Finance watchdogs

The finance ministers of all 27 European Union countries agreed on Wednesday to the creation of three new pan-European watchdog agencies to keep an eye on the financial industry.

The measure is intended to provide greater control and regulation of banks, insurers and trading exchanges across the EU, and will help to safeguard against a repeat of the current global economic crisis.

At the meeting in Brussels, there was general agreement on the establishment of an overarching body, to be based in Frankfurt, which will provide an early warning system for shocks with the potential to cause market upheaval.

However, there was disagreement on how much authority the new watchdogs should be given. Britain in particular strongly resisted the prospect of the new European bodies interfering in the running of its economy.

British Finance Minister Alistair Darling was determined to protect the sovereignty of the City of London, the world's leading financial center, over its own affairs. He insisted that the British Financial Services Authority was answerable only to the British parliament.

In order to secure a compromise, EU ministers eventually agreed to what Britain called a "triple lock" system of appeal, which will allow member countries to challenge intervention by the new financial watchdogs and refer their decisions to a summit of European leaders.

Darling told reporters that the appeals procedures were "effectively a veto." The directive, he said, stated unambiguously "that these authorities have to ensure that no decision they adopt impinges in any way on the fiscal responsibilities of member states."

He agreed, however, that cross-border European monitoring agencies would serve a useful function in dealing with events of international fiscal significance, such as last year's collapse of the Icelandic economy.

The new EU "super-watchdogs" will have the authority to investigate when national overseers are unable to reach agreement. They will also be given special powers to act in times of crisis.

France's Finance Minister Christine Lagarde was pleased with the result. She told AFP that while it had been a difficult process, Wednesday's deal showed that "the European Union has made real progress in the banking and economic sphere."

The European Parliament will now have its say before the law is passed. Already several parliamentarians from both the left and the right have declared themselves dissatisfied with the compromises made in Brussels. They warn that European financial markets require truly effective cross-border surveillance in order to prevent future crises.

cc/AFP/dpa/Reuters
Editor: Holly Fox