I hope the Irish government thinks about and takes seriously these comments by Adam Posen, reported by Paul Krugman.
Author: Kevin O’Rourke
The FT and IT report on Jacques de Larosière’s call for a reform of European financial regulation. de Larosière’s report
recommended the establishment of a body under the auspices of the European Central Bank to develop policy and provide risk warnings to European Union supervisors. It also proposed another body to co-ordinate the decentralised network of supervisors monitoring individual institutions and markets.
The FT reports that “European banking and insurance groups welcomed the conclusions”, but I don’t suppose that this in itself should lead us to reject them outright. Eurointelligence is extremely disappointed by the absence of a proposed EU-wide super-regulator, while the FT likes the proposal. Supervision and coordination of the existing supervisors, who have failed, does seem much less attractive than having one new central regulator, and so I tend to side with Eurointelligence. On the other hand, the new European supervisory structure “would combat regulatory arbitrage by: deciding compulsory minimum EU-wide standards; providing binding mediation between disagreeing national authorities; and coordinating international “colleges of supervisors”.
Barry Eichengreen has an interesting article comparing the Irish and Californian experiences here.
There are a small number of policy makers whose views actually matter in Europe right now, and up to recently it wasn’t clear to me that they held the right views. And so, it is extremely reassuring to read
Jean-Claude Trichet, the head of the European Central Bank, said that only emergency measures would help the world recover. “We live in non-linear times – the classic economic models and theories cannot be applied, and future development cannot be foreseen,” he said.
OK, we might query whether ‘linear’ or ‘convex’ is more appropriate, but the sense of urgency is very welcome.
A second piece of good news is the widely flagged rethink in Berlin regarding options for financing eurozone economies. If Juergen Stark wants EMU to survive in the long run, he should welcome such initiatives, since in the long run they will be necessary.
A third piece of good news is that Gordon Brown appears to be going along with Continental demands for greater regulation of financial markets. This is going to be a necessary part of any European Grand Bargain going forward, and in turn it is important that Europe speak with one voice at the London conference in April.