EU Commission: The banks are not obliged to finance the real economy

Press conference by Michel Barnier, Member of the European Commission, on the adoption of a follow-up Communication to the Green Paper on the Long-term financing of the European economy. (EC Audiovisual Services, 27/3/2014).

At a time when the Eurozone banks have received for free €4.5 trillion of taxpayers’ money and at least another €3 trillion from the ECB at close to zero interest rates, the Commission dares to ask the pension funds and the Internet to replace the banks in financing economic growth in the crisis stricken and now stagnating euro area. This seems to be the case with the Commission’s initiative for a “roadmap to meet the long-term financing needs of the European economy”, which was announced yesterday by three of its key members, Barnier, Rehn and Tajani.

Internal Market and Services Commissioner Michel Barnier, Olli Rehn, EC Vice-President for Economic and Monetary Affairs and the Euro and Vice-President for Industry and Entrepreneurship Antonio Tajani, joined forces yesterday to launch an initiative meant to put at risk Eurozone’s pension funds and mobilise charity through the Internet, in order to replace bank credits to long-term projects and the SMEs. The idea is to reduce the role of the occupational funds in securing old age pensions for small employers and self-employed workers and at the same time create the spectacle of doing things in favour of the small and medium businesses. Let’s take one thing at a time.

New burden for pensioners

Starting from the pension funds, one should not forget that they have been the main victims of the financial crisis of the last five years. All over Europe the pension funds paid the dearest price for the US credit crunch and the EU sovereign bond fallout. Bankruptcies of banks and governments hit primarily the pension funds despite the fact that their financial investments contained practically no risk elements, consisting mainly of bank deposits and sovereign bonds. Now the commission wants to further undermine the position of the occupational pension funds in the financial constellation of the Eurozone, by reducing their importance in the wider pension business.

The obvious target is to make room for increased intrusion of the banks in this financial sector. The relevant Commission document (European Commission – MEMO/14/239 27/03/2014) states that “Employers, including SMEs, are expected to benefit through the reduced cost of joining an existing occupational pension fund”. Understandably, if the small employer wants a more substantial superannuation scheme he can turn to a bank/insurance company for a ‘life product’.

It’s not only that though; the Commission also wants that the pensioners’ money is used to replace the banks in their duty towards the society as long-term creditors of the economy. The idea is to let the banks alone to ‘digest’ the trillions they have received for free, and mobilise the occupational funds in order to cover the gap in the long-term financing of the economy. To this effect, the same Commission document mentioned above also states that, “Provisions on investment restrictions would be modernised (as explained above) so that Member States could not restrict investment choices made by occupational pension funds (in particular in assets with a long-term profile such as infrastructure) if restrictions were not justified on prudential grounds”.

Charity for the SMEs

Last but not least, the idea of the Commission to issue a communication on crowdfunding to offer alternative financing options for SMEs (MEMO/14/240) is at least a bad public relations project. In this respect, the Commission wants to relieve the banks from their duty to finance the SMEs. The truth is that only the SMEs depend on the lenders for their financing. The large business groups and the multinationals can finance themselves directly from the capital markets and the private equity funds. In short, the only sector that really needs the banks for its credits, the SMEs, is now encouraged to directly tap the savings of the households through crowdfunding, touching the region of charity.

Once more the target is to leave the banks at ease to ‘digest’ the trillions they have received for free. In reality, the banks do not want to mix themselves any more with the financial needs of the largest part of the population. Indirectly this Commission initiative degrades the activity of SMEs financing to charity.

All in all, those two Commission initiatives are a straight recognition that the banks cannot or don’t want to play their role as the creditors of the largest part of the business sector that is the SMEs. The burden of two very important financial activities, real economy’s long-term financing and the credit to SMEs, are swiftly transferred to the civil society. The banks are left at ease to bet other people’s money to all and every market of the world. It becomes plain then that the banks are no more responsible as financiers of the real economy in most crucial sectors, long term projects and the SMEs.