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The end of the EU, euro, SEPA and MiFID is nigh?

There’s been a recent storm of controversy over the ECB’s decision
to accept mortgage backed bonds from Spain.  In effect, Spain has had a
disastrous subprime mortgage collapse and has been bailed out by the
ECB.       

This Investment Markets
note of last week explains the process well, saying that Spanish banks
have been forced to “increase their provisioning of liquidity auctions
held weekly by the ECB, using mortgage-backed bonds as collateral". 
This would be all well and good, except that Spain publishes its
figures for their reliance on these funds and, so far, they are taking
“around 10% of ECB’s total, which is up from 5% not too long ago, this
is a raising of nearly €24bn ($34.8bn) in Spanish lending."

In other words, Spain has been bailed out by the ECB in a rescue of
similar size to the rescue and nationalisation of Northern Rock in
Britain.  The Daily Telegraph reports
that “Moody’s said the total issuance of securities by Spanish banks
last year reached €143bn, up 55% on the 2006. Over €62bn were mortgage
securities."   

This has raised the question amongst many as to
whether the British, German, French and Italian citizens will be happy
that their funding has rescued Spain’s mortgage market, when the rest
of us are left to suffer the slings and arrows of outrageous misfortune.   

The
reason I pick on the British, German, French and Italian citizens is
that we run Europe apparently, according to Portuguese national paper Correio da Manhã (the Morning Mail).  In an opinion piece written by columnist Armando Esteves Pereira,
there is major objection to the fact that London hosted a European
summit a couple of weeks ago, but forgot to invite 23 countries.

This
was a meeting hosted by the UK Prime Minister Gordon Brown on January
29th, where he hosted German Chancellor Angela Merkel, French president
Nicholas Sarkozy and the resigned Italian Prime Minister Romano Prodi
for a mini-summit about the world’s financial crisis in Downing Street.

According to Sr. Pereira, the meeting "sets a dangerous
precedent for the EU by imposing the false authority of four giants on
the fate of the 27 member states.  And Barroso, the Commission’s
president, is approving this controversial division of power with his
presence … The United Kingdom is not part of the eurozone and the
decisions made by the European Central Bank have little impact on the
lives of Britons, as opposed to those from countries that do belong to
this zone.  Thus all European citizens are equal, only, as in George
Orwell’s Animal Farm, some are more equal than others."   

Funnily
enough, this is a sentiment I’ve heard many times around Europe.  For
example, there is a quote I use in presentations regularly which came
from the main newspaper of the European Commission in Brussels, New Europe.  There is an opinion column on the back page of New Europe called Kassandra’s Notebook

This
Notebook had a killer column a while ago that ended: “It is ridiculous
for Europe and its leader to tolerate a situation in which a country,
not participating in the Euro, is the one dictating policies in the
Eurozone.”   

The column was actually a rant about the fact that
Charlie McCreevy had replaced Alexander Schaub with David Wright as a
Director General of the European Commission in the Internal Markets.
The rest of the column went something like:   

“Alexander Schaub
is leaving his post as he reached the retirement age and Commission
President Barroso did not extend his mandate”, which is because
“Charlie McCreevy is serving the British view for Europe” and also
“explains why President Jose Manuel Barroso, rather susceptible to the
wishes of Anglophile Commissioners and of Downing Street, did not have
the political courage to offer a two year extension to Alex Schaub.” 

The
bit I liked the best is the fact that David Wright, who oversaw the
introduction of MiFID, had "introduced the Financial Service Action
Plan, by coincidence tailor-made to satisfy the needs of the City of
London.”   

Well, London is the financial centre of the European
Universe isn’t it?  I mean we have more people working in financial
services here than the population of many large cities, including
Frankfurt.   

However, all this tension does raise the question:
what would happen if the EU fell apart or, more importantly, EMU.  What
would it mean if the euro disappeared?   

This was a question raised when the French and Dutch rejected
the EU constitution referendum in the summer of 2005.  The result of
these rejections led to reports that German finance ministers and the
Bundesbank were planning scenarios for the collapse of monetary union and returning to the Deutschemark. 

Meanwhile, there are regular reports of Italian politicians pleading to break away and return to the lira.   

All
in all, we live in times where we think that SEPA and MiFID, along with
the Market Abuse Directive, Capital Adequacy Directive, Solvency II and
all that other stuff is here, now and stable … but it’s not.   

I’m
not proposing that the EU will fall apart, but with Spain being propped
up by the rest of us, Portugal whinging about being one of 23 countries
being controlled by the other four and the euro still only six years
old as a currency and nine years old as a trading instrument, should we
be betting the farm on PEACHs, TARGETs and STEPs?

Actually, for
those in the Finanser community supplying the banks, it doesn’t matter
as it would be good news if it did all fall apart.  I mean think of how
much more revenue consultants and vendors could create by breaking up
SEPA and MiFID now they’ve been implemented, and it would secure our IT
jobs for another decade too. 

Hmmmmm ….

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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