If a week is a long time in politics, then a decade must surely feel like eternity.
About ten years ago, the world’s financial system, and with it the global economy, went into a tailspin. Despite the inceptive – and deceptive – calm period for the Eurozone at the outset of the crisis, it would not be too long before the global events would catch up with the EU’s common currency.
And catch up they did! For what followed in the early 2010s shook the Eurozone to its foundations in such a fashion that the future of the EU itself was put into question. Yet a decade and many emergency summits later, the Eurozone still awaits its major reforms that would address the underlying structural issues that led to its near death in the first place.
But while the issue may already seem like yesterday’s news to most of us, the European Commission has been busy drafting proposals and strategies, hoping that these will, eventually and at a pace so conventional to the EU decision-making process, come to fruition.
Among the most recent ones, the EU’s Executive proposed in September of last year legislation that, if approved by the European Parliament and Council, will transfer a significant chunk of the supervision powers over the European funds industry from the national to the EU authorities. Consolidating the EU’s competences under the banner of the Capital Markets Union, the roles of the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) as well as the European Securities and Markets Authority (ESMA) will be reinforced, and reinforced particularly strongly in the field of the cross-border activities. ESMA especially will enjoy a stronger legal basis and more funding in order to fulfill its new mandate.
Those who follow EU affairs closely, and who still recall the endless discussions around the Eurozone reforms in the wake of the Euro crisis, will not be surprised to find that the arguments made and deployed in support of the proposed regulation come, above all else, in the shape and form of the need for more harmonization of regulatory standards – a harmonization that is, of course, to serve the interests of both the EU at large and Member States individually.
The skeptics among us, however, will have to be forgiven for believing that the reasons behind this proposal span beyond the mere technicalities and the EU-federalist calculus. That is because one of the ultimate maxims of the EU decision-making process dictates that in life, nothing is more certain than the fact that behind every policy, one always finds politics.
ESMA, the agency whose competences will be enhanced by the proposed regulation, is headquartered in Paris, France. While this may, on the surface, seem an irrelevant fact, this seems less so when understood in the context of France’s traditional unease about the globalist nature of the financial sector. More power for the ‘French’ EU agencies will boost France’s ideological spillover into the rest of Europe.
In the spirit of ‘what cannot be banned entirely can at least be regulated’, France’s distrust for some of the ways in which the funds industry operates has led it into a pursuit of a policy along the following lines: ‘if France cannot win, others will have to lose’. Complicating business for banks and fund managers who wish to outsource some of their operations to other non-EU countries (soon to also include the UK) by imposing further regulation is a small price to pay, if not a benefit to gain, for France.
But while it may be a small price for Paris, it sure will be a hefty punishment for countries such as Luxembourg – whose economy prides itself on its somewhat, to put it mildly, notably ‘unique’ regulatory system. The banking and financial sector accounts for a third of the Grand Duchy’s economy and it is, therefore, no surprise that the country has vowed to fight this proposal tooth and nail. While the current government of Xavier Bettel missed its opportunity to lay down its red lines during the public consultation – allegedly due to the fact that the original text did not feature the contentious points – the finance ministry is said to “deploy best efforts” to modify the text so as to render it non-toxic.
But just how likely is Luxembourg, a small EU Member State, to change the outcome of this legislative process? An answer to that question has to be found in the country’s ability to form alliances across the board. Luxembourg is no stranger to punching above its weight. After all, it has enjoyed a comfortable place at the heart of the EU’s enterprise – something that can be demonstrated not only via the nationality of the current president of the EU Commission but more importantly by the impressive list of the EU (and international) organizations located in the country’s capital.
The likely support for Bettel’s government will obviously come from the more liberal corners of the banking and financial industry and from countries where such industry enjoys a prominent place. But more interestingly perhaps, Bettel will also be able to draw some comfort from the least expected of places, his political adversaries. To be precise, from the centre-right European People’s Party (EPP). Or to be even more precise, from the EPP’s youth sister version, the so-called Youth of the European People’s Party (YEPP).
When it comes to politics, the more conservative EPP and the more left-leaning ALDE, from which the Luxembourgish Prime Minister hails, do not see eye to eye. Such schism is to a great extent replicated in their respective EU and national youth parties. Yet, leaving tribal politics aside, and focusing on defending the interests of the EU Member States, YEPP has recently passed a resolution calling on national governments to, in effect, reverse the foreseen power grab by the EU regulatory authorities to the detriment of a functioning system of national oversight.
What is perhaps even more remarkable here is the fact that the YEPP resolution, tabled by and pushed through by Christophe Origer, a 24-year-old Vice-President of Luxembourg’s youth Christian People’s Party (Juncker’s own party), was passed unanimously by all present at the vote. This is clearly a symbolic statement that the EPP cannot and should not ignore, if youth politics is to account for more than a mere farce of rubber stamping of pre-approved decisions.
But will a vote of a youth party be of any consequence in a process which will most likely be dominated by big players and countries? While indeed the actual impact of the YEPP resolution is yet to translate into any tangible policy output, its potency to cause a silent revolution should not be underestimated.
First, YEPP remains Europe’s largest youth political organization representing parties from 39 countries. Second, the EPP, were it to choose to implement the resolution (and it seems politically difficult not to), is the largest political group in the European Parliament, an institution that will have a final say on the proposed regulation. And third, the EPP has a similarly large representation in the second legislative body, the Council, which will be even more crucial in the amending process.
It remains to be seen which way the pendulum will swing.
The European Commission, with the help of France, is insisting on implementing a proposal that will, in the name of politics and more federal Europe, undermine a functioning national system so as to create a European one – for the sake of having one.
And although the proposed changes to the system are European in nature, it would be a mistake to assume all countries will lose or gain in equal measures.
Despite the regular claims to the contrary, the EU’s politics is a zero-sum game; some win and some have to lose.
Nevertheless, Luxembourg’s, or any other small EU Member State’s success is not predetermined by their size, but rather by the greatness and ability to shrewdly navigate the unpredictable and flux waters of European politics.
And if there is one country that has earned its reputation precisely for this reason, then it is Luxembourg.
Change in Europe sometimes comes silently, without the bombastic bravado.
And some countries, unlike others, simply do not feel the need to be boisterous to influence the EU policy-making.
But influence they try and influence they will!