THE FRIDAY INTERVIEW:CHARLIE McCREEVY has accused EU leaders of hypocrisy for advocating grandiose plans to reform the global regulatory system at high-level meetings such as the G20 while opposing similar reforms in Europe. He has also warned that the public will have to wait some time to see if the actions of G20 leaders match their words when it comes to implementing regulations on a global or even an European level.
“What I find is when member states’ leaders and members of the European Parliament go to big meetings and jamborees, all of them sign up to EU solutions and sometimes worldwide solutions, but when legislation is put in front of them, then strangely, they all go back to their national position,” says McCreevy, who has been criticised by socialist MEPs for not proposing regulations that could have prevented the crisis.
McCreevy, who as internal markets commissioner is responsible for drafting EU laws to govern Europe’s financial sector, says he has been consistently frustrated by EU states and MEPs when it comes to implementing regulations proposing more cross-border supervision of banks and insurers.
“When you put something down in front of them on the table, member states and MEPs retrench back to supporting national positions. That shows a certain degree of hypocrisy,” says McCreevy, who gives last week’s deal between MEPs and EU states on reform of the insurance sector as a prime example.
The “Solvency II” legislation will change how insurers in the EU are regulated to strengthen consumer protection. But a proposal by McCreevy to provide, for the first time, some pan-European supervision of cross-border insurers – by suggesting the capital that firms are required to hold be assessed at group level rather than on a subsidiary level – was rejected.
Big insurance firms supported the proposal, which would have reduced compliance costs. But small EU states in particular opposed the measure because they feared their national regulators would lose influence over the subsidiaries of multinationals in their home state. Under the proposal, these subsidiaries would be regulated by the regulator in the state where their headquarters is based, which would most likely be in a big state like Germany, Britain or France. McCreevy says people should be realistic about what the G20 can achieve.
“If anyone expects that on Friday the whole world will change overnight, it’s just not going to happen like that,” says McCreevy, who, over the next few weeks, will put forward a plethora of new EU regulatory proposals.
Despite his reputation in Brussels as a “deregulator”, he will present proposals this month to regulate hedge funds and the remuneration of executives working at financial institutions. The commission will not propose a salary cap for executives (a move favoured by states such as Ireland, which set a €500,000 cap), according to McCreevy, who argues that such matters should be decided by member states. But he favours giving national regulators powers to intervene if they think a company’s remuneration policy offers incentives that encourage people to take on too much risk.
His decision to propose regulating hedge funds follows a vocal campaign against him by critics in Brussels such as German socialist MEP Martin Schultz. “Hedge funds didn’t cause the crisis,” says McCreevy, who says the real issue will be defining which funds pose a systemic risk and now need to be regulated.
He warns against the very real risk of overreacting to the crisis and over-regulating the industry. “During my political lifetime, in these instances everyone has always gone too far in one direction or the other: so if form is to go by, that’s what will happen now,” he says. “Those who believe in free-market principles should be prepared to stand up for them despite the tsunami of criticism coming from the other side.
“The left wing is celebrating this crisis more than anyone else, here and across Europe. They are celebrating the end of free-market capitalism saying ‘hurray, hurray, hurray our troops are in the ascendancy’. I don’t see it like that myself. I think it is too early to signal the end of capitalism,” says McCreevy, who says he has been unfairly labelled an ideologue when in fact he is a pragmatist.
A key test for the remaining seven to nine months of his tenure in Brussels will be his stewardship of the commission’s response to the report by former Bank of France governor Jacques de Larosière, which recommended reforming the EU’s entire financial framework.
“I agree with the main thrust of his report,” says McCreevy, who notes it proposes practical and evolutionary steps forward in financial supervision rather than any revolutionary steps such as a single EU financial regulator.
De Larosière has advocated setting up two new pan-EU bodies: one to monitor system-wide risks to the European economy and the other to ensure day-to-day supervision of institutions is consistent. National regulators will retain their supervisory role over institutions, although the pan-EU body will be handed the power to overrule their decisions if they are deemed not be regulating an institution effectively.
McCreevy says he believes in this pragmatic approach even though, in the long term, he thinks the creation of the single market logically dictates there should be a single EU body for regulation. But he notes that Britain has already raised concerns about elements of the de Larosière report and he expects other member states such as Germany to raise issues about national sovereignty in the coming months.
Just as critics in Brussels accuse him of falling asleep at the watch as the crisis gathered steam in Europe, critics in Ireland accuse him of blowing the Celtic Tiger boom during his years as minister for finance. Asked if, in hindsight, he would have done anything differently, such as removing tax breaks on property, he replies: “No, not a thing. It is five years since I left. That’s a fairly considerable period of time . . . the economy grew by record percentages those years. We ran budget surpluses every year bar one, there was virtually full employment.
“We increased old age pensions and national debt dropped from 67 per cent of GDP to 27 per cent of GDP.
“There seems to be a kind of effort by some now to say that was a waste of time. But ask the people who were employed during that period, who enjoyed higher living standards, ask the old age pensioners, ask the people who were getting extra remedial teachers in classrooms, extra money for the health services.”
McCreevy says the decision by SP to downgrade Ireland’s AAA rating was not surprising given the large deficit and he warns the Government must come up with a credible plan next week.
“If the markets don’t think it is credible, it would mean the spreads [on Irish debt] would get wider and the interest rate on our debt will get higher,” he says, warning that the appetite for public debt is not limitless worldwide because of the huge amounts being raised by states such as the US and Britain.
“This debt has to be bought by someone and if you are presented with buying a treasury bill or an Irish bond, investors will say they will stick to the dollar. So the point is you need a credible plan.”
ON THE RECORD
Name:Charlie McCreevy
Position:EU Internal Markets Commissioner
Birthplace:Sallins, Co Kildare, September 1949
Married:To Noeleen Halligan with three sons. He has one son and three daughters from a previous marriage.
Qualifications:University College Dublin (B Comm); Chartered accountant.
Hobby:Attending the Cheltenham racing festival.
