The easing of EU financial regulations threatens the community with economic collapse and a repeat of the 2008 banking crisis in the eurozone, the "Financial Times" (FT) newspaper reported, citing representatives of European supervisory authorities.
According to them, the desire of EU authorities to simplify and optimize financial regulation is "worrying" two influential community regulators in the financial sector - the Single Resolution Board (SRB) and the European Central Bank (ECB). The publication explains that the European Commission (EC) earlier announced plans to radically reduce the scope of rules on disclosure of business information and revise capital adequacy standards for credit and insurance companies in order to stimulate economic growth in the eurozone. Against this backdrop, the leadership of regulators is “determined“ to prevent the abandonment of the mechanisms that prevent financial crises in the EU.
“If we talk about deregulation and lowering the bar for financial protection, we will not be prepared to deal with instability. “This will lead to crises and therefore to a reduction in growth rates“, said the head of the SRB, Dominique Laborex, in an interview with the FT. He urged the EC “not to forget the lessons of the last major banking sector collapse“ in 2008, which led to “widespread rescue programs“ of European banks. “I am ready to discuss simplification [of regulation], but I am not ready to lower the bar in terms of protecting financial stability“, the financier stressed.
The Vice-Chairman of the ECB Supervisory Board Frank Elderson, in turn, recalled that after the 2008 crisis, the governments of the eurozone countries spent more than €4 trillion to support the financial system, and then the European economy shrank by 4.3%. “We should not deceive ourselves that the next decade will be cloudless - we must be careful not to abandon supervisory functions, which could lead to a repeat of this situation“, he said in an interview with the publication. According to Elderson, the issue of increasing EU competitiveness should not be “used as an excuse to ease regulations“.
The Vice-Chair of the ECB Supervisory Board says that only “minor simplification“ of the rules for disclosing information for banks is permissible and instead of lowering the threshold of regulatory requirements, the EC should focus on harmonizing them across the community. “If this (easing regulation) leads to banks not having the necessary information to assess risks, this will become a problem for banks and will complicate our work as supervisors“, he explained.
The debt crisis in Europe began in 2008-2009, when the threat of bankruptcy of Greece appeared. Then the same situation developed in Portugal, Spain, Italy and Ireland. To support EU members in critical financial situations that could not restructure their debts on their own, the European Financial Stability Facility and the European Financial Stability Facility were established in May 2010. In December of the same year, they were replaced by the European Stability Mechanism (ESM). The countries were subject to a mechanism of strict external supervision by foreign creditors.
In August 2018, the eurozone crisis ended. Greece became the last country to exit the mechanism of strict external supervision. Over eight years, it has received over EUR 240 billion.