Tuesday, 29 June 2010

MEPs ring alarm bells over financial industry’s excessive lobbying power

Twenty two Members of the European Parliament from across the political spectrum launched a remarkable warning against the financial industry’s intensive lobbying efforts last week, warning that it “poses a danger to democracy”.

The MEPs, all actively involved in decision-making on financial market regulation, “can see every day the pressure exerted by the financial and banking industry”. They highlighted the weakness of a counter-lobby defending the public interest and warned that there was a dangerous imbalance between the power of the banking lobbyists compared to that of civil society. The parliamentarians (including Greens, Conservatives, Liberals, Social Democrats and United Left) also pointed to the “close proximity between political and financial elites”, which “contributes to a unilateral attention to the argumentations of the financial industry” both in the US and Europe.

The appeal has attracted widespread media attention, particularly in Germany, France and Austria, with headlines like “Cry for help against finance lobby”, “The EU a marionette of the banks?”, “Helpless against the financial lobby”... It is perhaps the first time since the start of the financial crisis that the problematic role of the banking lobbies has received critical media attention on this scale in Europe.

This attention is well deserved from Corporate Europe Observatory’s perspective. Our research over the last two years has shown the influence of the financial lobby in creating the flawed EU regulatory system for financial markets, and its manoeuvres to pull out the teeth from proposals designed to strengthen regulation. They set the agenda, while politicians and the public are often sidelined.

But while the MEPs’ statement speaks out powerfully against the massive pressure from financial industry lobbyists, the solution presented is rather limited. The MEPs “call on civil society to organize to create one (or more) non-governmental organization(s) capable of developing a counter-expertise on activities carried out on financial markets”. This is not a bad idea and the MEPs are right that there is a lack of civil society expertise and lobbying capacity in this field. But the problem of the excessive influence of finance lobbyists will not be solved just by setting up a “Greenpeace of finance”.

A comprehensive action plan for breaking the undue influence of the financial sector is what is needed. This should include ending the widespread secrecy around financial industry lobbying, rolling back the privileged access currently enjoyed by these lobbyists, closing the revolving door between Commission and banking lobbies, stricter conflicts of interest rules both at the Commission and Parliament, a broader democratisation of EU decision-making (away from the current centralised and technocratic processes) and a re-orientation of the banking sector to serve society’s needs, not the other way around.

One of the 22 MEPs, Sven Giegold, has highlighted one of the most crucial problems in several interviews in German media: the continued dominance of financial industry lobbyists in the European Commission’s advisory groups (the so-called expert groups). The Commission handpicks banking lobbyists to fill up the seats in these powerful groups advising on draft regulations for the financial sector and as a result plays a key role in boosting the power of financial lobbies. It is high time for the Commission to establish safeguards against regulatory capture by industry lobbyists, starting with its advisory groups on financial markets.

Similar problems exist in the European Parliament, where numerous MEPs are far too close to the financial industry and its demands. When Parliament voted on regulating hedge funds and private equity in April, more than half of the amendments on the directive were written by industry lobbies and passed on by MEPs close to the industry. Numerous MEPs are active members of the European Parliamentary Financial Services Forum (EPFSF), a lobbying vehicle of the banking industry.

These examples underline the need for a change in political culture and vision, away from the pre-crisis thinking that what is good for mega-banks is good for society at large. The financial crisis and the continued instability have shown that the banking sector should be regulated with a completely different set of criteria, based on what kind of banking and financial services contributes to the needs of society. Both Commission officials and MEPs must break off their close relationships with Goldman Sachs, Deutche Bank, BNP Paribas and the other financial giants who have enjoyed privileged access for far too long.

One German newspaper commentator correctly pointed out that regulating financial markets is not just a matter of more balanced expertise. Only the investment bankers themselves have detailed expertise on the complex financial products they have developed in the last decade, which means in effect that these speculative instruments could be labelled as “technologies with uncontrollable risks”. As the commentator rightly points out, such risky speculative instruments (eg. the very complicated derivatives that made the US real estate market implode in 2007-2008),, should be treated in the same way as other high-risk technologies, such as nuclear power which is banned in many countries. In the end the unequal battle with the banking lobbyists can only be won if their ‘expertise’ is made superfluous, through simplified and highly transparent financial markets in which high-risk speculative activities are banned.

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