Thursday, February 26, 2009

Follow the money (all over the place, if it’s in euros)

Jeremy Warner on the idea of unifying financial regulation at the EU level:

so long as individual sovereign nations remain financially liable for underwriting their own banking systems, you are never going to see taxpayers ceding regulatory responsibility to a non-sovereign organisation. Until there is a centralised European treasury function with the capacity to bail out failed banks, it's just not practical.

He’s right – although it’s also true that, as finance is one of the most thoroughly globalised and systemically vital sectors of the economy, there’s a good case for better-coordinated international regulation.

One of the tricky aspects of the European Economic and Monetary Union is that its name is wrong: it’s certainly a monetary union, but it’s well short of being an economic one.

The interactions between the UK Treasury, the Bank of England and the Financial Services Authority are less than ideal. But the institutional jumble that is the European Central Bank, the European Commission, the 16 national governments and their respective regulatory agencies makes decisive and coherent economic policymaking pretty hard.

The kind of central fiscal authority that Warner mentions seems a very distant possibility. So the advice to Woodward and Bernstein – “follow the money” – will keep leading those interested in eurozone governance all over the place.

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