The notion that integration would aggravate the impact of the crisis is mistaken
In the first edition of the European Payments Council () Newsletter published in January 2009, then Commissioner Charlie McCreevy, the former Head of the European Commission's Directorate-General Internal Market and Services, stated: "In the aftermath of a full blown financial crisis, whose consequences are still being worked through in the banking industry and whose wider effects on the real economy have still to be felt, I believe it paramount that we keep a clear and constant focus on and its benefits. I believe SEPA can be part of the solution". This assessment echoes the firm stance taken by EU leaders at the height of the crisis when they decided that more Europe was needed, not less. At one level, it could have been argued that the single market in both money and financial services had allowed the financial crisis to radiate shock waves from one country to another. This argument, however, disregards the experience of other crisis situations. The oil crisis of 1974, for example, showed clearly that shocks would be transmitted across national borders - one way or another. Then, the transmission mechanism was sharp currency devaluations and dramatic changes in interest rates as well as budgets.
This time round, there was not even any discussion about the relative merits of maintaining the course of EU integration in the face of the crisis. Rather than abandon or even slow down the process, the EU Member States collectively decided to implement a host of measures with a view to speed up market integration and strengthen the common currency.
Driving forward EU integration: the European Commission work programme for 2011
The European Commission has embarked on an ambitious program to push market integration to the next level. A particular focus of the European Commission going forward will be the protection of small investors and ordinary consumers: initiatives will include legislation on access to basic banking services, and action to promote responsible lending and borrowing practices on mortgages. These and other proposals will complete the European Commission's ambitious reform programme for the financial sector.
In April 2011, the European Commission set out a series of concrete solutions for further integration in the final text of the Single Market Act (see link below). The Single Market Act, specifically, aims to deliver twelve projects on which to re-launch the Single Market for 2012. These twelve instruments of growth, competitiveness and social progress range from worker mobility to small and medium-sized businesses (SME) finance and consumer protection, via digital content, taxation and trans-European networks. Each instrument is accompanied by a flagship initiative on which the European Commission undertakes to make proposals during the coming months, the aim being to gain final approval from the European Parliament and the European Council representing EU Member States before the end of 2012. Each instrument also contains other, equally important proposals which should benefit from the momentum generated by the flagship initiative in order to make progress.
In March 2010, the European Commission launched the Europe 2020 Strategy (see link below) to exit the financial crisis and prepare the EU economy for the challenges of the next decade. Europe 2020 sets out a vision to achieve high levels of employment, a low carbon economy, productivity and social cohesion, to be implemented through concrete actions at EU and national levels.
In May 2010, the European Commission published A Digital Agenda for Europe (see link below), which defines the key enabling role that the use of information and communication technologies (ICT) will have to play if Europe wants to succeed in its ambitions for 2020. The Digital Agenda for Europe is one of the seven so-called flagship initiatives of the European Commission's Europe 2020 Strategy. The Digital Agenda for Europe defines the completion of SEPA through binding legal measures as one key action item.
Last but not least, in December 2010 the European Commission published the proposal for a regulation of the European Parliament and of the Council1 establishing technical requirements for credit transfers and direct debits in euros and amending Regulation (EC) No 924/2009. This proposal states, in part, that credit transfers shall be carried out in accordance with this Regulation twelve months after it comes into force; direct debits shall comply 24 months after it comes into force.
The fact that initiatives launched by the European Commission may elicit different reactions from different stakeholders notwithstanding, they demonstrate the case at hand: the European response to the financial crisis relies on concerted action to complete market integration.
The revolutionary political implications associated with SEPA
The political choice of more Europe rather than less also reflects the new - and revolutionary - reality created by the Single Euro Payments Area (SEPA). While payments are an intensely technical area, the political implications are immense - and completely underestimated by the political class in some EU Member States. The impact of SEPA far exceeds payments, cash management and related services. SEPA establishes an effective 'referendum veto' to be exercised by citizens whose national governments might contemplate leaving the euro. In SEPA, citizens are empowered to embed the freedom and the choices associated with the single market so deeply in the economy to make it impossible for any EU government which adopted the euro to abandon the common currency. It is hard to imagine that citizens and enterprises accustomed to these choices would want to leave the euro once they considered what they individually would give up by way of returning to narrow, national offerings for trade in goods and services.
With SEPA, any citizen who fears that his home state is about to leave the euro to implement a major devaluation can protect themselves by transferring their liquid funds into a bank in another euro country - in an instant and at negligible cost. In effect, this is a free option for all citizens and amounts to an instantaneous referendum on government policy. Such an outflow of retail liquidity from a banking system would cause its rapid collapse. The quiet run out of deposits in the Irish banks last year demonstrated the power of depositors to force radical political change.
But the full magnitude of these public policy benefits cannot accrue until SEPA is complete; i.e. existing national payment schemes for euro credit transfers and direct debits have been replaced by a set of harmonised SEPA payment schemes.
There are enough political talking heads around who have made it their business to cite the financial crisis as an argument against the single market and the common currency. The joint response of EU Member States to the crisis effectively counteracts this attitude. It may just so happen that the efforts underway to achieve tangible progress on the route to market integration will help European citizens and businesses to recall the actual benefits and increased choices they enjoy thanks to EU integration and the introduction of the euro. While this qualifies as a valuable lesson learned, it must not be interpreted as an excuse to trigger another credit crunch resulting in an economic meltdown.
Graham Bishop is an independent financial analyst.
Related articles in this issue:
The SEPA Regulation - A Progress Report. First reactions by European Parliament and Council of the European Union introduce important improvements to European Commission's proposal for a SEPA Regulation
Related articles in previous issues:
1The Council of the European Union represents EU Member States.
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