Monday, April 2, 2012

Casino capitalism unthreatened by Michel Barnier

The City of London is more than a financial centre. It is a laboratory for market fundamentalism.

Following the Second World War, Alfred Suenson-Taylor, chairman of an insurance company in the City, played an important role in setting up the Mont Pèlerin Society. By championing the anti-socialist doctrine of Friedrich Hayek, this club helped paved the way for the slash-and-burn economic programmes eventually implemented by Margaret Thatcher and Ronald Reagan. The worldview espoused by Mont Pèlerin grandees remains the prevailing one in the City to this day.

So it is little wonder that the Conservative Party claims it has a patriotic duty to defend the City against meddling from Brussels. A new paper by Fresh Start, the Tories’ internal campaign group on European affairs, warns about 49 proposed EU regulations, “a great many of which are aimed at constricting rather than enabling the [financial services] industry”. Fresh Start infers that this is part of a Gallic conspiracy to undermine British power, recalling a boast made by Nicolas Sarkozy in 2009 that the appointment of his compatriot Michel Barnier as the Union’s commissioner for the single market represented a defeat for Anglo-Saxon capitalism.

The Tories are, to use a technical term, getting their knickers in a twist for no reason. His apparent hyperactivity notwithstanding, Barnier has not introduced any measures that would alter the City’s status as a giant casino. As he said himself in January, “contrary to what I often read there is no plot to undermine the City”.

Tinkering at the edges

In October last year, he recommended a revision of the markets in financial instruments directive (MiFID), which came into effect in 2007. Rather than actually dealing with the harm caused by speculation over the price of food and other commodities, Barnier has merely recommended some tinkering at the edges. He wants, for example, an “organised trading facility” to shed greater light on derivatives. Will that vague plan lead to the decommissioning of these weapons of mass destruction (as Warren Buffet has called them)? Of course, it won’t.

Barnier is on record as describing speculation in basic foodstuffs as a “scandal when there are a billion people starving in the world”. Yet he has not matched his rhetoric with action. The revised MiFID proposal would not definitively ban any form of commodity speculation. Barclays Capital, an investment bank active in the City, bets routinely on the prices of wheat, corn, soybean and sugar. Its activities have helped increase the grocery bills of the world’s poor. Sadly, it has nothing much to fear from Barnier’s plans, which fail to recognise that every human being has the right to food and that this right must never be violated by speculators.

Barnier has been even less willing to address the problem than the US Congress, an institution buried deep in the pockets of Goldman Sachs. Across the Atlantic, the Dodd-Frank Act on financial market regulation stated that one of its aims was to stop “excessive speculation” on food.

Confronting special interests?

Speaking at a conference hosted by the organisation Finance Watch recently, Barnier indicated that “confronting special interests” is often necessary. He proceeded to pat himself on the back for giving consumer and trade union representatives a say in drawing up regulations.

Yet he appears to have no appetite for putting an end to the practice where the most important regulations are largely the result of a few cosy chats between EU officials and the titans of finance.

In February, he announced the establishment of a new “expert group” on the structure of banks. Chaired by Erkii Liikanen, governor of the Bank of Finland, its composition posed no threat to the City or to “Anglo-Saxon capitalism”. One member, Carol Sergeant, was head of risk at Lloyds when it was Britain’s largest mis-seller of payment protection insurance. The need to compensate customers affected by the mis-selling was one of the main reasons why Lloyds incurred a pre-tax loss of £4 billion in 2011. Why has someone associated so closely with this scandal been tasked with advising on the future of European banking?

Come to think of it, this is not the first time in recent years that the European Commission has turned to individuals connected with British banking controversies for counsel. In 2008, a group of eight “wise men” were requested to draw up a report on the supervision of banks by the Commission and the EU’s governments. Among these men was Callum McCarthy, who had been chairman of Britain’s Financial Services Authority for the previous five years. On his watch, the FSA declared Northern Rock as solvent and McCarthy dismissed calls for greater regulation of the financial services industry as “mad dog” overreaction.

In no hurry

Barnier may deserve some kudos for being less averse to regulation than his predecessor Charlie McCreevy. Yet that is a bit like praising Sting for being less bland than Phil Collins. Barnier has not exactly been in a hurry to put safeguards in place to prevent another financial crisis from erupting. A new EU law on capital requirements for banks will not come into effect until 2019 – more than a decade after the collapse of Lehman Brothers.

Little Englanders were always going to resent having a Frenchman in charge of EU financial regulation. The resentment is increasing now that relations between David Cameron’s government and the Union are strained. Yet these prejudices are not grounded in reality. Far from challenging Anglo-Saxon capitalism, the EU institutions accommodate it.

●Originally published by New Europe, 1-7 April 2012.


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