Fighting Fire with Buckets is the title of an excellent WEED-paper by Peter Wahl on the attempts of the European Union to reform the financial sector. The text can be downloaded here as a PDF..

The EU itself, as a "frontrunner of the financialisation" of the world economy, "bears a certain co-responsibility for the crisis", which "has deepened the contradictions inside the EU culminating in the Greek crisis", it is constated in the introduction. The paper examines the measures and strategies whereby the EU tries to solve or alleviate the problems:

  • The directive on European supervision of banks, insurance, securities and systemic risk; a compromise "which strengthened the national component and weakened the supranational" was reached at the ECOFIN conference, and approved by the European Parliament in September 2010; it will enter into force in January 2011;
  • EU:s proposal on regulating the Credit Rating Agencies (EU 2009a:2);
  • The projected Directive on Alternative Investment Fund Managers (EU 2009c), which refers to the regulation of Hedge Funds, Private Equity Funds, real estate funds, commodity funds and infrastructure funds;
  • Regulation of OTC-trading of derivatives like Credit Default Swaps (CDS) , which have been used for speculation at large scale, presented by Commissioner Barnier in September. "The basic idea of the regulation is to establish a central counterparty (CCP) for all trade with derivatives", Wahl writes. This "would be quite a strong instrument and it will be interesting to see, whether it will survive the further law making process" (p 27);
  • Discussion on the subject: Making the finance sector pay for the costs of the crisis. This could lead to the introduction of a Bank Levy, a Financial Activities Tax (FAT) or a Financial Transactions Tax (FTT), or a combination of these.

The forty-page analysis of the pros and cons of these proposals, and their deficiences, ends with these words:

Today, the world is confronted with historically exceptional challenges, such as climate change, hunger, poverty and increasing shortage of important raw materials. Under these circumstances, finance has to meet qualitatively new requirements. The world needs financial markets at the service of sustainable development, of social equity at global level for the coming decades. Tremendous efforts need to be financed. We cannot afford another crisis like the present one, and we cannot afford a financial system, which serves at first place the profit interests of a tiny minority. A new paradigm is needed with regard to finance. In the light of these realities, the EU regulation of finance is like fire fighting with buckets.

My comments:

One reflection which imposes itself on the reader is that 'the overall economic bias in the process of integration' (which Wahl rightly identifies as the main problem of the EU, p 12) cannot be fully understood with a purely economic analysis, which abstracts from the political and military reality. For instance: can we grasp the real significance of the Greek crisis without taking into account that country's huge imports of fighter jets and similar military hardware from the factories of the transatlantic military-industrial-academic complex? What restrictions did the EU impose - or is it planning to impose - on the military spending and the arms exports of its member countries?

Wahl's analysis admirably highlights the many economic "asymmetries and imbalances within the EU". Will the European integration continue? Or, are we already witnessing the disintegration of the Eurozone and the whole EU? To these questions an economic analysis can not provide any meaningful answers. The question of Europe's Union is, today more than hitherto, a question of its political and military independence from the USA. Will "Europeanism continue to be a relatively superfluous appendage to Atlanticism and will hardly go beyond the economic liberalization of the three Communities", as Altiero Spinelli wrote in Foreign Affairs, (July 1962), or will it become strong enough to create a democratic and independent Federal state?

One of the necessary conditions for a democratic European state is the unilateral denuclearization of Europe. As Spinelli wrote (in that same article): the Americans will have to accept it. So let us think and act as if a free and united Europe already existed.