Download European Cross-Border Cooperation to Safeguard Stability

*Presentation by Per Callesen, May 21, 2010
“ Global Financial Crisis: Lessons for the Stability of the Financial Sector”
Conference, Warsaw.
Organized by the BGF Guarantee Fund of Poland
*Views and assessments are made on a purely personal basis
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Policy implications of the sovereign debt
crisis
2008 crisis management benchmarked
against the MoU and its principles
Revisiting controversial issues in preparing for
the 2008 MoU
Broader remarks on stability in the financial
system
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No financial stability with disorderly public finances.
Sustainable public finances are mainly a national
interest and obligation. But much needs to be done
at the European level as well:
 Re-coupling fiscal policy and it’s underlying
decisions. Stronger role of the ECOFIN.
 Stronger differentiation of fiscal policy advice.
 Take current account imbalances and inflation
into account in fiscal surveillance.
 Stronger political follow up with peer pressure,
political and economic sanctions.
The crisis unfolded very differently from
anticipated in the MoU, and so did intervention:
Case-by-case management given up early. Fairly
good EU-cooperation on systemic approach,
after a difficult start.
 Protection went far beyond expectation.
 Mixed experience of cooperation for intervention
in specific institutions.
 Competition rules important, but difficult.
 Contagion became an overarching concern
across the board.
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Assessment
Primary Principle
Secondary Principle
Protect stability in all countries
Not prevent bank failures
Primacy to private sector solutions
Creditors to expect losses
3. Mainly Yes
Public money, never taken for granted
Only used strictly
4. Yes and No
Common concerns for all MS
Coop. in normal times
5. Mainly Yes
Arrangements & tools designed flexibly
Shared assessments
6. Yes
Consistent with supervision & prevention
1. Yes, but
2. No
7. Probably No
Full participation ensured for affected MS
8. Mainly Yes
Preserve level playing field/state aid rules
9. Yes
Global dimension taken into account
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Moral hazard. The discussion on whether to
mention possible public intervention has been
fully overtaken by events. But setting the
conditions remains as difficult.
Preparing for burden sharing. The mood has
shifted towards favoring comprehensive
preparation. Possibly also to some degree
towards ex ante arrangements.
More decisive approach towards crossborder stability groups
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An effective financial sector is needed to spur
private demand
But it has to become stable
Discretion has a limit. Look for automatic
stabilizers, like provisioning.
Strong dilemma between need for stronger
competition and preserving stability
Don’t forget that bad macroeconomic policies
in good times played a major part
Macroeconomic policy mistakes are very costly