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The Financial Crisis in the European Union: An Impact Assessment and Response Critique

Published online by Cambridge University Press:  20 January 2017

Jennifer Welch
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Abstract

This article assesses the impact of the global economic crisis on the European Union and analyzes the recently enacted and future legislative response to repair the EU financial sector. It closely discusses and critiques the main initial response legislation, the European Economic Recovery Plan, finding that the central regulation contained short-term measures, yet managed to remain within the EU's long-term goals. The article also closely examines the significant risk regulation considerations highlighted by the economic crisis, notably those considerations contained in the De Larosiere Report and the Basel III Framework, and discusses the importance of implementing financial risk regulations to stabilize and revitalize the EU financial sector. Ultimately, the article concludes that the EU's recently enacted legislative measures are consistent with, but also must continue in tandem with, the longterm policies of the EU, while including new and crucial financial risk regulatory measures.

Type
Research Article
Information
European Journal of Risk Regulation , Volume 2 , Issue 4 , December 2011 , pp. 481 - 490
Copyright
Copyright © Cambridge University Press 2011

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References

1 Communication from the Commission: Annual Statement on the Euro Area 2007, COM(2007) at 231 [hereinafter 2007 Annual Statement].

2 Ibid.

3 Ibid.

4 Ibid.

5 Communication from the Commission: the EU economy: 2006 review. Strengthening the euro area: key policy priorities, COM(2006) at 714 [hereinafter 2006 Review].

6 Ibid.

7 Ibid.

8 Ibid.

9 Ibid.

10 Ibid.

11 Ibid.

12 2007 Annual Statement, supra note 1.

13 Ibid.

14 Ibid.

15 EC Treaty Article 104 requires the Commission monitor Member States’ national budget positions. See, e.g., Commission Communication: Public Finances in the EMU – 2007: Ensuring Effectiveness of Preventive Arm of Stability & Growth Pact, COM(2007) at 316; 2006 Review, supra note 5.

16 2007 Annual Statement, supra note 1.

17 European Commission Report: Economic Crisis in Europe: causes, consequences and responses (2009) at p. 8 [hereinafter Economic Crisis Report].

18 Ibid.

19 Ibid.

20 Ibid.

21 Ibid at p. 10.

22 Eurostat, “Trade in goods by main world traders”, 10 November 2009, available on the Internet at <http://epp.eurostat.ec.europa.eu/tgm/printTable.do?tab=table&plugin=1&language=en&pcode=tet00018&printPreview=true> (last accessed on 14 October 2011).

23 Gert Jan Koopman and Istvàn P. Székely, The Financial Crisis and Policy Growth: Policy Challenges for Europe (June 2009).

24 International Monetary Fund, “World Economic Outlook Database”, 1 April 2010, available on the Internet at <http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/index.aspx> (last accessed on 14 October 2011) [hereinafter IMF Database].

25 Eurostat, “Harmonised unemployment rate by gender and Employment growth by gender”, 10 November 2009, available on the Internet at <http://epp.eurostat.ec.europa.eu/portal/page/portal/product_details/dataset?p_product_code=TEILM020> (last accessed on 14 October 2011).

26 IMF Database, supra note 24.

27 Economic Crisis Report, supra note 17.

28 Ibid.

29 Economic Crisis Report, supra note 17.

30 Ibid.

31 Ibid.

32 Ibid.

33 Ibid.

34 Ibid.

35 See, Commission Proposal for a Regulation: Community macro prudential oversight of the financial system and establishing a European Systemic Risk Board, COM(2009) 0499; Commission Proposal for a Directive: Amending directives … in respect of the powers of the European Banking Authority, COM(2009) 0576.

36 Europa, “Tackling the Crisis Together”, 10 November 2009, available on the Internet at <http://europa.eu/pol/emu/index_en.htm> (last accessed on 14 October 2011).

37 Ibid.

38 Economic Crisis Report, supra note 17.

39 Ibid.; The Lisbon Strategy is an on-going priority of the EU which entails implementation of the single market program (especially in the service sector), measures to reduce administrative burdens, and promotion of research & development and innovation. The importance of these issues and the EU's commitment to them was memorialized in the Lisbon Treaty, which went into effect on 1 December 2009. Ibid.

40 Communication from the Commission: A European Economic Recovery Plan, COM(2008) 800 [hereinafter European Recovery Plan].

41 Ibid.

42 Ibid.

43 Ibid.

44 Ibid.

45 Ibid.

46 Ibid.

47 Ibid.

48 Ibid.

49 Ibid.

50 Ibid.

51 Ibid.

52 Ibid.

53 Pedro Solbes, “There Is Room For Rate Cuts”, Wall Street Journal Europe Online, 9 February 2009, available on the Internet at <http://online.wsj.com/article/SB123413364587461303.html> (last accessed on 14 October 2011).

54 2006 Review, supra note 5.

55 Notably, some economists propose that a significant cause of the initial financial crisis, and now the prevention of recovery of the economy, is excessive public debts and lack of mechanisms for burden-sharing between the European countries. The Eurozone Debt Crisis: Is This a Banking Problem?, Jordi Gual, IESE Business School, September 2011.

56 The High-Level Group on Financial Supervision in the EU, Chaired by Jacques de Larosiere, Report, 25 February 2009 [hereinafter De Larosiere Report], at p. 13.

57 Ibid.

58 Ibid.

59 Ibid.

60 Ibid., at p. 8.

61 Ibid.

62 De Larosiere Report, supra note 56, at pp. 8, 10.

63 Ibid. at p. 16. The Basel II Framework is the second version of the Basel Committee on Banking Supervision's recommendations on banking laws and regulations. The purpose behind Basel II was to create an international standard for banking regulators to use when creating standards on capital requirements; in theory, such an international standard would protect the international financial system from problems in the case of a major bank collapse. The framework uses a three-pillar concept (minimum capital requirements, supervisory review, and market disclosure) with the aim of promoting stability in the financial sectors. Relevant to this discussion, the first pillar addresses the various risks banks face (credit, operational, and market). The framework is intended to improve banks’ abilities to manage risks. See Bank for International Settlements, available on the Internet at <http://www.bis.org/publ/bcbsca.htm> (last accessed on 14 October 2011).

64 Ibid.; for a general discussion of financial markets and capital requirements, see Davidson, Paul, Financial Markets, Money, and the Real World (Edward Elgar Publishing, 2002)CrossRefGoogle Scholar.

65 Ibid., at p. 16.

66 Ibid.

67 Basel Committee on Banking Supervision, Basel III: International framework for liquidity risk measurement, standards and monitoring, December 2010, at p. 3.

68 Ibid.

69 Ibid.

70 Basel Committee on Banking Supervision, Basel III: A global regulatory framework for more resilient banks and banking systems, June 2011, at p. 2.

71 Ibid.

72 Ibid., at p. 8.

73 Ibid., at p. 6.

74 Ibid., at p. 9.

75 Council of the European Union: Financial supervision: Council adopts legal texts establishing the European Systemic Risk Board and three new supervisory authorities, 17 November 2010.

76 Ibid.

77 European Parliament and Council: Regulation (EU) No 1092/2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board, 24 November 2010.

78 European Council: Regulation (EU) No 1096/2010 conferring specific tasks upon the European Central Bank concerning the functioning of the European Systemic Risk Board, 17 November 2010.

79 As of October 2011, the effort to recapitalize European banks has resulted in $414 billion raised capital, compared to $314 billion by U.S. banks. Institute of International Finance (2011), Capital Markets Monitor, September 2011, p. 4.

80 See James B. Kelleher, “Buffett's Time Bomb Goes Off on Wall Street”, Reuters.com, 18 September 2008, available on the Internet at <http://www.reuters.com/article/newsOne/idUSN1837154020080918> (last accessed on 14 October 2011); see also Louise Story, “A Secretive Banking Elite Rules Trading in Derivatives”, The New York Times, 11 December 2010.

81 De Larosiere Report, supra note 56.