2012 in Tokyo: at the annual meeting of the World Bank and the International Monetary Fund, the European debt crisis (and risk) was the focus. ECB members sat on the podium. They defended the eurozone and spoke of the rescue of Greece with a correspondingly rigid austerity programme. And especially: keeping the state and the banks separate from each other.
Read more
The conference organized by the Directorate-General for Economic and Financial Affairs in Brussels was exciting. It dealt with structural reforms and the deepening of the economic and monetary union. Reforms! Said Draghi. Reforms! Demanded Dombrovskis. Reforms! Summed up Moscovici.
Read more
The EU is hogging the headlines – not because it is such an amazing construct with a strong and stable foothold in the global political framework, but paradoxically in connection with national and nationalistic ways of thinking. Diversified rather than united…
Read more
I didn’t really want to say anything about the current debate over the refugee/political asylum issue: the unqualified, self-satisfied comments on social media, the helplessness of national and EU governments and the blindness to global connections and goings-on. But I have decided to give free rein to my emotions – in my own way.
Read more
The current situation in Greece yet again makes it abundantly clear that a European-wide banking separation system is long overdue. It was not until the early summer of 2015 that the lame draft of the EU Economic Committee (ECON) within the European Parliament died a natural death. Yet banking separation is essential to the stability of monetary union and has a strong precedent in the Glass Steagall Act, which is well worth emulating.
A banking separation system was on the agenda of the last EU Commission as part of its central regulation measures. The system is very simple. The principle is that customer business should be separate from high-risk investment banking. The champion of UK banking separation, John Vickers, referred to this as “ring-fencing”. He spoke of protecting the sheep (commercial banking) from the wolves (investment banking) by ring-fencing them. Yet in that very market, representatives of the “too big to fail” banks have succeeded in distancing themselves from any effective banking separation system by a process of constant lobbying.
Michel Barnier, Internal EU Market Commissioner of the Barroso Commission, gave former head of the Finnish National Bank, Erkki Liikanen, the task of investigating possible structural reforms within the EU banking sector. The so-called Liikanen Report on the subject duly appeared in 2012. This was followed by EU member nations agreeing on a two-step approach (full details here), which was then brought to its knees by the Economic Committee of the European Parliament in the early summer of 2015.
Universal rather than separate banks
The reason for this failure was that the draft submitted by Swedish rapporteur Gunnar Hökmark (EPP) highlighted and indeed underlined the importance of universal banks and the need to prevent any strict separation of financial institutions into investment and commercial banks. This runs contrary, for instance, to the German Banking Separation Act, which requires that from 1 July 2015, investment banking and commercial business be divided into separate subsidiaries. If the EU law were to take a laxer stance, German banks would be at a competitive disadvantage within the EU (which would probably be no bad thing from a UK point of view).
Jeremy Corbeyn, a left-wing representative of the Labour Party, has recently re-ignited the Glass Steagall debate. He advocates implementing that particular banking separation model. Corbeyn is predicted to have a good chance of winning election as Leader of the Labour Party. Glass Steagall is a ready-made banking separation model that could be incorporated within the European legislative framework relatively easily.
Glass Steagall in the US election campaign
The Dodd Frank Act, only recently cited by President Barack Obama as a successful example of financial market regulation, has come under heavy fire during the current US primaries, within Obama’s party in particular. Apart from Hillary Clinton, who is thought to have a close relationship with the major Wall Street banks, in terms of financing her election campaign, all other Democratic Presidential candidates like Bernie Sanders and Martin O’Malley advocate re-implementation of Glass Steagall. (It was rescinded under Bill Clinton with disastrous and well-documented consequences for the global financial industry).
The “Glass Steagall Act” was brought before the House of Representatives in 1933 as H.R. 5661 by Henry B. Steagall, approved by the U.S. House Committee on Banking and Currency and enshrined in law on 16 June 1933 by President Franklin D. Roosevelt. The “Glass Steagall Act” provided for the introduction of a banking separation system, or institutional separation of a bank’s deposit and lending operations from its securities business. Banks had to decide whether to operate as business banks, offering classic deposit and lending products and services, such as account management and payment transactions, (commercial banking), or as investment banks dealing in securities (investment banking).
Following the world economic crisis or Great Depression in the period between 1929 and 1933, banks had to contend with massive losses, thanks to strong integration and networking between investment and commercial banking, both on the securities side (stock exchange falls) and on the lending side (defaults on loans). The idea of separating the two segments was to ensure that such events did not repeat themselves.
Fintechs an example of banking separation in action
Proponents of the banking separation system, and the Glass Steagall model within the European Parliament in particular, led primarily by Philippe Lamberts of the European Greens, Fabio de Mesi of The Left and Jakob von Weizsäcker of the SPD, believe in the merits of a joint trans-Atlantic initiative to implement the Glass Steagall model of banking separation system in both the US and Europe. The latest developments in Greece, (bank suspensions, capital market controls due to the fact that purchase of state assets = domino effect), as well as the increasing threat of a financial collapse from China should give added impetus to this idea of sustainable separation of commercial banking from investment banking.
Not only that, since the current Turkish G20 presidency is focusing on the issue of “Financing SMEs”, a worldwide initiative to implement Glass Steagall or similar models would also be advisable. SMEs are a key economic, employment and economic stability factor, not only in Europe – in many emerging economies (including incidentally Russia and Brazil, as well as members of the BRICS) EMUs form the backbone of the economy. And, as their financial partners, customer banks are essential – whether analogue or digital. Furthermore, thanks to the Fintechs, systems are emerging in the digital world that follow the banking separation model. Fintechs are not universal banks but customer-focused digital banks. They generally offer a service geared to a particular target market, and so far they tend to be targeting classic “bank” customers.
However it will be a great political challenge to integrate this project into the major EU Commission project of Capital Market Union – particularly given the fact that a “Brexit” must be avoided or is undesirable in any event. This takes us right back to the start of my deliberations. We are in for some exciting political times. Stay tuned.
I am actually a very sceptical observer of American politics – especially its inherent contradictions. The world’s largest democracy still applies the death penalty to a large extent, has yet to develop a functioning healthcare system and shows signs of ever-increasing social tension. Well into the late 1960s, its black people were treated by law as second-class citizens. And as the world’s biggest military power, the US operates via direct or indirect aid as an interventionist force, or self-titled “world police”. Despite all of this, the US has an important role model function for the European Union (EU), in terms of its constitution.
Read more
Yesterday I saw Franz “Vranz” Vranitzky taking part in a discussion group, and felt quite emotional. He was the Chancellor who shaped my political awareness. I was 13 when he became Chancellor and 24 when he resigned, which is why I long for another politician of the Vranitzky mould. It is the social-liberal dimension that I miss in today’s politics.
Read more
The Austrian Federal Government is in the process of giving Austrians a new identity: that of being transparent people – a classic sign of a totalitarian state.
Earlier this month the European Commission released its plan for the Single Digital Market. A very important step in fact for the EU’s competitiveness and in particular the boost to innovation is needed, and yet its contents are a disappointment.
At first glance two things stand out in the plans for the Single DigitalMarket. Firstly, the approach taken to the topic is analogue and web 1.0 rather than web 4.0. And secondly this concept has no vision. There is not a single measure supporting the advantages of the European Union, its diversity, its regions. Quite the opposite: regional protection is dropped, and instead we get Geo-blocking as it’s known.
Geo-blocking watch out
For many users this is at first view a positive development. For the economy a prospect which is not exactly non-threatening. In the Commission’s view, it is clear: the digital union should become the backbone of the forthcoming union of the capital markets. Once again the strength of standardisation takes priority over protection of individualisation.
The regional banks provide a concrete example. Their regional know-how and knowledge of their particular business location, region and community area makes them strong. They understand the needs and requirements of the local economy. This is a valuable asset – using an economically successful region to make the country strong and subsequently the European Union strong as well. The regions are the driver of growth and the strength of the EU. And nevertheless everything is done not to utilise this strength.
Green Paper casts its shadow
Geo-blocking in the strategy of the Digital Union is already casting its first shadows on the proposed green paper on retail financing. One of the focus points will be cross-border financing of loans or perhaps opening current accounts and savings accounts (if they are not in any case already history by then because of Draghi’s low interest rate policy). The consequences are already clear: only large, financially sound institutions will be able to afford cross-border activities. These are not necessarily to be found among the ranks of the regional banks. Even more so, given that some regional banks such as the German savings banks adhere to the regional principle. This means that they are permitted to operate only in their region. One can imagine the competition which will erupt in a financial group, and that in the end only the strong are left. However, the “strong” will have achieved their strength not only through their bread and butter business. The conclusion will probably be the end of a business model that is nearly two centuries old.
Where is Europe’s digital response?
At the same time it would have been so easy to enact measures to digitalise and support the regional strength of Europe. Fibre-optic expansion, free WLAN, support programmes for digitalisation of SMEs. Digital upgrade. Instead of this a kind of digital Schengen is being created. With no concept behind it. And above all no vision.
On the subject of vision: this is nowhere to be found in the paper. No initiatives on creating a European Google, Facebook or Twitter, as other economic regions have (China, Russia). Instead of that, more bureaucracy to prevent the dominant position of the American companies. No attempts to create a European Silicon Valley and thus to prevent the digital brain drain to the USA. The concept of the Digital Union is lacking in every socio-political approach. No mention of social data, the key issue and strength of every digital society.
Digitalisation is a far-reaching development, which creates new socio-political phenomena, makes entire industry sectors disappear or creates new ones. The EU ultimately needs a strategy so that it doesn’t suffer any harm and or disadvantage because of digitalisation, but becomes strong and competitive. The Digital Single Market presented here will not find any followers.
“Technical rationality is the rationality of domination itself.” Max Horkheimer and Theodor W. Adorno: Dialektik der Aufklärung (Dialectic of Enlightenment).
I admit I was very worried. A plane crash in the middle of Europe, involving an airline I regularly fly with. I was alarmed and unsettled by it. Thought it could have happened to me too. Thought of the passengers. Hoped for their sake it was caused by a loss of cabin pressure. Was relieved when it turned out to be human error. Relieved? Yes – and from that point on sickened.
I read the first theories about the cause of the crash as early as Wednesday morning. Raised by the NYT in the European night. And speculation was soon rife: airline experts on TV, self-appointed airline experts in the form of frequent flyers on social media, the first hints of a suspected suicide. The name of the co-pilot was already winging its way to Europe from the US. Lufthansa withheld the names of the entire crew to protect their friends and family, and made reference to the fact that no final cause was anywhere near being established.
The matter became “pressing”
Then the French Public Prosecutor held a press conference and spelt out the name of the co-pilot. Several times. So everyone could write it down. I followed the live feed of that press conference and was horrified to learn the possible motive for the crash. But much more horrified by the way in which the private sphere of a supposed suicide victim was being treated.
The French and German media in particular fought for the latest findings, expressing no outrage that such highly sensitive data was being disclosed by the investigating authorities and played out in the media. The hounding of the co-pilot and, by association, his family/friends/neighbours/relatives had begun – in both the digital and analogue arena. This included headlines unworthy of any civilised society, accompanied by mumblings about the right of the public to be kept informed. The tabloid press was once again in its element. The nationalistic, flag-waving debate over Germany and Greece seemed almost intellectual by comparison with this witch-hunt. The media once again failed as the fourth estate, in both the digital and analogue sense. Why does Facebook routinely censor images of naked breasts but chose not to delete photos of the co-pilot? Due to ratings? Or, as they are now called, “clicks”? Alarming too how some public broadcasters behaved in Germany, lowering their standard of reporting to the depths of the tabloid press – and not for the first time either. The Edathy case was the most recent proof of this trend.
Depression as social stigma
Not only that, ever since then “depression” as an illness has been portrayed as a stigma and a socially irresponsible condition. Any person suffering from “such a” disorder should not be allowed to be a pilot. The control mechanisms failed. The employer failed. New, to my mind, seemingly useless measures such as the presence of two people in the cockpit at all times were immediately put in place to demonstrate rapid responsiveness. And Lufthansa has now installed its own administrative unit for monitoring its pilots. At the same time, people suffering from this illness are being sent the following signals: you are not perfect, look out! From now on you will be treated differently because you have a mental illness. And it will probably not work in your favour. … A new form of social isolation looms – and one that will only exacerbate such health conditions.
But what does this show us? It shows that we, as a civil society – mistakenly believing ourselves to be self-assured and enlightened – are nothing of the sort. We now suddenly want controls and supervision to protect ourselves from harm. We are voyeuristic about the way in which the private sphere of a dead man is dragged through the mud in public as a result of the investigations. We want and demand absolute security and transparency. But we will not achieve it. As long as people are people, there will always be some residual risk, which nothing and nobody can contain. At the same time, we oppose wholesale storage of data, the NSA and the surveillance state.
Perhaps we should take this opportunity to have a closer look at the importance of protecting our private sphere and how far we as a society already were before the digital wave and the media-cracy turned us into their plaything. Let us begin with ourselves – and shame others into doing the same.
