Business World

Monday 18 December 2017

Markets could crash if austerity measures are banned -- Bruton

Thomas Molloy

FINANCIAL markets could crash later this year if Germany's constitutional court bans measures to force eurozone countries to implement austerity measures, former Taoiseach John Bruton warned bankers yesterday.

The former EU ambassador to Washington was speaking for the first time since he was named as the first International Financial Services Industry czar, a position funded by the industry which Mr Bruton is due to take up in September.

Germany's constitutional court hinted last year that it would not allow German politicians to hand over any further power to the European Commission following the passing of the Lisbon Treaty, unless more European Union leaders were elected by the public. Several prominent German academics plan a legal challenge to the recently agreed €750bn bailout package for countries such as Greece and also plan to challenge attempts to force national governments to okay budgets with the Commission before presenting budgets to national parliaments.

"Such an appeal will take place and has the potential to destabilise financial markets unless something is done to forestall the problem," Mr Bruton told the Federation of International Banks at a lunch in Dublin. The solution is to allow the European Union president to be directly elected by the people, Mr Bruton said.

The former finance minister warned that the present crisis is "no more than a symptom of a deeper problem. The problem is a loss in relative competitiveness of both Europe and North America vis-a-vis the emerging economies of China, India, Brazil and others over the past 20 years."

This loss of competitiveness was accompanied by a reluctance to face up to long-term problems such as ageing societies and what Mr Bruton called "the ephemeral nature of some of the innovations of the so-called new economy". Easy credit had acted as "(an) anaesthetic that concealed that underlying loss in competitiveness from us until 2008," he added.

The new lobbyist for the IFSC criticised his former employer, the European Commission, for its failure to act decisively during the recent crisis over Greek's borrowing levels.

"The criticism of the EU that has the greatest validity, in my view, is that it has waited for foreseeable problems to become acute before tackling them," he told his audience. "It is not so much its decisiveness, as its foresight, that has been open to criticism. It was foreseeable that running a single currency, on the basis of a necessarily centralised single monetary policy along with decentralised and divergent fiscal policies, would run into difficulties at some time."

Federation of International Banks chairman Neil Ward said earlier that the IFSC is facing a "tsunami of regulation" and asked whether a one-size-fits-all regulatory framework was the best for the centre. "Does a FIBI bank that is 100pc owned by its parent with staffing levels in the tens or hundreds and very little systemic risk to Ireland require the same corporate governance structure as a domestic bank that has thousands of shareholders, employees and depositors?" he asked.

Irish Independent

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