McCreevy Speaks On Cross-Border Finance Sector Consolidation

by Ulrika Lomas, for LawAndTax-News.com, Brussels

02 February 2006

Speaking on Tuesday at a European Parliamentary Hearing on Cross-border Consolidation, Internal Market Commissioner, Charlie McCreevy dubbed the matter "an issue of crucial importance for the competitiveness of the European economy".

"Cross-border consolidation is not an objective in itself. But the small number of cross-border mergers and acquisitions in the financial sector compared to other sectors is a source of concern. As does the fact that there are hardly any large European financial institutions of a truly global size," he observed, continuing:

"I do not overlook that several paths towards integration exist, and that mergers and acquisitions are only one of them. This is not a reason for not doing anything. On the contrary: this path is bumpy, full of potholes and obstructed by a number of unnecessary and costly hurdles."

"Market inefficiencies come at a cost for the economy. And in the case of the financial services sector, these inefficiencies can have tremendous spillover effects on the rest of the economy. In today’s world, it is no secret that competition is largely based on innovation. We handicap our innovators all their chances if our financial sector remains fragmented and below the highest global standards."

"And indeed, we should look at what is happening outside Europe. Financial markets are increasingly global. That is the real market place. If in Europe these markets remain segmented along national lines, our financial sector will lag behind others. And so will our economies."

Commissioner McCreevy went on to suggest that there are three main areas which need special attention:

"The first one relates to supervision. The rules for the supervisory approval processes exist for very valid reasons, but they must be streamlined and made more transparent. We are already working on improvements to the current rules, and I hope to come to you with a legislative proposal next summer. There is also a need to improve the day-to-day cost-efficiency of our supervisory system. Further supervisory convergence, in rules and practices, is the right way forward: not a political slogan, but a pragmatic and reasonable approach to be implemented."

"A second challenge is to give our financial institutions more liberty and flexibility to expand and re-organise themselves on a pan-European basis. We – the Commission, the Parliament and the Council – made significant progress over the past 5 years, with the European Company Statute to name just one example. But more can be done. I am now consulting on what should be the priorities for Company Law and Corporate Governance. My colleague Commissioner Kovacs is also looking at the issue of inter-group VAT."

"The ultimate goal here is to allow financial services group to organise themselves efficiently on a cross-border basis, without being penalised from the fact that they cannot recover the VAT."

He added that the: "Third challenge to address is to make further progress in the integration of retail financial markets, to foster efficiency and competition. This will be one of the flagship areas for the coming months and years. A proposal for consumer credit is already on the table, as well as the one for a new legal framework for payments."

Mr McCreevy went on to conclude that:

"Financial institutions, employees, consumers, all represented in this distinguished panel, may have slightly different priorities but they share a common expectation: the expectation that the promises of an efficient Internal Market will be delivered."

"As policymakers, we have the duty to make that happen. The easy way is duck and cover, and ramp up the protectionist and demagogic rhetoric. This has never proved efficient in the past. Have you noticed how quiet the protectionists are when it comes to calculating the real economic costs of such a policy?"

"Or we can show political courage and tackle the obstacles, to seize the great economic benefits within reach."

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