The EU Commission by serving the banks offers poor support to European mainstream political parties

Internal Market and Services Commissioner Michel Barnier gave a press conference on the first comprehensive review of the EU financial regulation agenda. (EC Audiovisual services 15/5/2014).

Internal Market and Services Commissioner Michel Barnier gave a press conference on the first comprehensive review of the EU financial regulation agenda. (EC Audiovisual services 15/5/2014).

The 2008-2012 financial aka banking crisis and its devastating repercussions on the European Union, with deep recession and skyrocketing unemployment, are the main reasons why the EU political and economic establishment shivers ahead of the 22-25 May elections fearing a possible disastrous result. Eurosceptic extremists, nationalists and harlequins may occupy an increased part of the seats in the next European Parliament threatening the very function of Europe.

In view of that, the Commission published yesterday a communication entitled “A reformed financial sector for Europe”, which aspires to be a review of the EU’s reform agenda, explaining “how the reforms reshape the financial sector and the resulting benefits”. This economic review also sets out “how the reforms will deliver a safer and more responsible financial system by enhancing financial stability, deepening the single market for financial services and improving its efficiency whilst improving market integrity and confidence”. Not a word about how and when the EU’s tens of millions of citizens, having a rough time in the labour market, will benefit from the trillions handed out to banks.

Paying the cost of the crisis

Not a word on the relation between the still freely raging financial crisis (at least in half of the Eurozone countries) and unemployment in the 1200 word Commission Press release. Commission President Manuel Barroso and Internal Market and Services Commissioner Michel Barnier, both with exorbitant self-complacency, congratulated themselves over their work in reforming the EU banking sector. They insist that “The reforms make financial markets work more effectively in the interests of consumers, small and medium-sized enterprises and the economy as a whole”. In reality, all that is yet to be seen in the EU’s still completely fragmented financial market.

Unfortunately for them, Mario Draghi on 8 May said that “The annual rate of change of loans to non-financial corporations (mainly SMEs) was ‑3.1% in March, unchanged from February”. He also stressed that banks should “improve their capital and solvency position, thereby contributing to overcome any existing credit supply restriction that could hamper the recovery”. In short, what the President of the ECB says here is that the banks are still refusing or they are incapable to support the real economy to start growing again.

Black holes and zombies

It’s difficult to identify the grounds on which Barroso and Barnier built their assessment that they have transformed the banking sector. Eurozone banks are still ‘black holes’ totally absorbing without a trace all capital injection funded with money usurped from taxpayers, through government subsidies. Nothing has emerged out in the form of new loans to the real economy from at least €1.5 trillion (15% of Eurozone’s GDP) of public money transferred to banks between 2008 and 2012.

On top of that, the banks have also suckled like ‘zombies’ more trillions from the ECB under the form of main refinancing operations (MROs) and long term refinancing operations (LTROs) at almost zero interest rate costs. Despite all the public money transferred to banks during the past five years, the lenders keep reducing their overall loan balances to the real economy. As a matter of fact, the SMEs are totally dependent on the lenders for their credit, and, given that the SMEs create 85% of new jobs, the horizon for the millions of the unemployed remains totally black.

It’s always the stagnation

Of course, there is a deep fragmentation of Eurozone’s banking market. While only 33% of loan requests by Greek SMEs are met, in Germany this percentage reaches 87% and for Spain and Italy it is 50%. This fragmentation doesn’t seem to have changed a bit, despite the ‘hard word’ by Barroso and Barnier to transform the financial system of the European Union. Add to that the latest Eurostat estimate that the Eurozone economy was still in stagnation during the first quarter of this year (GDP up by only 0.2%), and the prospects of the millions of unemployed citizens remain quite bleak.

That’s why the ECB has announced that next month it will introduce extraordinary monetary measures to revive Eurozone. Well informed sources reveal that among those measures will be special care to unblock the SMEs’ financial deadlock in the south. Possibly the ECB will purchase asset backed securities from banks, that is, securitized high quality SMEs loans, ‘packaged’ by banks. In this way, the banks will acquire extra liquidity which will hopefully return to the SMEs.

Poor services

Of course this target will be served through the region’s banking groups, because the ECB has no other channel to implement its monetary policy. It’s questionable then if those peripheral banks will live up to their duties towards the real economy and start serving the financial needs of the SMEs. The question mark applies also in the interest rate cost. Understandably, the banks will receive the extra ECB liquidity at almost zero interest rates. Shamelessly they will charge the loans to their clients, consumers and SMEs, with double digit interest rates and commissions. No wonder why EU’s political and economic establishment shivers ahead of the 22-25 May European elections.

Sum up all that, and becomes obvious that President Barroso and Commissioner Barnier, with their comprehensive review of the EU’s financial reform agenda, provide very poor services to the mainstream political parties of the European Parliament, ahead of the elections.

 

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