Corporate capture at the heart of Europe

06 October 2010
Article

The Irish government announcement of a €34 billion Euro bailout, two years after the financial crisis first broke, is a reminder that little has been done to prevent it happening again just as the social costs are becoming ever more evident.

Two years ago, Europe was in the midst of a wave of similar bailouts  that would reach at least €3 trillion Euros by 2009.   The difference then though, was the contrition expressed by former cheerleaders for bank liberalisation, who asked pardon for their former dogmatic insistence on minimising regulation and even admitted that corporations could not be trusted to act in society's best interests.

Irishman Charlie McCreevy, the European Commissioner for Internal Market and Services, who had led pushes within Europe to increase competitiveness through deregulation was one of the penitents in 2008. After the crisis broke, he confessed, “I am convinced that over the years there has been too much 'regulatory capture' by the sell side of the financial services market: Their lobbies have been strong and powerful... and have created the systemic risks.” He said ordinary people had paid for the consequences and called for “a fundamental overhaul of the regulatory and supervisory structure.”

Strangely two years on, and despite a recent wave of protests against austerity cuts, the  promised change of direction by European leaders seems to have largely evaporated. The European Parliament may have made it difficult to pay big bonuses all at once, but it only delays rather than limits their payments and evidence  suggests that many banks will circumvent that by redirecting money into salaries. Talk of a currency exchange tax still remain just talk. And despite their role in exacerbating the Greek crisis, speculative short-selling of derivatives have not been banned either. Bankers must not only be relieved, but laughing at their good fortune.

In fact, behind the scenes the financial services industry is back on the offensive, lobbying EU Commissioners to insist on financial liberalisation in trade agreements to allow exactly the speculative practices in developing countries that prompted the crisis in the North. This irresponsible agenda is heavily promoted by an unholy alliance of EU negotiators and business lobbyists in  negotiations for the EU-India Free Trade Agreement that might be concluded within months.

The reasons are fairly obvious. There has been no attempt by the European Commission to mark its independence from the financial services industry. Rather the financial industry was invited to lead on ideas of how to control themselves. McCreevy, despite his warnings about the power of lobbyists, set up a Working group on Derivatives in Autumn 2008 that was entirely made up of European officials and  financial lobby groups including the Alternative Investment Management Association (AIMA), European Banking Federation (EBF), and the International Swaps and Derivatives Association (ISDA).

 A "High Level Group" set up by the European Commission at the same time to advise on the overall strategy of financial reform in the wake of the crisis was headed by an adviser to French bank BNP Paribas, Jacques de Larosiere. He included five individuals linked to financial corporations, and two others known for their strong preference for market deregulation. It not surprisingly recommended only weak and insubstantial reforms.

Challenged on this recently by an alliance of civil society organisations called ALTER-EU, a European official dryly commented: “If you want financial advice, you don't ask a baker." Using such a logic, you could equally argue that alcoholics should ask breweries for advice on giving up drinking.

Sadly, it seems the dividing line between lobbyists and European officials has become so blurred that European officials and see no difference between working for a European corporation than a European government or commission. They assume without questioning that what is good for big business is necessarily good for European citizens. It is perhaps therefore no surprise to hear that McCreevy has since gone to work for a corporate bank raiding firm, NBNK that aims to profit from the continuing financial crisis by buying branches of insurance companies and banks that have to be sold to meet the EU conditions for government bailouts. De Larosiere also went onto to become a lobbyist for the association of big banks, the International Institute of Finance (IIF), which regularly warns European officials against applying tougher rules to banks' liquidity  that would harm nascent growth.

This corporate capture of Europe exists on a whole range of other critical issues from climate change to the food crisis. That is why activists gathering at the Asia-Europe Peoples' Forum in Brussels this week focused on how to do unravel the web of corporate control woven into the European Commission as well as the governments of many Asian states. The Peoples Forum put together a list of practical demands that could help shift the balance of power back from corporations in the European Union to its citizens. These include  mandatory lobbying transparency, strict conflict of interest rules to prevent the revolving door between big business and EU institutions , and  the establishment of an International Tribunal to assess and judge breaches of human rights by transnational corporations.

As social anthropologist and professor of public policy, Janine Wedal put it: “Much has been made of the failure of the free market in the financial calamity of the past few years, but what is free about a market that has been rigged by executives, insiders, government allies, lobbyists and all manner of influence-peddlers?” Two years after the crisis, surely it is time to learn the lessons and assert public democratic control over Europe's corporations, institutions and policy.