Eurozone crisis threatens SEPA

I almost missed this last week at SIBOS, but Bob Lyddon has kindly allowed me to post all details here with attribution to the SIBOS Daily News for the text below ...

The euro zone crisis threatens to derail the Single Euro Payments Area (SEPA), according to a new research paper. Challenging those who separate the crisis from SEPA preparations, The Eurozone, the ECB and the feasibility of SEPA: an overview, says the Sepa policy objectives were based on certain assumptions about how the single market and the euro would be operating by the time SEPA was realised, but these have not occurred.

Last week’s stock market volatility was fuelled by concerns about Greek debt and the ability of the country’s leaders to implement severe savings measures and economic reforms. There was concern that Greek insolvency may be inevitable. Spiegel Online reported that Germany’s Finance Minister, Wolfgang Schäuble, was reviewing scenarios for handling a Greek default and its impact on the euro zone. Two scenarios were reported as possible: Greece remaining in the euro zone, or the country abandoning the common currency and reverting to the drachma.

In studying SEPA and the sovereign debt crisis, the lead researcher for the paper, Matthew Gibson of University College London (UCL), identified two groups – centralists who want to push SEPA through on the basis that a supposed absence of SEPA has contributed to the euro zone crisis, and sceptics (or nationalists) who following the crisis will be less likely to “fall into line” with SEPA. “This contrast could lead to an acceleration of the legislation from the European level, but a weaker implementation commitment at the national level,” says the report.

Bob Lyddon, managing director of international banking alliance, IBOS Association,  says looking at SEPA in the context of the euro financial system as a whole, it is “absolutely predicated” on the existence of a single currency in this single market. “An admission either that the single market is fragmenting (because of the different country risks within it) or that the euro is no longer a single currency (because it exists in many guises in what should be its purest form – central bank money) would almost certainly lead to stakeholder behaviours that stopped the SEPA programme dead in its tracks,” he says.

In order for compulsory deadlines to be set, both EU Council and European Parliament agreement will be needed, says the paper, relying on a degree of political will for unification within the European community.  This is something that the sovereign debt crisis and tensions between EU countries, resulting at least in part from the European Central Bank’s management of the crisis, may preclude, although Gibson admits that “right now” it is likely that a regulation on SEPA migration will be passed in late 2011.

A survey released last week and conducted during the height of European debt concerns in July and August indicates that belief in the strength of European economic and monetary union is flagging. The State of the European Payments Marketplace, which is published by the UK-based Financial Services Club and sponsored by Logica, found that 15 per cent fewer respondents supported the statement: “economic and monetary union is as strong as ever” compared to last year. Of the 360 respondents from financial institutions, consultancies and technology providers, 41 per cent agreed with the statement, compared to 56 per cent in 2010.

When asked if the European Union itself was “as strong and vibrant as ever”, only 5 per cent agreed; down from 13 per cent in 2010. There was a jump in the number of respondents who agreed with the statement: “the European Union is unlikely to be maintained, and will divide into a Northern Union and the rest”, up 17 per cent from 2010 to 30 per cent of the vote. Overall, says the report, participants responded positively to the question, which indicates survey respondents were losing their belief in the European Union and economic and monetary union.

The full research document from the UCL is available here: http://bit.ly/oTaANG