The ongoing emergency in political decision-making puts Europe at risk -Report from 1st Forum Europe- by Thomas Seidel

Conference in a new format: Some venues are switched via video. An enormes
increase in outreach.
(Source: Corporate Group Maleki)

In this times when political Europe is becoming more and more divisive, the financial industry is trying to save from common European projects what can be saved. To support this process, a new format is being created, the conference Future Europe. The Maleki Corporate Group has organized a simultaneous conference. Participants at several European places were also able to make their contributions in Frankfurt, Amsterdam, Paris and London. The forum, with top class participants at all locations, successfully completed its entry. The event is supposed to be continued every six months.

The welcome speach was held by Dr. Andreas Dombret, until recently board member of the Deutsche Bundesbank, to all participants. This format would come at the right time. What started on European initiatives for a common financial market must be brought to an end. Thus, after the launch of the banking union, now capital market union must be addressed. It should be decided whether this should happen with or without Great Britain. Dombret cautiously points out the need to share liabilities in Europe as well.

Dr. Andreas Dombret adresses to the audiance
(Source: Thomas Seidel)

Via a recorded speech Peter Praet, chief economist of the European Central Bank (ECB), warned that the banks' traditionally national ties were another risk factor. This would hamper the creation of a true common financial market in Europe. It is urgent to find a European solution for a guarantee of customer deposits. In the event of a bank collapse, it would be unavoidable in the future to involve the taxpayer as an indirect guarantor.

Financing Europe's economy

After these speeches, the first panel will start, titled "Financing the EU Economy". Philippe Oddo, head of the French ODDO Bank, which not long ago bought up the traditional German BHF Bank from Deutsche Bank's portfolio, justified his commitment to gaining expertise in the German market. Oddo believes that the joint potential of France and Germany can be increased if the employees from both countries can be motivated to work together.

Oddo considers the German banking system as very strong and effective. This is mainly because of the savings banks and cooperative banks. The reason for the traditional capital market abstinence of the Germans sees Oddo in the timidity against debt financing and poses at the same time the question, whether the middle sized companies are really in need of a capital market. In France, this topic is being considered much more open. Oddo points out that between 2007 and today, the volume of the capital market in Europe has shrunk by 40 percent, while in the same period in the US an increase of 130 percent has taken place.

The Frankfurt panel, left to right: Gerhard Schröck, Philippe Oddo,
Stefan Collignon, Michael Rüdiger, Joachim Würmeling
(Quelle: Thomas Seidel)

Like Peter Praet, Oddo sees the lack of a deposit insurance solution as the main obstacle to European bank mergers. One can not use German deposits for financing losts in other countries.

The acting Bundesbank executive committee member Prof. Dr. Joachim Würmeling explains that Europe's outward view has always been made by the capital market in London, which is now being swept away by the Brexit for Europe. Würmeling hopes that new technologies will help to create a platform that will enable the dismantling of very fragmented financial markets in Europe. Würmeling still sees the euro as the common European currency in twenty years' time. At the moment there is more than ample liquidity. But the supply of capital to some countries in Europe could become more expensive as a result of Brexit. In this case, Europe must take precautions.

Dr. Gerhard Schröck of Deloitte stresses the importance of a recovery of the European banking industry. After all, corporate finance depended for more than half of bank loans. The establishment of the European Banking Supervision SSM (Single Supervisory Mechanism) as a recognized institution within just four years is a remarkable achievement. Of course, the supervisor must now move more to a qualitative approach based on the US model and not just pursue the quantitative approach as before. This means that financial supervisors need to better understand business models and the complexity of doing business.

The second panel on the same topic also included contributions from the video-linked venues Paris London and Amsterdam.

Lorenzo Bini Smaghi, the prevented ECB president and now chairman of the board of the major French bank Société Generale, emphasizes the need for a European capital market. At the same time he describes the obstacles. There will be no capital market unless there were pan-European banks. But that will not be possible without a European deposit insurance. While in the US banks get bigger and bigger, there are too many small-scale banks in Europe. For all this, Germany and France should look ahead together and be oriented towards the USA. Then it needs a schedule that one work through step by step.

Crossing borders: Roland Boeckhout Amsterdam above left.,
Lorenzo Bini Smaghi Paris below leftl., Minouche Shafik London above right,
Andreas Dombret below right
(Source: Thomas Seidel)

The Dutchman Roland Boeckhout, board member of the Dutch ING Bank, is very skeptical about the capital market. Europe simply lacks the knowledge and skills. The skills are still in London. He laments the lack of solidarity in Europe. There is a lack of objectification. At the moment there are a lot of emotions in Europe but no European solutions.

The president of the German banking supervisory authority, Felix Hufeld, is surprised that only a short time ago one had warned about too big banks "to big to fail", but now speaking again of the necessity for globally competitive banks. The problem in Europe is that there is a lot of capital that is looking for profitable investments, but such investments are hardly to find in Europe. Hufeld distinguishes between supervision, which makes a daily work about supervision in detail and the regulation, which he considers more as a political task.

Simultaneously in Frankfurt, from left to right: Felxis Hufeld, Andreas Dombret,
Harald Kayser
(Source: Thomas Seidel)

Again and again, the participants discuss the missing European capital market. Harald Keyser, who will shortly head PwC Europe SE in Berlin, also recommends reducing dependence on the London capital market. For this, Europe needs more standardization and harmonization and less competition between locations such as Paris, Amsterdam, Luxembourg and Frankfurt. As a major obstacle, however, Keyser sees the political decision-making emergency.

Strengthening the EURO-Zone

The next panel focuses on strengthening the Eurozone. An introduction will be given by the former Dutch Minister of Finance and Chairman of EURO Group Jeroen Dijsselborn. For him, the most important homework is the completion of banking and capital market union, but also to begin with an improvement in labor markets and pension systems.

From the work in the European Parliament Jakob von Weizsäcker reports. New European projects should prove that they can make a difference step by step. He gives an example of Frontex. Before any financing, it must be clear what effect getting 10,000 more officials at the external borders. But von Weizsäcker fears an end to the European project. In more and more countries, the political orientation is to be only pros or cons of the European Union. The awareness of the commonality is fading.

In the typical Prussian-Wilhelminian style ("the world should adopt the German character") presented by the only governmental member of the German Federal Government Thomas Steffen, State Secretary in the Federal Ministry of Finance. For him, the mayor constraint is currently the unsolved problem of a European deposit insurance. Many other approaches, such as asylum policy, corporate taxation, etc. may also be important, but the unsolved deposit insurance is currently preventing everything in Europs financial markets. But of course, he expects the only solution can be a German model and the repeatedly demanded catharsis of bad loans.

from left to right: Jörg Zeuner, Lüder Gerken, Stefan Collignon, 
Thomas Steffen, Jakob von Weizsäcker
(Source: Thomas Seidel)

The former governor and current professor at the London School of Economics, Lord Mervyn King, first lectures on the lost competitiveness of Southern countries in Europe. They could not compensate by devaluing within the euro. Therefore, there must be an internal devaluation, but this would trigger high unemployment. Alternatively, one could also promote inflation in Germany and the Netherlands, for example. The third possibility would be to carry out transfers in Europe (the German irritant theme par excellence). Anyway, it would inevitably come to that. If one goes along this path without adequately informing the electorate, it would only strengthen the right-wing radical forces. Another problem is the lack of democratic legitimacy. Under no circumstances should politics keep silent about the truth. (Note: Is this a British insight from the Brexit vote?) Lord Mervyn King then alleged with the statement: It is not Great Britain who is leaving the European Union, but the EU is leaving Britain. Finally, King explains the failure of the Brexit advocates. What they did not do, was give a positive justification for remaining in the EU. They only argued with the cost of leaving. But with such a statement you could win no vote. Similarly, the EU should be able to communicate a positive reasoning for Europe.

from left to right: Christian Sewing, Stefan Collignon, Norbert Röttgen
(Source: Thomas Seidel)

Then the concentrated pessimism about Europe spreads in the upcoming debate. It comes to statements such as by the former Italian Prime Minister Enrico Latta, in Europe there is currently either only "no" or „nightmares“. Christina Sewing, the youngest head of Deutsche Bank, sees a lack of negotiable visions for Europe. The German parliamentarian Norbert Röttgen philosophizes that at the end of the post-war period a new epoch has not yet begun. It is not clear which order is now resulting. For a deep disagreement prevail. It would be discussed different value, but one do not know which values will prevail. That's why the role of the EU in the world needs to be redefined, including the issue of migration. The President of the Banque de France Francoise Villeroy de Galhau finally gives a sense of a achieved banking and capital market union. It is about transforming the 400 billion euros of private savings into investment.

Conclusion

Once again, this event has made it clear that the current inability of the European Union to work together in a constructive and collaborative manner is putting the project Europe at an ever faster and more fundamental risk. More than ever, everything seems to be teeters on the brink. Even though the banks seem to be pleading for the completion of the Banking and Capital Markets Union, they are all unable to separate internally from their national action cultures. This is even more true for politics. Already the pro-European fire, which briefly caused the French President Macron to blaze, again only a faint glow. The hope for leadership and assumption of responsibility for Europe by Germany shatters like a striking crystal glass because of an absurd power dispute of a small regional people's party. The forces of perseverance on national priorities are on the rise everywhere, if not already on the march. This is how Europe crumbles itself or is wiped out by global reality.

Nader Maleki established a new conference format
(Source: Thomas Seidel)

The anchor of Europe for 20 years -The European Central Bank is celebrating its 20th anniversary- from Thomas Seidel

The headquarter of the European Central Bank at Frankfurt am Main
(Source: ECB)

It all started on 1st June 1998. The rules agreed in the Maastricht Treaties for the establishment of a European central bank and the introduction of a common currency, the EURO, came into force. For the past twenty years, the common central bank of many European Union countries has at the same time been a rescuer in times of need and a goal, of ongoing sharp criticism. We went out in search for what constitutes this globally unique supranational institution at its core.

Robert Heyes a travel experienced British works in the
payment department. A core function
(Source: Thomas Seidel)

The 1990s brought the world the hitherto most comprehensive reorganization of the post-war world. With the reunification of Germany disappeared the old line of confrontation of the Cold War. Above all, the communication technology made unimaginable rapid progress. Everyone is virtually connected to everyone thanks to the Internet. Today, worldwide logistics quickly deliver any demanded goods to all desired locations. A liberalized finance industry provided almost infinite funding for investment and consumption.

Akuvie Edzave the family is from Togo. Organizing travels
for her colleagues in a polyglot way
(Source: Thomas Seidel)

An economically fragmented nationalist Europe would not have been competitive in the rush of global trade. Reason enough for Europe to unite ever deeper and closer. It started with a monetary and banking union. It should be followed by a tax and social union. At least in economic terms, a kind of United States of Europe. So far only the EURO and the European Central Bank (ECB) have been realized.

Patricia Kern-Endres from Ireland is the
49th employee. Today she is working at
the president office
(Source: Thomas Seidel)

More than just a central bank

This largely unfinished European Union project has imposed a responsibility on the ECB that was not intended for the purpose of a central bank. But of all the European institutions, the ECB is the only one that has the impression to the European people that it really works. You may or may not agree with the decisions of the ECB committees. But if a decision has been made, it will be implemented immediately and effectively. The ECB is not just moving billions of euros. It promotes or slows down the economy, it creates a global competitive framework for the European economy and sometimes also saves its own currency or the dilapidated national budgets of entire member countries. But all this only in the context of their original mission (original Mario Draghi: "within our mandate").

Beverley Standon left Great-Britain 20 years ago
to work at the ECB. Today she is a compliance- officer
(Source: Thomas Seidel)

The ECB was usually taken by surprise by politics a few years ago with the additional task of being the supreme banking regulator in Europe alongside monetary policy. Nobody in the ECB wanted that at the time. Many outside the ECB had and still have doubts as to whether the ECB is thus permanently in a depleting conflict of interest. But the policy had no choice. Very quickly, a competent and effective European banking supervisory authority had to be established from the scratch. To do that at all could only be trusted by the ECB. It is therefore fair to say that the choice of this decision is the largest vote of confidence in the ability of the central bank to date. But ultimately, the project of a European central bank and years later of European banking supervision was successful only because all the staff of the ECB had the competence, the skills and the will to successfully implement both powerful projects.

Conception Alonso is of Portoguese origin, but
grew up in France. She takes care of investments
of the ECB in foreign currencies
(Source: Thomas Seidel)

Only Europe is true

It must have been at the time of the first President of the ECB, Wim Duisenberg, that the employees developed that awareness of being part of this supranational institution, and that, at least for their work, their national origin occasionally takes a back seat. What is the current central bank policy, decide the overall interests of all member countries of the EURO-Community, but indirectly also all countries of the EU. This overall interest must be kept in mind by the ECB, never only by the interests of individual states or smaller groups of states. This is a balancing act, which is not always easy to understand for some large but also small member countries. 

Eva Finkernagel-Eid is one of the longest serving
employees within the ECB. She studied banking
business and multilingual secretary and keeps
contact to the media

Despite severe elemental crises, the ECB has still succeeded in maintaining its share of the European project. Meanwhile, some go so far as to say that should the EURO and the ECB collapse, Europe will fall apart too. That may sound a bit drastic. For the future, however, one should wish the European Central Bank to concentrate only on its very own tasks. Sooner or later, a central bank would be overwhelmed to be the sole anchor for a drifting community of states.

The ECB announces the end of its purchase program -Report from today's ECB pressconference- by Thomas Seidel

Today's press conference took place in the Latvian capital of Riga
(Source: ECB-Webcast Thomas Seidel)

After more than 12 months of a de facto deadlock on monetary policy decisions, the European Central Bank announced today the long-awaited move to phase out the extraordinary buying program by the end of December 2018. Although this step was long expected by the professional public, this decision will lead to some significant changes in the medium term.

To anticipate, the decision to end the extraordinary purchase program comes with a handbrake therefore. As ECB President Mario Draghi told journalists at the press conference, a purchase program has become a standard monetary policy instrument of a central bank and can be re-used at any time. Specifically, after September 2018, the volume of purchases is to be reduced to € 15bn per month and then suspended for the time being from January 2019. All key interest rates remain unchanged until further notice.

ECB-President announces the stop of the purchase program
(Source: ECB-Webcast Thomas Seidel)

However, stopping the purchase program does not mean that the promissory note issuers now have to repay their debts when due. Most issuers would not be able to do that either. Therefore, the ECB in its current resolution formulates, that it will reinvest in the maturing bonds! That's important, because that means issuers pay for a bond that matures by placing a new one. Thus, the stock of purchased bonds at the ECB and thus its balance sheet total from these transactions remains initially unchanged. This applies without further time limit. In any case, one wants to prevent a narrowing of liquidity. In other words, the ECB has just decided not to continue to grow the mountain of purchased bonds!

The reason given by the ECB for its decision is, its essential goal of an inflation rate just under two percent has been achieved. It is currently estimated at 1.9 percent inflation and expects this level to more or less continue until 2020. The economy is recovering, general wage levels are rising and lending to companies and households is showing growth of around three percent.

The new ECB-Vicepresident Luis de Guindos talks about details
(Source: ECB-Webcast Thomas Seidel)

Mario Draghi encounters all sceptic. One would not see a denomination risk with government bonds. The parliamentary election in only one out of 19 countries should not be dramatized. The economic progress made in recent years must not be talked down. The EURO is an irrevocable institution, very strong and is demanded. On discussions that are led against the EURO by some and the view of the German economist Clemens Fuest, there should also be an exit option from the EURO, Mario Draghi is charmingly not replying to even one.

The criticism that the ECB's persistently low interest rates would help to reduce the assets of savers is not being accepted by Draghi. For an investment there would be good profitable alternatives and pension funds would show that even in times of very low interest rates still good alternative returns can be achieved.

The press-conference is being enriched by the questions from journalists
(Source: ECB-Webcast Thomas Seidel)

Effects of changing conditions to the global economy, for example due to customs duties, can not yet be determined at the moment, because some of these measures are not yet in force. Criticism from Italy, in the month of May, the ECB had bought less Italian bond as usual, is being refused by Draghi. In addition to Italy, the purchasing volume of France, Belgium and Austria was also lower than in other months before. Draghi makes it clear, that a conspiracy against Italy would not take place.

The ECB has taken a lot of time with its decision to end the extraordinary purchase program, at least in terms of the timetable compared to the US Federal Reserve System, the local central bank for the US dollar. Ten years after Lehman and in its twentieth year, the ECB's signal is important that in the meantime a certain normality has re-emerged in Europe and the EURO area. How long this normality will last, nobody can foresee. Despite all economic recovery, European politics has not used time or done any of their homework. Instead, the national protectionist forces are increasing. In less than nine months, Brexit is just around the corner. No one knows until today how the English bet will turn out. Likewise, we do not know what the consequences are for the European economy and thus for the decision-making basis of the ECB.

Competition for the future of European capital markets -British simulation games about Brexit- by Thomas Seidel

Discussion at the Frankfurt Finance Summit
(Source: Thomas Seidel)

At the edge of this week Frankfurt Finance Summit, which gathers senior financial industry representatives each year, we took the opportunity to meet British government representative Katherine Braddick for an exclusive and very brief background information on the state of ubiquitous Brexit.

The director of the British Ministry of Finance describes the extent of the work because of Brexit in the British government. For example, her area is over 50 percent burdened with Brexit tasks. Of course one is in the face of such a unique situation in a governmental state of exception. This also applies to the working level at the regulators and central banks between Great Britain and the EU. For example, it is already apparent that there could be problems with contracts with very long cycles (terms of 5 years and longer). At present it is impossible to see how regulators will handle such transactions in the future.

But Brexit has by far not only effects on the financial industry. For many companies affected by the withdrawal decision, this is an essential issue. Above all, British banks are relocating to Europe, where they want to ensure a qualitative continuation of their customer service. Above all, the historical advantage of the British financial industry was the availability of real talents in this industry.

Katherine Braddick (very left)
(Source: Thomas Seidel)

Competition in capital market business

So far, London is the only major capital marketplace in Europe. With Brexit, this market will in future be outside the European Union. We spoke to Mrs. Braddick about the efforts to establish a new European capital market exchange in Luxembourg (we had already reported on it in detail). Obviously such aspirations in the British government are very sporty. One is prepared to compete in the capital market in the future. However, problems arise when business in Luxembourg begins to industrialize, in other words, to approach the UK capital market in terms of volume and transaction numbers.

Getting business contacts at the Frankfurt Finance Summit
(Source: Thomas Seidel)

Shift of focus

With the withdrawal from the European Union, the focus of the whole British economy will certainly shift. During Britain's over forty-year membership of the EU, relations with the formerly colonial Commonwealth of Nations may have been neglected. That will definitely change. In particular, trade with Canada and Australia, and not least the United States, will become increasingly important for Great Britain in the future. It seems that the British Government is willing to turn away from Europe in the future.