The European Union's head of competition regulation, Joaquin Almunia, says the proposed merger of Deutsche Börse and NYSE Euronext could create a monopoly in Europe's derivatives market.
Almunia was speaking at the Eurofi Financial Forum 2011 in Wroclaw, Poland. The European Commission responsible for Competition Policy, of which Almunia is vice president, is currently considering the merger of the two exchanges.
"We are closely analyzing the implications of the proposed merger between NYSE Euronext and Deutsche Börse," he said. "In this particular case, we are concerned that a very large player may monopolize the derivatives markets in Europe. Therefore, any outcome that would eliminate the possibility of new entry and user flexibility would be unacceptable to us.
"I am aware that huge interests revolve around this merger," he added. "But I can assure you that our decision will be guided solely by our duty to guarantee the good functioning of financial markets and to protect the interests of the users of financial services."
Below are his remarks in full.
The Eurofi Financial Forum 2011
Wrocław, 15 September 2011
Ladies and Gentlemen:
I wish to thank M de Larosière for his kind invitation to return to the EUROFI Conference.
EUROFI has become one of the most important gatherings in Europe to discuss the challenges of our financial system.
And given the very serious situation we are facing, your debates this week will be even more relevant.
Three years after the collapse of Lehman Brothers, the tensions in the financial markets remind us those we saw at the beginning of the crisis:
- the sovereign-debt crisis has not yet been solved, putting the whole euro area under severe stress;
- the debt crisis interacts with the banking sector, where liquidity tensions have appeared, and some voices raise the need to further capitalise the banks in distress;
- and – because of these and other factors – we hear warnings of a double-dip recession.
This happens after many citizens have been asked to accept the huge government bailouts of the financial sector and, at the same time, to endure the austerity measures required to bring public finances under control.
Now, they fear that the fiscal and economic adjustments, and the huge amount of money used for the support of the financial sector, will not be the end of their sacrifices.
And they don't blame only the banking community and their respective national politicians; they point their fingers towards Europe as well, and in particular towards the euro, giving way to populist views and to defensive and selfish reactions.
We need to be aware of the seriousness of the present situation and be ready to coordinate our efforts – between private and public sectors, between national and European political leaders – to adopt the decisions required. We must overcome the risks of going backwards to a less integrated Europe.
Against this bleak background, I would like to share with you my views on the relations between State aid rules for bank restructuring and the future crisis-management regulation.
Throughout the crisis, the European Commission has used State aid control to preserve the integrity of the internal market and to ensure financial stability.
The special regime that was introduced between the end of 2008 and the beginning of 2009 has guided Member States in their support to the financial sector and remains the only instrument available at EU-level to restructure and resolve European banks in distress.
The ultimate goal of the crisis regime has always been twofold: in the short term, preventing that the bank bailouts would disrupt the internal market; and, looking at the medium term, forcing aided banks to restructure, so that they would return to long-term viability without the need of more government support.
All our decisions are based on the same set of principles:
- we demand that banks remunerate and eventually repay the public support they receive;
- that they restructure their business so that they are profitable and sustainable in the long-run;
- that they take measures to address distortions of competition towards their unaided competitors; and
- that shareholders and hybrid-capital bondholders bear a fair share of the burden.
To the best of my knowledge, we are the only institution that explicitly imposes burden-sharing conditions on bailouts; a decision that addresses the moral-hazard issue and contains public outlays.
So far, we have taken restructuring decisions on 24 banks. We have also seen ten cases of orderly liquidation; and only one negative decision with recovery of the aid, in a small Portuguese bank.
As to the future, we have 19 restructuring cases in the pipeline and we expect some more in the coming months.
Our assessment of what has been done so far is quite positive, with some exceptions.
The banks that have vigorously carried out their restructuring plans are generating profits and in many cases are paying back the support they got from their governments.
However, some institutions have failed to submit their restructuring plans on time or do not implement them satisfactorily. You know well the main cases I am referring to.
In these unsuccessful cases, I react immediately, because a bank that does not face up to its responsibilities becomes a threat to financial stability and a hurdle on the path to recovery.
The EU lacked the appropriate instruments and institutions to orderly resolve banks without harming financial stability and the integrity of the internal market. This is why State aid control has emerged as the only available mechanism at EU level.
Over the past three years, EU State aid rules have been playing the role of a de facto resolution authority for banks in need of deep restructuring.
At the same time, the Commission has been working on legislation that will establish a new EU-wide resolution framework.
It is obvious that State aid control cannot replace a fully-fledged regulatory framework for crisis management. But until the new legislation comes into effect – and that may take quite some time – State aid control will continue to serve as a resolution tool.
The banks that receive subsidies must be restructured effectively and those that remain on the market should be able to carry out their function of lending to the real economy. In this still uncertain juncture, we simply cannot afford to saddle the economy with more zombie banks.
Let me be clear. By definition, the crisis regime for the control of State aid in the financial sector put in place in 2008/2009 must come to an end – and sooner would be better than later.
Therefore, to plan for the post-crisis environment we have been preparing a specific framework dedicated to the financial sector: the new guidelines for the rescuing and restructuring of financial institutions in difficulty.
Until the summer, my intention was to introduce the new regime at the beginning of next year, assuming that the markets would have normalised by then. However, considering current market conditions, it would not be safe to introduce the new rules too soon.
The situation we have been facing over the last few weeks calls for an extension of the existing State aid crisis regime for financial institutions beyond 2011. This is what I will propose to the College of Commissioners.
This means that, next year, the rescue and restructuring of banks will continue to be assessed on the basis of the present rules.
When the markets stabilise and the new rules are phased in, we will use the new regime to tighten the control of the public support given to banks in distress and of its impact on their competitors.
Of course, our competition policy enforcement is not limited to the control of State aid given to banks. Financial markets and the infrastructure that supports them are evolving rapidly and we need to ensure that these markets are safe, fair and efficient.
Let me briefly tell you some of the work we are doing in this regard.
We are closely analysing the implications of the proposed merger between NYSE/Euronext and Deutsche Börse.
In this particular case, we are concerned that a very large player may monopolise the derivatives markets in Europe. Therefore, any outcome that would eliminate the possibility of new entry and user flexibility would be unacceptable to us.
I am aware that huge interests revolve around this merger. But I can assure you that our decision will be guided solely by our duty to guarantee the good functioning of financial markets and to protect the interests of the users of financial services.
In the area of enforcement of articles 101 and 102 of the Treaty – cartels and antitrust – we have opened investigations in the market for financial information and are investigating in three separate cases Thompson Reuters, Standard and Poor’s, and Markit.
Last year, I also opened an investigation against ICE Clear for potential abuse of dominance in the market for CDS clearing.
Finally, my colleague Michel Barnier is working hard on proposals for financial regulation. The EMIR proposal is now being discussed at the European Council and Parliament and the Commission will soon issue a proposal for the review of MIFID.
I cooperate fully with him and his services, as competition considerations and actions are an indispensable complement to the prudential EU-wide regulation in the governance of financial markets.
We have learned vital lessons from this crisis. We need to put in place a regulatory framework that will deliver stable and competitive financial markets focussed on their primary task: financing the growth of the real economy.
When doing so, we cannot give in to protectionist temptations. On the contrary, we need to deepen the degree integration of financial markets that we have achieved.
And we must never forget that a stable and strong euro area is the pre-requisite for financial stability in Europe.
We need a reinforced, closer monetary union to effectively steer through the economic challenges of today and of the future.
In order to deliver that, we need – as President Barroso said yesterday at the European Parliament – political determination and economic discipline. We need more, not less, Europe.
This is what Europe’s businesses and citizens expect of the EU and the Member States. This is what citizens and businesses also expect of you.