Submission statement: it’s a behind-the-scenes account of how the recent EU capital market reform agreement came about.
> When the EU’s finance ministers sat down for a working dinner in Luxembourg last Thursday evening, Simon Harris warned his counterparts they could be about to face another day of newspaper headlines bashing Europe for again ducking a big decision.
> Or, they could strike a deal, even if the compromise on the table wasn’t perfect, the Irish Minister for Finance said.
Finance officials had been toiling for months over a contentious package of reforms intended to break a decade long logjam.
> The proposals would shift more responsibility for regulating the architecture that makes the financial markets tick from national central banks and authorities to a European regulator.
> Simplifying this layer of oversight would hopefully make it easier for investment cash and funding to flow across national borders, ideally creating a bigger pool of European capital that businesses could tap to raise investment and expand.
> The Irish Government had set itself a tight deadline when taking over the Council of the EU presidency in July. It wanted to agree a deal on the hugely technical package of financial legislation by the October meeting of EU finance ministers.
> Harris, who would be chairing discussions during the EU presidency, had gone back and forth with his advisers about tying himself to a firm date. Ultimately they decided it would help put the pressure on everyone.
> The Council of the EU is the body where the member states, either at the level of officials, ambassadors, or ministers, shape policy coming from Brussels. The “presidency” rotates from country to country every six months, and for that period you are expected to be a neutral broker, steering the debate towards a common compromise.
> Political agreement had long proved elusive when it came to reforms of the EU’s capital markets.
> The idea has been knocking around for a long time – a very long time in fact.
> “Though a European capital market ought to be the result of spontaneous developments, it will nonetheless require constructive efforts on the part of governments and financial institutions,” Italian economist Claudio Segré wrote in a 1966 report for the then-European Economic Community (ECC).
> An expert group chaired by Segré, a commission official, said creating a “broad” European capital market made good economic sense.
> Brussels officials took a proper stab at it in the years that followed the financial crash.
> Jean-Claude Juncker, then-European Commission president, spoke about creating a “capital markets union” in 2014. The changes would involve greater regulation at EU rather than national level, and aligning things such as insolvency regimes and other financial rules.
> Building on banking reforms in the post-crash period, the president of the EU’s lawmaking body said the changes would “increase the attractiveness of Europe as a place to invest”.
> Everyone agrees in principle, but individual national capitals had traditionally been nervous that they would lose out in the shake-up.
> France has been a big fan of the plan. That’s no surprise given the reforms would expand the remit of the existing European Securities and Markets Authority (ESMA), which is based in Paris.
> Ireland and Luxembourg, two small member states with big financial services sectors, eyed plans to hand extra powers over to a European regulator with great suspicion.
> The pair had teamed up in the past to oppose a shift towards a souped-up European regulator, fearing companies and firms would be tempted to set up shop in Paris in the future, rather than Dublin or Luxembourg.
> Concerns about Europe’s sluggish economy, and a creeping sense the EU was falling further behind the United States and China, reignited the debate.
> A 2024 report by another Italian economist, Mario Draghi, said the EU needed to push through the long-stalled capital market reforms to jump-start growth. The former European Central Bank chief warned the alternative would be a slow, painful economic decline.
> Breaking down national barriers that were stopping capital and investment from flowing throughout the 27-state union was key to that, Draghi said.
> Ursula von der Leyen rebranded the capital reforms the “savings and investment union”, part of which would significantly expand ESMA’s remit to oversee financial markets.
> The sprawling piece of complex legislation, the Market Integration and Supervision Package was kicked on to the member states, to see if they could land a deal everyone could live with this time.
> Securing that deal by a self-imposed October deadline was ambitious but doable, Harris wrote in a letter to his fellow finance ministers after a meeting in July.
> There was broad support around the room to get the thing done, subject to the shape of compromise.
> A huge amount of the heavy lifting took place in Brussels at official-level.
> A working group, chaired by Irish finance attache Emma Moyles, met more than a dozen times in the following months to knead out the sticky details. Department of Finance colleagues in Dublin were heavily involved too.
> Irish negotiators got an honest sense of the red lines and the space for a “landing zone” in separate one-to-one discussions with officials from each of the other member states.
> When talking to fellow finance ministers, Harris often mentioned Ireland didn’t need unanimous support to approve a deal, only a qualified majority of EU states, a much easier bar to clear.
> A compromise text was drafted and redrafted by the Irish presidency that ran to several hundred pages.
> The reworked proposal, seen by The Irish Times, included several big changes aimed at bringing reluctant countries around.
>The confidential text shows Luxembourg secured leeway in the oversight of asset management groups. Malta opposed ESMA taking over the regulation of crypto platforms, so European oversight was limited to large platforms.
> More broadly, representatives of national authorities and central banks would retain a role in ESMA’s governance too.
It was the carveout to accommodate the Germans that kicked off the biggest storm.
> Deutsche Börse Group, who run the Frankfurt Stock Exchange, would not come under the supervision of the EU-level authority, but remain regulated locally.
> The German government argued the carveout was justified on the basis Deutsche Börse only operates in Germany, rather than across EU borders. BME, who run the Spanish Stock Exchange, were also exempt from ESMA oversight, following lobbying by Madrid.
> Several member states, and the commission, were unhappy with the way Germany bagged an opt-out for its stock exchange, while others were being pressed to hand over decision-making authority to a European supervisor. “If we are doing this, we have to do it altogether,” said a diplomat from one country annoyed at the German carveout.
> “If it’s a German sausage at the end of all this, what’s the point of it,” one industry source remarked, a reference to the ugly business of policymaking.
> Belgium complained about the need to have a “level playing field”. The Belgian government had unsuccessfully pushed for Euroclear, a major central securities depository in its back yard, to remain regulated at national level.
> Ambassadors from each member state, who are their governments’ eyes and ears in Brussels, picked up the debate last Wednesday.
> Several sources briefed on the closed-door discussion said about 10 member states intervened to register their annoyance.
> The European Commission were also frustrated the ambition of the reforms had been “significantly” watered down.
> Officials continued to negotiate deep in the weeds of the massively technical package of reforms, as finance ministers made their way to Luxembourg for their October 9th meeting.
> A dinner had been arranged the evening before, where Harris again made the case. They could all spend another six months debating the finer points and they’d probably be in the same position, he said. “No compromise is perfect,” he told the room.
> By breakfast the following morning, it seemed clear the other ministers agreed. Word filtered out shortly after they took their seats for the actual EU council meeting: deal done.
> “We have achieved more in the last 10 months than we have achieved in the last 10 years,” Dutch finance minister Eelco Heinen later said.
> All member states – bar Belgium who abstained – voted to back the compromise crafted by the Irish presidency, faults, carveouts and all.
> That’s not the end of things though. MEPs in the European Parliament will have a chance to amend the package, before national governments give their final sign-off.
> Speaking at a press conference afterwards, Harris cautioned against waiting around and letting the perfect become the enemy of the good. “That’s not how the European Union works,” he said.
2 Comments
Submission statement: it’s a behind-the-scenes account of how the recent EU capital market reform agreement came about.
> When the EU’s finance ministers sat down for a working dinner in Luxembourg last Thursday evening, Simon Harris warned his counterparts they could be about to face another day of newspaper headlines bashing Europe for again ducking a big decision.
> Or, they could strike a deal, even if the compromise on the table wasn’t perfect, the Irish Minister for Finance said.
Finance officials had been toiling for months over a contentious package of reforms intended to break a decade long logjam.
> The proposals would shift more responsibility for regulating the architecture that makes the financial markets tick from national central banks and authorities to a European regulator.
> Simplifying this layer of oversight would hopefully make it easier for investment cash and funding to flow across national borders, ideally creating a bigger pool of European capital that businesses could tap to raise investment and expand.
> The Irish Government had set itself a tight deadline when taking over the Council of the EU presidency in July. It wanted to agree a deal on the hugely technical package of financial legislation by the October meeting of EU finance ministers.
> Harris, who would be chairing discussions during the EU presidency, had gone back and forth with his advisers about tying himself to a firm date. Ultimately they decided it would help put the pressure on everyone.
> The Council of the EU is the body where the member states, either at the level of officials, ambassadors, or ministers, shape policy coming from Brussels. The “presidency” rotates from country to country every six months, and for that period you are expected to be a neutral broker, steering the debate towards a common compromise.
> Political agreement had long proved elusive when it came to reforms of the EU’s capital markets.
> The idea has been knocking around for a long time – a very long time in fact.
> “Though a European capital market ought to be the result of spontaneous developments, it will nonetheless require constructive efforts on the part of governments and financial institutions,” Italian economist Claudio Segré wrote in a 1966 report for the then-European Economic Community (ECC).
> An expert group chaired by Segré, a commission official, said creating a “broad” European capital market made good economic sense.
> Brussels officials took a proper stab at it in the years that followed the financial crash.
> Jean-Claude Juncker, then-European Commission president, spoke about creating a “capital markets union” in 2014. The changes would involve greater regulation at EU rather than national level, and aligning things such as insolvency regimes and other financial rules.
> Building on banking reforms in the post-crash period, the president of the EU’s lawmaking body said the changes would “increase the attractiveness of Europe as a place to invest”.
> Everyone agrees in principle, but individual national capitals had traditionally been nervous that they would lose out in the shake-up.
> France has been a big fan of the plan. That’s no surprise given the reforms would expand the remit of the existing European Securities and Markets Authority (ESMA), which is based in Paris.
> Ireland and Luxembourg, two small member states with big financial services sectors, eyed plans to hand extra powers over to a European regulator with great suspicion.
> The pair had teamed up in the past to oppose a shift towards a souped-up European regulator, fearing companies and firms would be tempted to set up shop in Paris in the future, rather than Dublin or Luxembourg.
> Concerns about Europe’s sluggish economy, and a creeping sense the EU was falling further behind the United States and China, reignited the debate.
> A 2024 report by another Italian economist, Mario Draghi, said the EU needed to push through the long-stalled capital market reforms to jump-start growth. The former European Central Bank chief warned the alternative would be a slow, painful economic decline.
> Breaking down national barriers that were stopping capital and investment from flowing throughout the 27-state union was key to that, Draghi said.
> Ursula von der Leyen rebranded the capital reforms the “savings and investment union”, part of which would significantly expand ESMA’s remit to oversee financial markets.
> The sprawling piece of complex legislation, the Market Integration and Supervision Package was kicked on to the member states, to see if they could land a deal everyone could live with this time.
> Securing that deal by a self-imposed October deadline was ambitious but doable, Harris wrote in a letter to his fellow finance ministers after a meeting in July.
> There was broad support around the room to get the thing done, subject to the shape of compromise.
> A huge amount of the heavy lifting took place in Brussels at official-level.
> A working group, chaired by Irish finance attache Emma Moyles, met more than a dozen times in the following months to knead out the sticky details. Department of Finance colleagues in Dublin were heavily involved too.
> Irish negotiators got an honest sense of the red lines and the space for a “landing zone” in separate one-to-one discussions with officials from each of the other member states.
> When talking to fellow finance ministers, Harris often mentioned Ireland didn’t need unanimous support to approve a deal, only a qualified majority of EU states, a much easier bar to clear.
> A compromise text was drafted and redrafted by the Irish presidency that ran to several hundred pages.
> The reworked proposal, seen by The Irish Times, included several big changes aimed at bringing reluctant countries around.
>The confidential text shows Luxembourg secured leeway in the oversight of asset management groups. Malta opposed ESMA taking over the regulation of crypto platforms, so European oversight was limited to large platforms.
> More broadly, representatives of national authorities and central banks would retain a role in ESMA’s governance too.
It was the carveout to accommodate the Germans that kicked off the biggest storm.
> Deutsche Börse Group, who run the Frankfurt Stock Exchange, would not come under the supervision of the EU-level authority, but remain regulated locally.
> The German government argued the carveout was justified on the basis Deutsche Börse only operates in Germany, rather than across EU borders. BME, who run the Spanish Stock Exchange, were also exempt from ESMA oversight, following lobbying by Madrid.
> Several member states, and the commission, were unhappy with the way Germany bagged an opt-out for its stock exchange, while others were being pressed to hand over decision-making authority to a European supervisor. “If we are doing this, we have to do it altogether,” said a diplomat from one country annoyed at the German carveout.
> “If it’s a German sausage at the end of all this, what’s the point of it,” one industry source remarked, a reference to the ugly business of policymaking.
> Belgium complained about the need to have a “level playing field”. The Belgian government had unsuccessfully pushed for Euroclear, a major central securities depository in its back yard, to remain regulated at national level.
> Ambassadors from each member state, who are their governments’ eyes and ears in Brussels, picked up the debate last Wednesday.
> Several sources briefed on the closed-door discussion said about 10 member states intervened to register their annoyance.
> The European Commission were also frustrated the ambition of the reforms had been “significantly” watered down.
> Officials continued to negotiate deep in the weeds of the massively technical package of reforms, as finance ministers made their way to Luxembourg for their October 9th meeting.
> A dinner had been arranged the evening before, where Harris again made the case. They could all spend another six months debating the finer points and they’d probably be in the same position, he said. “No compromise is perfect,” he told the room.
> By breakfast the following morning, it seemed clear the other ministers agreed. Word filtered out shortly after they took their seats for the actual EU council meeting: deal done.
> “We have achieved more in the last 10 months than we have achieved in the last 10 years,” Dutch finance minister Eelco Heinen later said.
> All member states – bar Belgium who abstained – voted to back the compromise crafted by the Irish presidency, faults, carveouts and all.
> That’s not the end of things though. MEPs in the European Parliament will have a chance to amend the package, before national governments give their final sign-off.
> Speaking at a press conference afterwards, Harris cautioned against waiting around and letting the perfect become the enemy of the good. “That’s not how the European Union works,” he said.
https://archive.is/ia7Yf
That our Dutch finmin on the cover. Can’t be good.
The amount of contempt I have for that man