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Maria S. Topalova

    A ghost is haunting Europe. The ghost of over-regulation and strict supervision of financial markets. Europe has experienced other ghosts in the past, and will survive this one too. Just like the others, this one was created for the benefit of the people. What the others led to we know from history. We shall see where the over-regulation of securities markets will lead us.
    Markets. This magic word, which politicians and economists are trying to use to explain the reason for the financial crisis. It is always easier to blame our problems on an external enemy, as the world financial markets with their opacity, toxic products, quick profits and credit rating agencies, than to recognize the simple fact that some eurozone countries have a standard of living which dramatically exceeds their capacity and in order to support it, they borrow money and accumulate huge foreign debts.
    To cope with the markets, the European Union is preparing a new architecture for financial supervision, as it was announced by the socialist MEP Anni Podimata during the discussion on the future of the European financial system, which was also attended by European Commissioner for Internal Market, Michel Barnier, Minister of Finance George Papaconstantinou and CEO of Eurobank EFG Nikos Nanopoulos.
    "How can you sell something that you don’t possess? How can you insure someone else’s property and then sell its insurance?" asked Anni Podimata rhetoricaly in an attempt to explain to the audience how the securities markets work. From her words it became clear that the European Union wants once and for all to deal with this outrage by creating three supervisory bodies - one for the banks, one for the insurance companies and one for the stock exchanges. Do not think that the credit rating agencies will get away. There’s no way - they will be directly replaced by a European public credit rating agency. "The markets have come to the point where they believe that Greece's debt is more dangerous than that of Venezuela and Pakistan," she said outraged.
    "It is not normal to have a single European currency and at the same time such a fiscal imbalance. The eurozone should introduce a common tax system", stressed further Anni Podimata who also recommended the issue of euro bonds using which to stimulate the economic growth in the eurozone.
    "Nobody anywhere in the European Union would be able to escape the financial supervision," confirmed also the European Commissioner for Internal Market, Michel Barnier. In a typically French style he explained that today the world is much more vulnerable, unstable and uncertain than it was in 1989 when the Soviet empire collapsed. To be fair to history, we need to remind the Commissioner that one of the most important reasons for the collapse of the Soviet empire was precisely the inability of its state-led economy to maintain a totalitarian regime not producing anything which did not withstand the competition of the free market capitalist economy and it collapsed.
    "The end has come for total liberalism, and freedom to gain maximum profit", disclosed the European commissioner and announced that there will be a supervisory body for hedge funds as well. "Banks themselves need to pay for their mistakes, not taxpayers," he said further and reminded that financial institutions are created to serve the real economy, and not vice versa. Michel Barnier is also not sympathetic to the derivative financial products which on a global scale have a turnover of 600 trillion dollars, which he believes are covered with uncertainty.
    His disagreement with the uncontrollable markets and their complex financial instruments which the people can not track and can not regulate expressed also the Minister of Finance George Papakonstantinou. According to him derivative financial instruments such as CDS - credit default swaps should be limited because they do not bring any benefit for the actual economy. He did not try to hide his disappointment with the credit rating agencies. "Every three months we are examined by the experts of the International Monetary Fund, European Central Bank and European Commission. They evaluate the progress of the reforms, they show us where our weaknesses are, but generally they find that keep pace with the Memorandum. Then however come the credit rating agencies, they lower it and the markets listen to them", said the Greek Finance Minister.
    George Papaconstantinou was completely honest about the condition of the Greek economy. "Even in our darkest nightmares we have not imagined how severe the condition of the Greek economy really is. Greece thought it would be able to continue to exist on autopilot in a Europe which was constantly becoming more and more competitive. So we reached an unprecedented collapse of Greek competitiveness. There's a huge contrast between the value of our production and value of the production of our competitors. Greek people did not want to see reality in the eye", he said, explaining why the government was forced to reduce salaries and pensions and increase taxes and excise duties.
    "Greek families and businesses are experiencing a difficult period. Regardless of the biggest financial consolidation ever undertaken in Europe, the debt of Greece will continue to grow. It will exceed 150 percent of GDP before starting to decrease. There are no magic solutions to the problems of Greece", concluded the Minister. He also focused on the pension reform and on the liberalization of the labor market which he characterized as revolutionary. "It is not a socialist act to let the country go bankrupt. It is a socialist act to reform it in the name of the interests of ordinary people", said George Papaconstantinou apparently in a response to the criticism of his party members that he is not following left-wing policies.
     The most synthetic picture of the reasons for the financial crisis gave the Executive Director of Eurobank EFG Nikos Nanopoulos who spoke about the international imbalance of the economy, opaque financial instruments, lack of supervision and regulation, bonuses and a disturbed relation of the financial system with the real economy. He described the current economic crisis as the most severe in the postwar history of Europe. "The worse things are going, the more stringent supervision is exercised. The better the situation develops, the weaker its supervision. This was the philosophy so far and it must change", said the banker and declared to be in favor of a more ambitious supervisory framework in the European Union, covering all SIFIs (Systematically Important Financial Institutions), and not just the banks.
    Of course, Nikos Nanopoulos is the Vice president of the Association of Greek bankers and he analyzes the problems from their perspective. He opposed the excessively high criteria for the capitalization of banks, because large capitalization leads to a higher cost of money and reduces the demand for loans, which in turn destabilizes the financial system. "Bigger capitalization wouldn’t have saved Lehman Brothers", said the Executive Director of Eurobank EFG. He also has no reason to be pleased with the credit rating agencies, because once they lower the credit rating of Greece, the ratings of Greek banks follow. "The philosophy of the credit rating agencies is based on the CDS spreads - if they grow, the credit rating decreases. Why, then, do we need the agencies? We can directly follow the CDS-s", said Nikos Nanopoulos.
    He explained that the Greek banks are very simple entities compared to the major global investment banks. They follow a conservative investment policy and have contributed a lot to the development of Southeast Europe. They currently suffer from a crisis which they did not cause and there is no opening to the toxic products. He declared to be in favor of the harmonization of accounting rules, regulated by the directives Basel1 and Basel2, of the transparency of the swaps, increased attention to the maturity transformation (i.e. the practice of taking short-term loans to invest in long term projects) and an open dialogue between the banks, markets and supervisors.
    Perhaps the open dialogue between all players on the stage of the European financial markets and their supervisors is the only protection against over-regulation, over-control and over-interference. Otherwise, shortly after in Europe, just like in the novels of Ayn Rand we will begin to ask who is John Galt.