THE EUROFI FINANCIAL FORUM 2015 MAGAZINE EU and Eurozone growth and integration challenges: the moment of truth? Jacques de Larosière Pierre Gramegna President, EUROFI Minister of Finance, Luxembourg Forum organised in association with the Luxembourg Presidency of the EU Council 9, 10 & 11 September // Luxembourg About EUROFI The European Think Tank dedicated to Financial Services A not-for-profit organization chaired by Jacques de Larosière A platform for exchanges between the financial services industry and the public authorities addressing issues related to the evolution of financial regulation and supervision and the economic and monetary context impacting the EU financial sector MAIN ACTIVITIES The main objectives of Eurofi are to help industry and public decision- These events are regularly organised in association with the EU Presidencies makers reach a common understanding of possible evolutions required in parallel with informal ECOFIN councils and in some cases with the G20 in the regulation and supervision of financial services and to open the Presidencies. They are organised with the support of Virginie Denis and way to legislative or industry-driven solutions that may enhance the her team. safety and effectiveness of the EU financial sector and its contribution to economic growth. Additional workshops involving the members of Eurofi are set up to exchange Eurofi acts in a general interest perspective, facilitating exchanges of views views on regulatory issues. Bilateral meetings are also regularly organised between diverse financial industry players and the public authorities. These with representatives of the public authorities and other stakeholders (e.g. exchanges are prepared by objective fact finding and issue analyses. end-users, experts) to fine-tune assessments and proposals. Eurofi has two main types of activities conducted by Didier Cahen, Secretary General of Eurofi, Jean-Marie Andrès and Marc Truchet, Senior Fellows: Research and documentation: Assessments and proposals taking into account economic, risk and end- Events and meetings: user impacts are prepared with the support of cross-sectoral working groups Eurofi organizes annually two major international events (the High Level comprising members of Eurofi. Seminar in March / April and the Financial Forum in September) gathering industry leaders and EU and non-EU public decision makers for discussions Topics addressed include prospective and on-going regulatory proposals at the on the major on-going regulatory projects in the financial area and the role EU and global levels, industry trends as well as the impacts for the financial of the financial sector in fostering growth as well as informal networking. sector of the economic challenges the EU is facing. MAIN TOPICS CURRENTLY ADDRESSED Measures and instruments needed to ensure an appropriate financing of Evolutions of the prudential and regulatory framework of banks and the EU economy: assessment of the economic challenges to be addressed insurance companies: fine-tuning and implementation of banking and in the EU impacting the financial sector and of the impact of on-going insurance prudential frameworks (liquidity provisions, RWA evaluations, monetary actions, measures to support bank financing (securitisation) Solvency II), recovery and resolution of banks and non-banks, digital and further diversify the financing of SMEs and infrastructure projects, financial services... proposals for developing a long term investment perspective, measures to Capital markets and investment products regulations: Capital Markets stimulate EU bond and equity markets… Union, regulation of securities, derivatives and commodities markets and Prospects of further EU integration: implementation of the Banking Union, infrastructures, recovery and resolution of CCPs, cybersecurity, SFT and priorities for implementing a Capital Markets Union, possible evolution collateral requirements, asset management regulations, investor protection towards a fiscal union and further economic integration in the Eurozone, regulation (PRIPs, MiFID, IMD…), regulation of shadow banking evolution of the EU regulatory and supervisory authorities (ESRB, ESAs). Financial regulation at the global level: feasibility of bank crisis Optimizing the EU financial services internal market: conditions for enabling management at the global level, coordination of capital markets regulations a sustainable SEPA business case, review of the IORP directive, regulation of at the global level, systemicity of non-banks non-insurers… CRAs, prospects of further banking integration… EUROFI MEMBERS The membership of Eurofi comprises many leading global and European financial institutions from different sectors of the industry (banking, insurance, market infrastructures, asset management, credit rating agencies…). The Eurofi Financial Forum 2015 Organised in association with the Luxembourg Presidency of the EU Council 9, 10 & 11 SEPTEMBER // LUXEMBOURG EU AND EUROZONE GROWTH AND INTEGRATION CHALLENGES: THE MOMENT OF TRUTH? EU AND EUROZONE GROWTH AND INTEGRATION CHALLENGES: THE MOMENT OF TRUTH? EDITORIAL 5 VIEWS OF THE LUXEMBOURG 9 EU COUNCIL PRESIDENCY GROWTH AND INTEGRATION 14 CHALLENGES IN THE EU EMERGING TRENDS 38 IN THE FINANCIAL SERVICES SECTOR IMPLEMENTING THE CMU & 62 ASSET MANAGEMENT FUTURE PROSPECTS ENSURING THE RESILIENCE OF 102 THE EU FINANCIAL SECTOR GLOBAL COORDINATION OF REGULATION 126 Editorial EU and Eurozone growth and integration challenges: the moment of truth? The EU has been facing over the last few years the most serious and disruptive financial crisis since 1929 with major economic and social consequences. In addition the sovereign debt crisis affecting sev- eral Eurozone countries revealed weaknesses in the economic and fiscal governance of the region and of some of its member states. Many actions have been decided and put in place to prevent and manage future crises, Jean-Marie ANDRÈS increase the resilience of the financial system and improve the economic governance of the Senior Fellow EU and Eurozone. The Quantitative Easing programme initiated by the ECB – a new expe- rience for the Eurozone – is helping to maintain interest rates at a record low. In addition Didier CAHEN several initiatives have been launched to improve the financing of the EU economy and Secretary General stimulate economic growth (Juncker Plan, Banking Union, Capital Markets Union). At this stage however, the EU economy is still underperforming and the European financial Marc TRUCHET services market remains largely fragmented. Moreover the Greek crisis has shown that the Senior Fellow architecture of the Economic and Monetary Union remains a fragile construction. How to foster economic growth in a sustainable way and what level of integration is desir- able and achievable going forward are key questions that the EU and the Eurozone need to address in the coming months at a moment when the European project is probably reaching a moment of truth. 2016 may indeed be a turning point for the future of the EU and the Eurozone. For the first time the questions of the modalities and consequences of the exit of a Euro- zone member have been raised with Greece and some uncertainty remains. At the same time the UK is pondering over its place in the EU. In addition the high levels of indebted- ness and budgetary deficit of several member states are continuing to test the cohesion of the Eurozone. The coming months will also be crucial for the success of several major projects launched by the new EU Commission such as the Juncker Plan and the CMU, which notably aims at diversifying the sources of financing of the EU economy and further integrating EU capi- tal markets. The hurdles that may deter institutional and retail investors from participat- ing fully in the capital markets are a key issue in this regard. 2016 will also be a defining moment for the implementation of the key prudential measures developed by the previous Commission (CRD IV, Solvency II), some of which are due to be recalibrated in order to mit- igate negative impacts on the funding of the economy, and for the implementation of the capital market regulations derived from the G20 commitments. The Eurofi Financial Forum organized this year in Luxembourg in association with the Lux- embourg Presidency of the EU Council is an opportunity for many key representatives of the public authorities and of the financial industry to discuss openly these issues, essen- tial for the future of the EU and the Eurozone. Most of the speakers taking part in this meeting have accepted to contribute their views to this magazine – which has a renewed layout - providing a comprehensive overview of current thoughts on these issues. We thank them very warmly for their valuable contributions and trust that you will read them with great interest. 5 “ To be viable, the Eurozone needs budgets kept under control, collective supervision of competitiveness and as a last resort some limited transfers ” Jacques de Larosière President, EUROFI Making the euro area viable The Eurozone is a currency area between to an unsustainable loss of competitiveness small size of the EU budget, the correction heterogeneous countries with a low level of and external deficits. in divergences in competitiveness in a mon- federalism. Countries with very different per etary union can only be achieved through capita incomes co-exist in such a monetary A monetary Union is not workable with- the “internal devaluation” meaning through union. But this is only possible if the low out fiscal discipline.