The European Central Bank’s (ECB) vice-president has said the European Union’s (EU) current agenda to simplify business rules and boost capital flow across the union, aimed at enhancing competitiveness, cannot succeed without the development of a true single market for goods and services.
Speaking at a Federation of International Banks in Ireland (Fibi) conference in Dublin on Wednesday, with a focus on how banking regulators are feeding into the EU simplification drive, Luis de Guindos said it is “impossible” to have a savings and investment union “without a real integration of goods and services markets”.
The EU single market has been in existence for goods and services since 1993. However, a landmark report on EU competitiveness last year, written by former ECB president Mario Draghi, found that Europe’s existing internal barriers act as a de facto 44 per cent tariff on average goods and a 100 per cent tariff for services.
The European Commission is now pressing various institutions, including the ECB, to come up with ways of reducing complexity in rules and regulations. It is hoped this will boost economic competitiveness and growth.
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Mr de Guindos is chair of an ECB taskforce that will make proposals by the end of the year on how banking supervision can be simplified. If they are endorsed by the ECB governing council, they will be sent to the commission for consideration.
While the UK government and the Trump administration in the US are currently seeking to water down some regulations introduced following the 2008 financial crisis, regulators across the eurozone have no appetite to ease bank capital or liquidity requirements.
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“Simplification doesn’t mean deregulation,” Mr de Guindos said. “That is something we have to make very, very clear.”
Central Bank of Ireland deputy governor, Mary-Elizabeth McMunn, said the objective is to “remove unnecessary burden and unnecessary complexity so that we can have better processes and free up our collective resources”.
Ms McMunn rejected calls from some financial lobby groups for a pause in new financial rules as the simplification project is under way. She said regulators and legislators need to keep up with innovation in the financial industry.
She referred to a speech from US Federal Reserve board member Michael Barr in July. Mr Barr highlighted how a number of financial boom-to-bust cycles – including the Great Depression almost a century ago, the US savings and loans crisis in 1990s and financial crash in 2008 – were preceded by the regulatory environment failing to keep up with financial innovation.
“I’d be worried about the gaps that’d emerge [if there was a pause],” she said.
Asked if there is a balance to be struck in the simplification exercise between maintaining the hard-won resilience of the European banking sector and competitiveness, Mr de Guindos said: “If you do not have a resilient banking sector, it’s going to be extremely difficult to have a competitive one.”
