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The New European Economy

Article by Foreign Policy Centre

September 15, 2006

The panel consisted of:

Judith Mayhew, Chairman, Policy and Resources, Corporation of London
W Guy Walker CBE
Tomas Rosander, Embassy of Sweden
Mark Leonard, Director, The Foreign Policy Centre.

The speeches:


Chairman, Ladies and Gentlemen.
Thank you Chairman. I am delighted to be able to join you today for this most important discussion on the way ahead for the new European economy, and particularly the Stockholm European summit.
In financial services there are a lot of areas to cover. In the short time that I have this morning I will therefore confine myself to highlighting the areas of greatest importance to financial services in the European Union.
Across the EU we all take pride in the success of the single market. But this success has not been repeated in the area of financial services.
There are still far too many barriers in the trading of financial products across borders.
The single market has in fact allowed the creation of the very barriers that it was intended to remove. These barriers have been put up in the name of consumer protection. But they have clearly become a device for protecting national self-interest. And by restricting choice within the single market it is the consumer who is being short – changed.
The European Union’s aim in financial services must be to promote the most efficient, effective and dynamic single market in the world.
As by far the largest financial centre in Europe, the City of London will of course be a great beneficiary of this: but so will all the other financial centres in Europe, and through them the population of Europe.
 We need broader and deeper capital markets that will reduce the cost of capital for our firms, including the very important start-up companies and SMEs.
 We need to promote the efficient allocation of capital across the EU, thereby promoting growth and employment.
 And we need a greater choice of more competitive and innovative financial services for consumers and investors.
So how do we do this? What are firms in the City of London pressing for?
At the EU level the development of the regulatory framework is being taken forward by the Financial Services Action Plan. This initiative was started under the UK presidency in order to drive forward progress on achieving the single market in financial services.
The FSAP identifies key measures, which are aimed at removing the range of barriers to the single market, and sets a timetable for adoption.
At the Lisbon European Council a deadline of the year 2005 was set for the implementation of this plan.
Internal Market Commissioner Bolkestein said at the time “a single financial market is an essential compliment to the single currency. Without a single financial market, consumers and businesses will continue to pay over the odds and Europe’s financial services cannot realise their full potential.”
“Implementation of the Financial Services Action Plan is crucial to this goal. We must act faster if we are serious about helping the European economy grow faster, perform better and create more jobs.”
The Commission in Brussels has therefore set ten priorities for the next six months:
For the single EU wholesale market these include proposals to upgrade the two directives on Prospectuses; a proposal for a directive on cross-border use of collateral; a Commission communication on the upgrading of the investment services directive; and a proposal for a directive on market manipulation.
In the area of open, secure retail markets there is a communication on E–commerce policy for financial services.
And in the area of sound prudential rules there are proposals for the creation of a Securities Committee; a proposal for a directive on prudential rules for financial conglomerates: and a proposal for a directive governing the capital framework for banks and investment firms.
In the same time frame the UK has declared its three main priorities for financial services for the Stockholm European summit.
Priority one is to demonstrate clearer progress on the priority measures for completion of the single market. These priorities include a single prospectus for issuers; the adoption of Common, international accounting standards; the liberalisation of cross-border pension funds; and greater clarity in the regulatory treatment of professional investors.
The UK also wishes to force the pace on the 2005 goal for completion of the Financial Services Action Plan by declaring a new deadline for completion of the capital markets by 2003, and the overall 2005 deadline brought forward to 2004.
In the City of London we are very concerned at the speed at which markets are changing and we are impatient for change and progress. By 2004, who knows how markets will look?
The only certainty, I think, is that they will look different from now, and we will still be trying to sort out common standards for the market as they were in the year 2000.
And finally the UK would like to see a priority put on handling the conclusions of the Report of the Wise Men, which has now been completed.
Certainly in the City of London we regard this report as a particularly well-balanced package. We believe that it is now essential that the Commission, the council, the Parliament, the regulators, and the market users work together to promote its proposals as a whole – as soon as possible.
This will allow the report to become an effective, open and adaptable mechanism which can enhance economic growth and international competition in Europe. There are real economic games to be won by all member states.
The City believes that the next steps, which should be taken, should include:
 Rapid completion of the priority measures.
 Implementation of the level 2 Committee structures by the end of 2001.
 Implementation of structures to ensure transparent involvement of market practitioners and users.
 And the adoption of a resolution based on the Wise Men’s recommendations at the Stockholm Council.
I have covered a lot of ground in the last ten minutes in a very complex area. But it is one that is very important to the future of Europe, and it is one that deserves careful attention and much priority.
Thank you.

The New European Economy – Enterprise, Innovation, and the Stockholm Summit
remarks by W Guy Walker CBE

Anti-European caricature
Readers of euro-sceptic newspapers may be tempted to believe that the European economy is failing, that Britain is far ahead of our European partners, who are still living in the economic dark ages. This caricature is far from the truth.

New economic reform agenda, driven by the single currency
In fact, the whole focus of economic policy making in the European Union has changed, and done so in a way that will create greater prosperity and give greater opportunities for UK companies to acquire market share in continental Europe.

The creation of the single currency is one of the key forces driving the process of economic reform in Europe. It has unleashed new competitive pressures, leaving inefficient businesses – and countries with inefficient economic practices – nowhere to hide. The single market is forcing tax competition and helping business as a result.

What EU governments are doing
All over Europe, governments are grasping the nettle of reform

In the words of the Italian government itself, at the front of its latest Cardiff report:

“Over the past few years, Italy has experienced the first attempts to reform the burdensome bureaucracy that has inhibited economic activity in the country for several years, by progressively eliminating anti-competitive and inefficient laws and regulations”

And it has published a list of all the anti-bureaucracy reforms it has undertaken up on its website.

In Germany, corporation tax will fall from 52 per cent on aggregate to 39 per cent in 2001, and the basic rate of income tax will fall from 22.9 per cent to a staggering 15 per cent by 2005.

In France, a ten percent surcharge on corporation tax will be eliminated by 2003. Small and medium sized enterprises will benefit from a reduced rate of corporation tax of 25 per cent in 2001 and a new starting rate of 15 per cent in 2002.

Privatisation is at an advanced stage across the continent. The Italians have disbanded their privatisation agency, declaring their programme more or less complete. The French have sold their last state-owned bank. State aids are coming down: germany is reducing subsidies by 35 per cent between 2000 and 2004.

In telecoms, there is a ferocious price race, spurred by liberalization and competition. The cost of mobile phone calls in Germany fell by 60 per cent in the five years to September 2000. Indeed the EU leads the US in mobile telephony precisely because the ground rules for the industry were set by the European Commission early on.

Where a common European approach is required, governments have agreed to EU directives. For example:
o An e-commerce directive was agreed in 2000 to set equal ground rules for European dot.coms to compete.
o Directives that open up the gas and electricity markets to competition, along the lines of UK legislation, are now in operation.
o In late 2000 European governments agreed legislation to complete telecoms liberalisation by ‘unbundling’ local monopoly access to telephone networks, to bring prices down and increase internet access.

So there is already substantial progress in improving the business climate.

The Stockholm agenda
The Swedish government has set out three priorities for its Presidency – enlargement, the environment, and employment.

British business is very much in favour of enlargement of the EU to the east, carried out on the right terms. The former Communist countries of central and eastern Europe will offer enormous opportunities for British firms. After enlargement, Britain’s home market will rise from 370 million people to 470 million. We should get on with it.

Much environmental legislation impinges on British business. We must ensure that any action that is taken by the EU does not leave European firms at a competitive disadvantage. Efforts to improve environmental regulation must not rush ahead of the United States, in particular. The same is true of environmental taxation.

On the positive side, the liberalisation of energy markets offers significant opportunities to British firms. The British government took the lead on this, and now others are following. Our message to Stockholm is: get on with it.

Under the banner of employment, British business is particularly concerned about the new information and consultation directive.

The British business agenda
Beyond the Swedish presidency’s agenda, there are a number of areas in which British business would like to see progress.

The first is that Stockholm must signal a real commitment to stimulating innovation and supporting research. This means rapid progress on

Protection of intellection property
Rapid introduction of the community patent

The UK has invested heavily in Biotech research, both through the Government and private sector. Britain is a European, and indeed global, leader in the biotechnology industry. (I speak as a recent member of the Biotech Research Council).

It is a tragedy that EU governments have not so far grasped the implications for innovation and research of simplistic constraints on biotech research. Unless British biotechnology firms are given the regulatory framework to test and bring to market new products, then we will rapidly cease to be a leader in this sector.

So there is still much to be done to make the EU a truly dynamic, competitive single market, but from a UK perspective the prospects are much improved compared with 4 or 5 years ago.

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