The European Union does not need a US-style plan to buy up toxic assets with public money to restore confidence in the financial system, the European Commission and the French EU presidency said on Wednesday. EU Economic and Monetary Affairs Commissioner Joaquin Almunia told the European Parliament that the crisis in the US banking sector was affecting the real economy in Europe and could depress growth next year and increase inflation.
Both he and Jean-Pierre Jouyet, speaking on behalf of the French presidency, called for a review of executive pay, bonuses and golden handshakes which had created incentives for irresponsible behaviour.
Almunia said US Treasury Secretary Henry Paulson's plan to take subprime mortgage debt and other distressed assets off banks' balance sheets was "a good initiative" that should be fleshed out in detail and adopted swiftly to be effective. "The situation we face here in Europe is less acute and member states do not at this point consider that a US-style plan is needed," Almunia told EU lawmakers.
The US Congress is debating Paulson's $700 billion bailout proposal critically and the possibility of delay or amendments to the scheme has prolonged market jitters. Paulson last week urged other major economies to consider similar actions, but Japan and Europe have so far declined to follow suit.
Almunia said the EU was already planning legislation to tighten banks' capital requirements and regulate credit rating agencies, and it might now need to examine other areas. Many lawmakers said the roadmap agreed a year ago by EU finance ministers was inadequate and out of date, and stricter financial regulation and banking supervision was needed to end the abuses of what one called "casino capitalism".
"Profits are being privatised, losses are being nationalised and that is something that has got to stop," Socialist floor leader Martin Schulz declared. "More than ever, the future requires supervisory powers over markets that never respected anything."
Centre-right German lawmaker Alexander Radwan, criticising EU Internal Market Commissioner Charlie McCreevy for opposing hasty regulation, said the United States should follow Europe's lead in regulating ratings agencies and stock exchanges. Jouyet, France's secretary of state for European affairs, said the European banking system was solid and did not require bailout measures of the kind envisaged by the US Treasury.
The crisis showed the limits of deregulation and "laissez-faire", he said, calling for a new, modern pattern of financial regulation. He called for proposals to be on the table when EU leaders meet in Brussels on October 15-16.
European authorities should lead international co-operation to improve transparency and supervision of the financial markets, Jouyet said, referring to French President Nicolas Sarkozy's call for a global summit on moralising capitalism. "Europe must raise its voice and be heard, otherwise we will simply find ourselves on the receiving end of American rules and regulations," he added.
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