out what they’re going to be. Now it has been narrowed down into groups—about 240 at this stage. But it’s—within the groups, there are divisions. Between the groups, there are divisions. And the same within the member states. So it’s important to get the directive for the reasons I’ve said, for it is proving desperately controversial. And the reason is low economic activity in Europe. That is the reason. If we have an unemployment of 4 percent, the service directive with a few amendments will run through like—(snaps fingers)—I’d say like that. But it is a pretty big test at the moment.
I’m sorry for having to go on a bit, but it is the main cause for a lot of the political heat within Europe in the last three years.
EIZENSTAT: If you could please introduce yourself before questions. The commissioner would be happy to take as many questions and comments as you have.
Yes? Again, please introduce yourself.
QUESTIONER: Commissioner, my name is James Tunkey. Thank you for speaking today.
In your ABCD agenda, you mentioned Basel II. Friends at the Fed say that their support of Basel II will continue to lag. Will you comment on that, please?
MCCREEVY: Well, Basel II was an international agreement, and everyone committed themselves to introducing in their legislation then the effective changes.
When I was in the United States at this time last year, I did get the impression—I did get to know that there would be—there may be a slight—there was going to be a slight delay here. Now, we in Europe have incorporated the Basel II changes in our directive known as the capital requirements directive, and that’s now gone through. So we’re going to have—we’re going to be at least one year ahead of the United States in doing it.
The United States, as I understand it, had a survey done of their—all their banks. There are about, I think, 7,000 banks in the United States. And Congress has gotten a little bit reluctant about it, and now there’s going to be a one-year delay, as we understand it.
That is going to, actually, as far as Europe is concerned—I’ll be very blunt with this—that, in my view, gives many of the European banks a competitive advantage on the United States counterparts, because the Basel II framework is a risk-oriented approach, different than the strict set of rules (that went before ?), a combination of all those things. So it allows for, you know, less regulated capital (before the site ?). So it will give European banks an advantage vis-a-vis the United States banks.
What—there are going to be difficulties in the—its—say there’s only to be this one-year delay. There are going to be difficulties for some of the major banks who have crossover operations—EU banks have operations in the States, and U.S. banks have operations in Europe—because they’re going to have to be in with two different requirements. And this is going to clearly (build ?) some difficulties.
Now there is going to be a conference—it was supposed to be in Williamsburg in the first half of this year; I’m not too sure whether the press is still going to the same place—to try and get over some of these particular problems for these banks. And what—I’ve hoped that the United States will be adopting Basel II within that—they’re going to— this one-year delay, because there will be these difficulties and costs arising, major costs. They’re talking about—you aren’t talking about now a few thousand dollars; you’re talking about millions and millions and millions of dollars. So hopefully it can be resolved.
But we’ve done this, and we’ve implemented—well, we have the legislation gone through, and so now it’ll be in place by—in ‘08, by our banks.
But this difficulty arises. But I understand that the United States authorities are fully hell-bent that it’s going to be only the one-year delay. But I’m not privy, of course, to the—what happens in Congress. People here—it’s a matter for the United States, what they do in their jurisdiction. But we have done this in our area.
QUESTIONER: Yes.
EIZENSTAT: Please, again, also your affiliation, if you could.
QUESTIONER: Good morning, Commissioner. I’m Larry Arnold from Bloomberg News. I was hoping you could address two issues. One would be how you would design a better SEC deregistration rule for non-U.S. companies, and also if you could go into your concerns about Exon-Florio that you mentioned.
MCCREEVY: Well, it has become—it became a pretty contentious issue with EU-listed companies that, having listed in the United—EU companies that, having listed in the United States, that wish then to delist and to deregister, as to how they could get out. That’s referred last year and referred to again this morning as the Hotel California syndrome: You can check in, but you can’t check out.
Now we raised this with the U.S. counterparts when I was here last year, and my—(inaudible)—was led by Mr. Schaub and David Rice and others have had long discussions about this. And the SEC promised us that by the end of 2005, they would be putting forward new deregistration rules. And very much as per their word, this arrived in December, as they had promised. So—and that forms the basis now of further negotiations.
I did point out in my address that for what we see at the moment with it, it would allow about 26 percent—(our totals ?) from the U.S. side— this allowed 26 percent—(inaudible)—to delist. We’re not too sure whether—(inaudible)—all our EU companies. It may not be. We don’t know, so we’re looking for more information.
But I regard the letter that the U.S. has sent to us as the base for negotiations. And even last week my officials were here with the SEC and had further discussions with them over a period of two days and point out some of the difficulties. So we’re working with them to try and get this problem resolved.
As I said in my address and other times, I think you—one of the—this doesn’t go down too well in Europe, what I’m saying, but might go down a little better in the United States—like I’m a total believer in the free market. And long enough—I was the long-time Irish minister of finance, until I came out of Europe, and I operated a fairly aggressive kind of liberal policy, which has worked quite well. But it’s been a great phrase of mine—and this is not what we’re like in Europe—it should be a constitutional right to go bankrupt and to lose your own money, not anyone else’s money; you can choose a title—if you want to take (on crazy and lose ?)—so that is a very important part of capitalism, the right to go bankrupt, because if you don’t—like in Europe, what we try to do is cross every T, dot every I, et cetera, et cetera.
And I’ve always said: Yes, that’s very important, but you have to allow the market to operate. Some people are going to make a fortune. Some people are going to lose a fortune. And that’s what I think makes America great, one of the things that makes America great. I’m a long-time admirer, as people know, of the American system.
And in this particular deregistrative (center ?, I don’t think it’s in anyone’s interest that the United States authorities so constrict or defy the rules that you can’t get out. And I think—and I think it’s the only reason as to why the number of IPO offerings in the States has gone down the last two years. Probably most relates to Sarbanes-Oxley, et cetera, et cetera. But I think with those—I don’t—I think of the United States as the bastion of freedom of capital markets—(inaudible)—government. So I hope in our negotiations with the SEC we can think about their concerns, they can think about our concerns, and I said last week Mr. Schaub’s people were here for all of the week to negotiate this and other matters.
The Exon-Florio bill, if I’m pronouncing it correctly—I’ve used this as an example that—just to say that winds—I made a speech in Europe to say winds of protectionism are blowing across Europe. And then some of my—some member states come back and say, “Look at your great friend, the United States. There’s a fair old—there’s a little bit of a wind blowing over there as well, in some areas.” This didn’t strengthen my case dealing with some of the member states, and I point out some examples.
So I think I—the bill, that relevant piece of legislation, is to do with national security and industries that might affect the national security. But I—and if you go back over the lifetime of that piece of legislation, there have only been, I think, one or two where it’s been actually used, only—(inaudible)—about 25 or 26 have actually ever been referred, and the majorities have gone through.
But I’d like United States people to highlight those, because when I make the case about protectionism being bad for Europe, I don’t like to hear them saying, “Well, in the States, they’re thinking like that as well.” That’s why I just say just to be—just keep an eye on that particular piece.
EIZENSTAT: Yes? Thank you.
QUESTIONER: Good morning. It’s Laurence Grew (sp) with Booz Allen Hamilton. I have two questions, and I apologize for that in advance.
The first one concerns—Commissioner McCreevy, you mentioned a fourth point that you would look for in the future, which is moving beyond trade in the global agenda between the U.S. and the EU. And I think if you could just comment a little bit more specifically in terms of what you mean by that, and is this a two or three-year outlook, or is it something longer-term?
Secondly, focusing a bit more on the specifics of what’s happening now in terms of certain country reactions and government reactions within the EU regarding financial markets, regulation or deregulation, noting the examples in Italy and in France to different degrees of the governments there being to a certain extent protectionist about opening up their financial markets. Over the last couple of years there have been different instances of that. How do you see the role of the commission evolving with respect to addressing instances of protectionism within key member states?
MCCREEVY: Well, on the first point regarding my—the fourth item I mentioned was—(inaudible)—to say better regulatory agenda. I don’t advocate a kind of superstructure throughout the world, but I fundamentally believe that the United States and Europe could get equivalence recognition in many areas of the financial markets and accounting rules and deregistration, as we mentioned these things, is that the rest of the world would—will not follow blindly, but we’d have a better chance of getting this in place in the rest of the world.
So I think the EU and the U.S. should work closely together, as we have in the financial markets regulatory dialogue. There have been large differences between the United States and Europe in recent years on big foreign policy issues, but in the area in which I am responsible—and not on account of me more a tribute to Mr. Schaub and my immediate predecessor, and predecessor before that—that has worked well, and I think that can be built upon. And we have a good relationship with our U.S. counterparts at all levels—at all levels. And we should build upon that, because we got our house in order. I think that it easy—the other parts—were easily fitted in.
On the—there has been—(inaudible)—but this thing of closed markets in the financial area has also been in Europe in many areas. I have my differences with the Italian banks, because what’s happening there, there’s a clear EU piece of law as to—should be applied—(inaudible)—the—the Banking Directive. And the (NASTA ?) supervisor can only interfere in an acquisition situation on very limited grounds or so we thought. They’re only supposed to be in grounds where the (post/pole ?) structure could be deemed to be somewhat financially unstable or that the acquirers were not people of, say, higher standards or problems like that. It was never meant to be that you could say, “We’re not allowing you to take over this bank because you’re not an Italian banker or French banker. We don’t like you.” That’s not in the EU legislation.
And the Italian situation was not following those rules, and after a lot of correspondence and other issues that came to the fore—nothing to do with EU; matters have been more or less resolved there. The governor of the bank initially, a very—he might be surprised to hear me saying this, but I dealt with him a lot when I was minister of Finance in Ireland at meetings, a great man of very, very good qualities. But the—and it would be unfair to say that Italy is the only country in the EU which has a kind of protectionist regime with its banks. The thing with Italy was—at least was overt. We saw it. In many other member states we don’t have the proof, but we know well that acquirers are not very, very welcome.
So as a result of—even before the Italian situation came along, we had been preparing, as a result of a request from the finance ministers in September 2004, long before there was anything in Italy, to do a report in this particular area, and we published our results and are now working towards the next stage in 2006. We published our results two months ago, and now we’re working forward.
There is also a situation at the present time to do with Poland, and last year, an Italian bank, UniCredito, bought a German bank. It was the fifth largest German bank, I think—Alex will tell me. And that was approved by my competition colleague, Neelie Kroes. There were no problems there. But both of those banks have subsidiary operations in Poland, and in recent times, this has now been blocked by the Polish authorities. And myself and my colleague, Neelie Kroes, separately have been taking this up, and we’ve got correspondence in the last two days the Polish authorities are not cooperating.
Now, Poland is one of the new member states that came in the 1st of May 2004, so it’s not an old member state like France or Italy or Germany or Ireland for that matter. So it is—as I say, the winds of protectionism are not just confined to say the old member states. It’d be only fair also to point out there was a change of government in Poland last fall, which has taken in many areas a pretty aggressive anti kind of, well, not—in some ways not a very pro-EU stance.
So this wind is not just confined to the old member states, but we hope in our review, and the new proposal we’ll be putting forward in the banking and other areas, and we’re linking in insurance also because some operations are more banking and insurance and other areas, that we’ve got to make it less easy for member states’ supervisory authorities to block. In our—the documentation on our assessment too much discretion, and the criteria are too loose and too broad, and they can be interpreted in many ways. So you take that our new criteria, assuming we get the legislation through the processes, will be—will allow less discretion or at least will allow discretion only on clearly defined criteria and transparent (bonds ?) that everybody will be able to assess.
Because—I conclude this point—I believe in the European Union to let the banks have more mergers and getting together than other banking giants from around the globe are not looking too far will see opportunities there. And I’d like to have European big banks versus big banks anywhere else. None of the European banks are global—truly global players at the present time. None of them. They are big some of them, but they’re not truly global players. And I think I’d like to see that.
But—(inaudible)—Americans say, it’s up to the market participants to decide this. The commission doesn’t have a policy of saying there should be or not. We think it might be a good idea, but it—our job is to ensure that the pitch is level, that everybody can play in the proper way.
EIZENSTAT: Mr. Commissioner, if I may, just—I wanted you to talk about the winds of protectionism not being limited to Europe. Your voice, as you’re here, on the Exon-Florio, which you mentioned, would be very important, because as a result of the CNOOC-UNOCAL matter—the Chinese effort to buy UNOCAL—there are significant legislative proposals to change Exon-Florio in ways that would make it much more difficult for foreign corporations to acquire U.S. companies. This includes everything from changing the agency which chairs the so-called CFIUS interagency process, redefining national security to include economic security, much greater congressional intervention. So I think your voice would be very welcome. And I think the administration, particularly led by Deputy Treasury Secretary Kimmitt, who has taken a very positive role in trying to block legislative excesses here—would be very welcome.
We have time for one more question, perhaps. Yes, sir?
QUESTIONER: Thanks. My name’s Mark McCarthy (sp). I’m from Visa. I’ve got a question about the single euro payment area, which is your initiative to reduce barriers to cross-border payment services. Are there any developments in that area? Do you want to comment on that initiative?
MCCREEVY: Well, in December of this year, I lodged the proposed directive, called the New Legal Framework for Payments. That’s going to break down, when it gets through the process, which will take a while—the intent behind this directive is to eliminate the legal and other barriers in this particular area, to harmonize the various standards to allow a true single European payments area to develop.
The directive was published in December, but it won’t, of course, become law until it goes to the Parliament and the Council of Ministers, et cetera. So we have made progress there.
And the goal, as you rightly have detected, is to allow a truly European single payments area. It is very expensive to transfer monies across borders in Europe, very expensive. And it varies considerably from country to country. Some countries are at least seven to eight times dearer than other jurisdictions. So we want to allow the market to operate correctly there, so we have published our legislation, and now we have to go through the process.
EIZENSTAT: Mr. Commissioner, you’ve more than lived up to your advance billing, and you’re really a breath of fresh air. It’s obvious that the economic problems, the problems of aging, which you’ve so eloquently laid out, will not go away. They’re simply not cyclical; they’re very structural. And the kinds of changes that you’ve suggested, the reforms you’re pushing in capital markets can be really the leading edge for these structural reforms.
So we know a lot rests on your broad shoulders. We have confidence that you’ll be able to push these reforms through for the benefit of Europe, American companies in Europe and the transatlantic relationship. So we hope that you’ll have good meetings here, and we wish you all the best in your very important mission.
The council thanks you for coming, and we look forward to seeing many of you for other programs.
Thank you. (Applause.)
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