It is a great pleasure for me to address such a distinguished audience, in the heart of Paris’ historical financial district. Over the last two centuries, buildings in this neighbourhood have hosted, and still host, some of the most prestigious European financial companies. The industrial revolution of the early 1800s did not only take place in the steelworks of North-Eastern France, but also right here, with the emergence of modern finance.
The transformation undergone by the French economy at that period is obvious to anyone taking a walk in the streets nearby. Under the energetic guidance of Baron Haussmann, new boulevards and avenues were built. A web of state-of-art gas, water and sewage systems spread across the city. New houses and prestigious public buildings were erected. All of which are today still the distinctive signature of Paris around the world.
I do not dare to compare myself with Haussmann. But I can see some parallels between his vision and what we are trying to achieve for European financial markets today. At the turn of the 19th century, while economic activity boomed, Paris was still a collection of isolated, compressed districts, unable to digest the inflow of workers attracted by the emerging opportunities. The city's energy needed to be released. With more efficient transportation channels. Better infrastructures. And above all, more breathing space.
That is what Haussmann brought to Paris. Today, due to continuing fragmentation and despite the progress made recently, European financial markets are similarly constrained from fulfilling their true potential. Taken individually, our 25 markets may be quite efficient, but the European economy deserves more than a collection of 25 small- and middle-sized markets.
However, there is one point on which I would distance myself very clearly from Haussmann: that of method. He was rather radical. I, on the other hand, embrace the principles of “Better Regulation”. Policy makers should work with market forces, not squeeze them to death. Solutions to regulatory problems or market failures should not be dictated from Brussels, Paris or London but worked out in close cooperation with industry and consumer experts.
And when major economic benefits are within reach, we should collectively find the best ways to seize them. This is particularly the case in the area of clearing and settlement.
Clearing and Settlement
Work on the clearing and settlement of securities transactions lies at the heart of the Commission’s efforts to promote an integrated EU financial market. Indeed, the safety and efficiency of clearing and settlement systems are crucial elements for the proper functioning and the competitiveness of financial markets.
As you are aware, European financial markets are currently served by a multitude of different systems, in most cases historically created to service national markets. In such an environment, it is widely acknowledged that cross-border clearing and settlement arrangements in the EU are complex and fragmented, resulting in higher risks, inefficiencies and higher costs. Costs which are spread through the entire chain of intermediation. This obviously puts cross-border investments at a disadvantage compared to domestic investments. It reinforces existing home-biased attitudes and thus limits substantially potential growth and benefits to the European economy. This situation cannot be allowed to continue. It affects the competitiveness, the attractiveness and the safety of the EU financial market as a whole.
I have discussed extensively with clearing and settlement providers, financial industry leaders representing the major users of cross-border securities services as well as stock exchanges. There is wide agreement on both the problems and the objectives. An excellent starting point. The huge challenge is now to work out together the tools to reach those objectives efficiently.
I have made clear that I am in favour of market-led solutions. I want to see industry taking the initiative to develop new and more efficient structures. But this needs now to happen as a matter of priority. I expect from the industry clear commitments to work towards access and better interconnectivity between the relevant operators, price transparency and fair competition. And I want to see a precise timetable on when and how these commitments will be effectively delivered.
In the absence of action by the industry and on the basis of the Impact Assessment which is currently being finalised, I will take in close collaboration with Nellie Kroes a decision on what action is required from the Commission.
We intend to play our part in fostering the development of an integrated internal market for cross-border clearing and settlement. And so does the Commission as a whole. If there are market failures, which cannot or will not be resolved by the market itself, then we will not hesitate to act. The industry now knows that, as far as I am concerned, it is drinking in the “last chance saloon”.
Payments
Our work on Clearing and Settlement shares many features with the creation of SEPA, the Single Euro Payments Area. Our objective here is to make payments throughout the whole of the Euro area as easy and convenient as domestic payments are today. This is a logical step after the introduction of the euro. But frankly I have always seen SEPA as much more than this.
SEPA is a huge opportunity for Europe in an increasingly competitive world. If we are committed to the Lisbon Agenda, if we want to improve the competitiveness of the European economy, if we wish to rise to the challenges of globalisation and the emergence of new economic powerhouses, then I believe we have to maximise the potential of the single market. And the lifeblood running through our businesses and economy within the single market is our payments systems. If we do not have efficient means of payment, then we cannot have an efficient single market.
I am saddened by the fact that today the payments system is limping behind the physical distribution system. Limping behind. And that is true. Today it can take 5 or more days for a euro payment to be made from one Member State to another, whereas the lorry full of goods has already arrived. In fact it already arrived days earlier! Surely, there is something wrong here.
France is a country that rightly prides itself on the rigour of its Cartesian thinking. But in the age of the digital economy and instant global messaging, there is surely something wrong when electronic messages arrive days behind physical goods. Is this not as you would say in France, "le monde à l'envers" ? Corporate administrative and logistic systems work on-line, real time, globally! Why not the payment systems?
For Europe's businesses and citizens we need to do better. A lot better. In a single market, does it make sense that the cost of a basic payment account is 8 times more in one Member State than in another? Does it make sense to maintain fragmented national payment systems? Does it make sense that debit card fees are 20 times higher for some retailers and credit cards fees 9 times higher?
The Commission Impact Assessment on its proposal for a New Legal Framework estimated the lost benefits and costs of the non-single market in payments at 22 billion euro!
I therefore fully support the efforts of the banking industry to create a Single Euro Payments Area. The New Legal Framework will clear away the current legal barriers blocking SEPA. But industry must eliminate the remaining technical and commercial barriers.
I favour a self-regulatory, market-driven process for SEPA, to the maximum extent possible. I am therefore closely following the work being carried out by the European Payments Council. The EPC has no small task... To try and find common ground between 7,000 different banks on a project of the size and complexity of SEPA is a major challenge. I recognise and acknowledge the substantial progress achieved to date and congratulate the EPC on the rulebooks and frameworks it has already drawn up.
However, despite all our efforts and the good progress achieved, there may be a number of areas where the current EPC work in conjunction with the New Legal Framework may not be sufficient to achieve our vision for SEPA. The European Central Bank also shares these concerns, as will know readers of its recent Fourth Progress Report on SEPA. For this reason, the Commission and the ECB have both expressly reserved the right to propose legislation, should this be necessary. Let me therefore briefly outline some of the concerns where we have asked stakeholders to comment:
- national migration to SEPA is unlikely where the performance of future SEPA products falls below that of existing national products;
- to ensure effective competition in a network industry, we need proper standard-setting and governance arrangements;
- public authorities too have a responsibility and role to play – just as with the launch of the Euro, public authorities can promote SEPA by communication programmes. They can also kick-start national migration by being an early mover to SEPA products;
- and last, but certainly not least, we need to find ways to minimise migration costs for banks.
I recognise that the achievement of SEPA will involve substantial costs for banks. Therefore, in a consultative document published last month, my services have invited comment on possible ways or incentives to facilitate migration by banks. These include:
- using conversion software to extend the lifetime of existing processing investments;
- phasing new investments in payment systems in time with the natural replacement cycle of existing capacity;
- reducing costs borne by the banking sector – for example by replacing expensive payment instruments (e.g. cash and cheques) by more efficient electronic payments;
- developing new and profitable business models for banks based on the provision of value-added-services linked to e-invoicing.
I would like to dwell a moment on the last. All too often, SEPA is seen as a zero-sum game: banks invest, customers gain; but all too seldom is recognition given to its tremendous business potential. Quite simply, SEPA could act as a launch pad for the provision by banks of value-added-services linked to e-invoicing. Automating business processes linked to the payment chain could provide truly revolutionary productivity gains. Less administrative burden. Less delay. Less mistakes. Better controls. Better checks and balances within a company. Conservative estimates of the combined savings easily exceed 100 billion euro, not just once... But every year.
With their traditional payments role, combined with the strength of their customer relationships, secure network links and electronic identification means, banks are in pole position to provide the required IT platform. This is not "pie in the sky": it already exists in some Member States.
If we have the vision and the commitment, then SEPA can be a win for banks and a win for customers. In short, a win for Europe and its economy.
Retail financial services
A lot could be gained also if we could remedy the current fragmentation of retail financial markets. It is fair to say that, with the Financial Services Action Plan, we have laid the legal foundations for the creation of an integrated capital markets but that a lot remains to be done in order to deliver the benefits of integration also to consumers.
The current fragmentation of retail financial services is unsatisfactory. There are huge latent benefits waiting to be exploited: a wider range of products and lower prices for customers; economies of scale for pan-European institutions; better synergies between companies merging together.
As you know, a proposal for a new Consumer Credit Directive is on the table of the Council and the Parliament. The negotiation on this directive is an important test: those who plead for an integrated retail financial market must be constructive. If we can’t make the limited progress that this directive aims to make, I am afraid that an integrated retail market will remain a dream for quite some time.
Integrating mortgage markets will be an even more challenging task. I will therefore not rush towards legislative proposals in this area. However, I am determined to assess with the greatest care whether some form of regulatory action can bring added value to the economy. Next month, I will launch a joint industry and consumer working group which will be tasked to reflect on how key-consumer protection requirements could be harmonised. Another group will work on funding issues. If the activities of these groups bear fruit, I will consider early next year what form of Community action is required to improve the functioning of mortgage credit markets.
I have also asked my services to look at the issue of bank accounts – the single entry point for most consumers to financial services. I am concerned about the difficulties that consumers often experience when they want to open an account in a Member State where they are not resident. We should also look at the burdensome procedures they have to go through when they want to close their account and switch banks. I want to make sure there are no undue obstacles limiting competition between banks. It is again an issue on which I will closely cooperate with my colleague Nellie Kroes, who will release before the summer the first findings of the enquiry initiated by her services in the field of core retail banking products.
The risks of “over-politicisation”
Our ambitions for Europe's financial markets sometimes raise concerns about the risk of “over-regulation”. I hope that, by now, everybody has understood that I will not let that happen.
And to be frank, I strongly believe that the real risk today is not with “over-regulation” but with “over-politicisation”.
I do not believe in the efficiency of political intervention in business decisions. It has not worked in the past. Why would it work better in today’s fast-moving global economy? Small short-term political gains will never offset huge long-term welfare losses. I am therefore determined, in the banking sector as well as in other financial sectors, to take all the measures needed to avoid political interferences in the supervisory approval process of mergers and acquisitions. A legislative proposal will be tabled this summer.
In response to globalisation, let us not fool ourselves by building up useless political Maginot lines. They will do nothing but block us from the benefits of economic growth and social welfare. Investors react simply to excessive corporate defence mechanisms or protectionist rhetoric: they include a discount in the share valuation. Billions of euros down the drain. Far from protecting the companies, an undervalued share price limits them in their development. Or even more simply, investors move on to other markets – in Europe or elsewhere. Is this desirable? When the major challenges are economic underperformance and unemployment, is this beneficial? No and no.
The only sensible, sustainable response to globalisation is an integrated Europe, confident in itself. Not demagogic protectionism. In the emerging new global economy, Europe has nothing to fear, but fear itself.
I would also add that, in a truly open Internal Market, French companies have nothing to fear. They often belong, on a global scale, to the better performing ones. The only thing they should fear is a government which tries to shield domestic markets from competition.
This will make them less competitive. This may also create problems for them, when they seek to expand their activities by acquiring foreign companies or establishing themselves in other countries.
Conclusion
Ladies and Gentlemen, let me conclude.
Both Haussmann and Maginot had a vision of what was good for their country, but a very different one. Of course, they were influenced by the circumstances, but not only. Maginot's vision relied on the idea that recipes of the past also work for the future, ignoring technological changes and simply the reality of the surrounding world. It was a self-centred, inward-looking vision. The other dared to look ahead. To take the lead. To anticipate changes in the economy and in society. An ambitious vision, directed towards the future, not the past. With lasting results.
When we reflect on the future of the European economy, we should keep these examples in mind. As to which one should be the best guide in making our policy decisions, I think you will have understood where I stand.
Thank you.
