On Bananas and the Integration of Euro Payments

On Bananas and the Integration of Euro Payments

The SEPA commitment of EU governments

26 October 10

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Is an banana project or not - that is the question

The scenario is familiar: government repres entatives descend upon Brussels to intone Beethoven's Ode to Joy - hands on their eager European hearts, eyes firmly set on the dawn of the most competitive knowledge based economy globally (that would be the EU internal market1) rising above the generally grey Belgian horizon. That other scenario is familiar as well: safely back home these same government representatives immediately mutate into the national variation of Robin Hood, ready to blame "Brussels" for pushing yet another superfluous integration initiative followed by fervent declarations to defend the home-grown banana against overambitious officials. (For some further amusing and truly kafkaesque reading please refer to Commission Regulation (EC) No 2257/94 laying down quality standards for bananas; in particular Annex II, B (ii) on the characteristics of "Class I" bananas2).

Now, neglecting for a minute the fact that these officials are generally put into office by those national governments that like to paint them as some alien body snatchers who silently took over affairs, the point is granted that integration initiatives may vary as regards their individual level of common sense. Perhaps the quality of life of the European citizen and the global competitiveness of the internal market do not hinge primarily on a regulation that determines the curvature of the banana.

The question is whether the integration of euro retail payments e.g. the introduction of the Single Euro Payments Area (), is yet another policy-maker-driven banana initiative. Only if this would be the case could the lack of support by some EU governments for be excused.

- much ado about nothing?

In a recent speech Gertrude Tumpel-Gugerell, member of the Executive Board of the European Central Bank (ECB) , reiterated the importance of EU financial integration3. According to the ECB's definition, financial markets are considered integrated if all agents face the same set of rules, are treated equally and have equal access to financial products.

In the view of the ECB, financial integration "not only contributes to the smooth and effective transmission of the single monetary policy throughout the euro area, but also to the smooth operation of the underlying payment systems. Financial integration also increases the depth and liquidity of financial markets, and consequently enhances the resilience of the European financial system. It also offers greater scope for geographical risk diversification, promoting consumption and income risk sharing. Integrated financial markets help to realise the full economic potential of the European Union, as recalled in the Lisbon Strategy. Financial integration contributes to the development of the financial system by increasing competition and expanding markets, which results in lower intermediation costs and a more efficient allocation of capital. These effects, in turn, raise the potential for long-term non-inflationary economic growth."

To measure the degree of financial integration, the ECB monitors related progress in the areas of clearing and settlement infrastructures for payments and securities, on the one hand,  and retail payment markets on the other.4 "The integration of the European retail payments market has yet to be achieved," states Ms Tumpel-Gugerell. "The creation of a Single Euro Payments Area () will enable customers to make cashless payments throughout the euro area with a single set of payment instruments from a single bank account, regardless of their location. The Eurosystem considers the as an extremely important project for the European financial integration."

As you like it or show me the money

In addition to these systemic benefits that holds for the financial market, the integration of euro payments promises very tangible advantages for individual consumers and enterprises as a result of increased competition in the payments services sector: according to a study conducted at the request of the European Commission in early 2008, the replacement of existing national payment systems by holds a market potential of up to €123 billion in benefits over six years for the users of payments services5 - provided that migration to the new payment instruments takes place rapidly. On the other hand, if migration is slow, losses could amount to €43 billion. The European Commission also points out that depending on the success of uptake benefits for consumers may vary from €12 per head in a period of six years up to €1296.

In light of these facts the restraint so far demonstrated by most governments as regards implementation translates into immediate losses in particular for consumers.

Something is rotten in the state of...

In February 2009 the Finance Ministers gathering for the Economic and Financial Affairs Council (ECOFIN) stated that "significant efforts are required to accelerate the current slow rate of migration" and invited "users, in particular those with high volumes such as public authorities [...] to demonstrate a high commitment to the use of products domestically. In this respect, public authorities have a key responsibility.7"  In the manner described above, some Finance Ministers, however, have rather perfected the art of issuing lofty ECOFIN declarations in Brussels while hiding behind the banana theory when it comes to implementation by public administrations on national level.

According to the Annual Progress Report on the State of Preparedness in 2008 recently published by the European Commission, only 46 percent of all public administrations that responded to the related survey had appointed a manager with responsibility for migration. Notably, six euro area Member States have not reported any coordination of migration by public administrations at all. These results confirm the findings of the Survey 2008 stating that the public sector underperforms compared to all other sectors as regards implementation8.

governments: the taming of the shrew (measure for measure)

Going forward, the commitment of governments to the project will be judged exclusively based on the progress of implementation by public administrations on national, regional and local level. The welcomes the intended "Score Board" to be published by the European Commission illustrating such progress (or the lack thereof). Availability of the following measures to be put in place by governments in particular in the 16 euro countries could be monitored:

  • Demonstration of leadership in the national committees
  • Agreement on end-dates for migration of the public administrations to payment instruments
  • Allocation of resources for communication, implementation and migration in annual budgets now
  • Requirement to use standards in public procurements for payment services allowing banks to deliver payments services to any public administration in the area
  • Availability of incentives to facilitate the change-over from legacy euro payment instruments to for the business community - such as granting tax breaks for early movers, for example
  • Solutions to ensure the continued legal validity of existing direct debit mandates under the Direct Debit Scheme

A failure by governments to actively engage in the process cannot be excused by denouncing the project as yet another banana initiative - that would be confusing apples with oranges.



1The Lisbon Strategy, also known as the Lisbon Agenda or Lisbon Process, is an action and development plan for the European Union. Its aim is to make the EU "the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth (...)". It was set out by the European Council in Lisbon in March 2000 (Wikipedia).

2Bananas in this class must be of good quality. They must display the characteristics typical of the variety and/or commercial type. However, the following slight defects of the fingers are allowed, provided they do not impair the general appearance of each hand or cluster, its quality, its keeping quality or the presentation of the package: slight defects in shape, slight skin defects due to rubbing and other slight superficial blemishes not covering a total of more than 2 cm2 of the surface of the finger. Under no circumstances may such slight defects affect the flesh of the fruit.

3The Quest for the Holy Grail? - European Financial Integration: Achievements and Hurdles. Speech by Getrude Tumpel-Gugerell, Member of the Executive Board of the ECB. Workshop on "Securing the Future Critical Financial ICT-Infrastructure (CFI)" organized by Parsifal. Frankfurt, 16 March 2009.

4Retail payments are mainly consumer payments of relatively low value and urgency (ECB Payments and Markets Glossary)

5Capgemini. : potential benefits at stake (published 2008)

7Press Release of the Council of the European Union. Council Conclusions on . 2922th Economic and Financial Affairs meeting. Brussels. 10 February 2009.

8Atos Consulting and Deloitte: The Survey 2008 - a study on the awareness of and readiness for amongst corporates and public organisations in the euro area.


Herman Segers is the Secretary General of the .

Related articles in this Newsletter:

Missing in Action, mostly. Public Sector lags behind in SEPA Implementation

ECOFIN Conclusions: Annual Progress Report on the State of SEPA Migration

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