The Editorial Board decided that the modern crisis in Europe deserves our special attention. We have in mind the following ideas behind a series of articles about some of the most vivid aspects of contemporary crisis in Europe. First, the aftermath of crisis since the end of 2007 in the US and from the beginning of 2008 in Europe, did not leave much room for fundamental analysis in academic literature. Therefore, present publication is a kind of substitute for the lack of sufficient information on the crisis issues in the EU: the publication sheds some light on the essence and contradictions in tackling the crisis among the EU member states. Second, it is important to see how the EU’s efforts originate and how they deal with different structural approaches to the revision of existing economic and financial instruments.

The publication shows the EU remedy efforts through existing economic order in Europe while the debates are still going on as to the nature of the market economy and practical features of market fundamentalism. Finally, the publication is aimed at all those interested in the EU contemporary development; it can be used, we hope, by economists, lawyers and university students in European studies.

A series of articles is prepared by prof. Eugene Eteris, our European correspondent.

I. General introduction: the road to recovery

The European Union, as well as several other regions in the world, has not been prepared for the financial crisis in the start and, consequently, the economic one too. Although a number of scientists casually warned the global community on the inherent threats in development since the start of the new century, these warnings did not end in practical political or economic decisions. As a result, the European region has been hit hardest by the crisis among other regions of the world with several countries being brought almost to collapse.

There are several reasons behind the situation in which European community has become unable to be equipped for the crisis, which hit the region from political, economic and legal sides; below follows a short review of these sides.

As to the political reasons, the EU authorities, during the last decade have been mostly preoccupied with the rounding-up the final stages of the complicated Lisbon Treaty to take effect (it finally entered into force in December 2009). Therefore, almost all EU political efforts were devoted to eliminate existing obstacles to the Treaty’s ratification. Hence, the political decisions concerning the EU’s political future in the age of globalisation did not attract the necessary political attention; besides a certain level of “political blindness” did present the common political ground for concerted actions on the world arena.

However, the EU being a vital and important part of globalisation process, inevitably takes part in the world efforts to tackle the crisis: the European Council (as the collective EU “body”) and some member states (e.g. France, the UK, Germany, Italy) are trying to find an optimal compromise on a global level. Numerous G-8 and G-20 meetings during the years under the crisis time have shown that these political compromises are not easy to reach (the present review in the time span is limited to the November G-20 summit in South Korea in 2010).

Politicians at the member state’s level are more involved in national survival, rather that finding common denominations for common survival remedy. They are pretty much aware of the fact that the ways out of crisis start at home. Hence trends towards “national patriotism” and protectionism prevail.

On the economic side, the EU leaders during last decade, generally in the work of the last two Commission’s colleges (from 1999-2004 and from 2004 to February 2010), could hardly make any significant analysis of the block’s economic development or its perspectives. Suffice it to say, the fundamental analytical reports on the EU’s “common economic future”, e.g. Jacques de Larosiere (25 February 2009) or Mario Monti (9 May 2010) were commissioned after the crisis had already begun and hit hard the EU member states.

Neither adequate nor prospective analysis of risk assessment and management (or financial services efficiency, to that end) deserved consolidated actions and attention from the EU leaders. Several “internal negative” factors have aggravated the situation, e.g. the EU member states’ economic separatism and “national patriotism”, which precluded the optimal compromises on the way to the EU common economic policy.

The necessary coordination was far behind the optimal, e.g. last meetings of the EU group of Broad Economic Policy Guidelines took place only in 2003 and 2005. The economic side of the crisis, alongside with the financial issues, is of course the most difficult in resolute salvation mechanisms. Finding optimal solutions and means need reassessment of such fundamental economic notions as e.g. the traditional role of state, the efficiency of existing economic models in Europe, the state of partnership between the public and private sectors in economy, and so on and so fourth.

Some even argue that the EU does not have a genuine economic policy, “the EU task is to coordinate the national economic policies so that the policy decisions of one state do not have negative repercussions for the operation of the single market” (1). Economic imbalances across the EU are aggravated by the financial sector’s problem in the region. And here again, finance and banking are the national domain; they are regulated nationally, rescued and “bailed-out” nationally. Most of the present problems are that of insufficient European co-ordination and lack of “common European denominator”; hence, the EU problems are far from becoming “burden-sharing”; they are the problems to be resolved by the national economists and politicians.

As to the issues of legislation and regulation, they reflect all the dysfunctional legacies of the above-mentioned political and economic factors. Besides, the existence of national legislative regimes greatly tarnished the efficient regulatory measures, e.g. the legislative burden “from Brussels” is as voluminous as that of the member states.

On top of this, the financial services’ “freedom” has been the least developed aspect of the EU single market. Concerted actions on the Union’s policy towards business in general and SMEs in particular started only “after the crisis”, somewhere around 2008. Only presently, the EU legislative efforts attracted the necessary attention as viable instruments in both the single market development and among the instruments to tackle the crisis and its aftermath.

The main difficulty with the EU legal efforts to eradicate the crisis is Union’s inherent inability to take resolute actions without a preliminary agreement with the member states. These agreements are not an easy thing to accomplish with another principle, i.e. conferral. Hence, the ultimate crisis remedy is, actually, in the hands of the EU’s member states governments, which means that additional cooperation and coordination is needed in order to reach “European dimension” in common efforts.

These – mainly three, as well as some other issues concerning the EU efforts in tackling the present economic and financial crisis – are dealt with in this publication. To sum-up, the main issues under analysis are:

to show a general political and economic background on which the crisis occurred in Europe;
to describe the EU recovery strategy and plans;
to analyse existing and planned legislative and regulatory instruments to tackle the crisis;
to analyse the reforms in the European financial sector, and
to reveal some EU risk management strategies at Europe’s critical period.

1. The crisis is far from over: an overview. The financial turmoil in Europe and elsewhere that started as a subprime crisis in the US in late-2007, has had impact on two developmental parts, i.e. financial sector (with the banking sector as its constituent part) and the real economy in the EU-27 member states. Policymakers and the general public are presently in the state of intensive deliberations and assessment of the existing economic structures, the political economy of reforms (in particular, in Latvia, Hungary, southern EU members, etc.) and the traditional paradigms of economic thinking (liberalism, monetarism, corporatism, etc.). All of these and other social-economic development concepts being quite acceptable and tolerable at “before-crisis” periods are subject presently to extensive re-evaluation and fundamental review.

Economies in critical and “bad times”- as is in the EU at present- can show policymakers the ways future structural reforms will proceed; most of these reforms can be, in fact, clearly seen only at times of crisis. Management instruments chosen during critical periods can show what should be done: these efforts can often change traditional (and so far obsolete) economic thinking and theories, providing hints on the perspective reforms adopted for survival and further development.

At different occasions, e.g. the G-7, G-8 and G-20 meetings during last two years in different continents, global leaders expressed numerous predictions about the extent of common efforts available to tackle the present crisis. A common denominator was a clear discontent with the unregulated capitalism, which makes people question its ultimate viability. Doubts concerning effective capitalist’s practice seem to have widely affected Europeans leading positions in the dynamic world. However, neither politicians nor economists have suggested another development system to stick to (besides the “traditional capitalism”), i.e. all the rest proved even worse. It has to be mentioned somehow, that “European capitalism” is generally a different sort of capitalism; it is “social market capitalism”, as EU leaders constantly remind politicians.

When the crisis broke out in the end of 2007, many European leaders believed that it would generally confine to the US borders, where it originated. Since then, as the crisis has spread, political leaders and finance ministers on both sides of the Atlantics revised several times already grim outlooks and predictions.

As soon as the present global crisis have emerged initially in the form of a financial crisis, it seemed natural that the world would turn its attention to the economies’ financial component, however with a sense of “capitalism crisis”. Thus, a global financial daily, London’s Financial Times, FT started in March 2009 a series of articles with a notorious title “future of capitalism”; in numerous articles the FT staff and other noble participants explained their vision on the existing capitalist development “future” (2).

Concerning the financial part of the crisis, the present EU recipes and conclusions aimed at the intensive regulatory approach; the question is still how deep it could be on the EU member states and European dimension. As to the capitalism’s future, the recommendations are shifting towards “capitalism variety”, where financial sector (heavily regulated) and private companies (slightly regulated) subdue to the increased regulatory role of state and public authorities. This time, the role of state in economic development is regarded vital.

After about three years of deliberations and some practical steps to overcome the crisis aftermath, the general picture of the European Union’s economy and finances still seems highly complicated and unstable. On the economic side, there are such factors as high budget deficits and public debt ratios concerning GDP associated with subprime sovereign debt. There is a great risk that some states will not be able to repay down the debts, e.g. Greece, Spain and Portugal. Austerity measures seem to produce destabilizing effect on social and political situation adding little to self-correlated national recovery plans. Other states-in-crisis, like Ireland are fighting against bail-out pressures from the European Union (3), but in vain.

On the political spectrum, the main EU issues are to increase financial stability; leadership in the EU and political will in the member states are involved in finding prospective directions for the EU’s future. Numerous EU leaders’ meetings and summits during last two-three years have shown that governments lack a common political commitment to safeguard the regional financial stability (as well as in the single currency zone). However, the common denominator was finally found, in particular, e.g. in May 2010, when an important rescue decision was taken to secure € 750 bln liquidity and guaranty funds for the weakest Union’s members (including € 400 bn fund backed by the 16 members of the eurozone).

The EU “crisis-rescue efforts” have been arranged around two main lines: first, the so-called “proper coordination” of the member states’ economic development and, second, providing debt guarantee schemes for countries in crisis. To reach a proper coordination, the countries would require greater mutual interference into national economic development, as well as more fundamental approaches to “common European values” and priorities. The latter resulted in enormous spending cuts (which must be implemented!) by numerous EU members (the following are figures in euros), e.g. 32 bln for Greece, 15 bln for Spain, 10 bln for Germany (each year!), 13 bln for Italy, 8 bln for the UK, 7 bln for France and 3 bln for Denmark. In the eurozone alone debt guarantee schemes account for about € 440 bln (4).

The austerity measures involved in such spending cuts cannot but create both the popular dissent and political tensions in the EU member state. Besides, the eurozone troubles endanger the European image at the international stage: FTSE’s all-world index was reduced from 210 points to 177 just during two months (April-May 2010). The EU corporate bond issuance in 2010 followed the decline – from $59 bln in March to $29 bln in April and to $7 bln in May. Projected government debt in 2014 would be 146 % of GDP in Greece (97% in 2006), 90% of GDP in Spain (40% in 2006) and 82% of GDP in Germany in comparison to 68% in 2006 (5).

GDP per inhabitant in the EU member states shows an alarming disparity; based on first preliminary estimates for 2009, GDP per inhabitant (expressed in Purchasing Power Standards, PPS) varied from 41% to 268% of the EU-27 average. The figures are based on the latest GDP data for 2009 and the most recent PPPs available (6).

For example, in Finland, France, Spain, Italy, Cyprus and Greece, GDP per inhabitant was within 10% of the EU-27 average. Ireland, the Netherlands, Austria, Sweden, Denmark, the United Kingdom, Germany and Belgium were between 15% and 35% above the average (the highest level of GDP per inhabitant was recorded in Luxembourg). Slovenia, the Czech Republic, Malta, Portugal and Slovakia were between 10% and 30% lower than the EU-27 average. Hungary, Estonia, Poland and Lithuania were between 30% and 50% lower, while Latvia, Romania and Bulgaria were between 50% and 60% below the EU-27 average.

Table: GDP per inhabitant in selected EU states, in PPS (2009, EU-27 = 100)

Luxembourg	268	Portugal	78
Ireland	131	Slovakia	72
Netherlands	130	Hungary	63
Austria	124	Estonia	62
Sweden	120	Poland	61
Denmark	117	Lithuania	53
United Kingdom	117	Latvia	49
Germany	116	Romania	45
Belgium	115	Bulgaria	41

Note: in bold are the countries with the highest and the lowest GDP per capita.

Main arguments have been about whether the EU member states were ready to follow much tighter coordination of economic policies, which is most urgent for the eurozone states (the issue could affect Estonia from 2011). Some suggest strict measures to punish the states violating the Maastricht criteria (such as Germany and France); others would like to force those with large external surplus to assist rebalancing the EU economy (the UK). It is worth remembering that the big duo, i.e. Germany and France were, in fact, the first to violate the Growth and Stability Pact: the fact that underlines the divide between the national and European interests; however, these states are still the economic motors behind the EU economy.

No wonder, that the global investors are often turning their backs to the euro. Because, when the EU agreed, for example, for a rescue package of €110 bln for Greece, the eurozone was partly bailing out its own banks (French, German, Italian, etc.), i.e. those involved in subsidizing development in Greece. Hopefully, not all the countries around the world have lost their interest in euro; e.g. Russian Federation, the third EU partner in trade, has about 40 per cent of its foreign currency reserves (which accounts for $460,7 bln in 2010) in common European currency. Quite remarkable, that Russian government did not try to make the EU situation worse by getting rid of “unstable euro” (7).

In fact, the euro’s history does not provide any ground for serious doubts in its firm and solid position, i.e. it is still regarded as “global reserve currency”. For example, at the time of euro introduction in January 1999, the parity rate was 1,183 (euro against the dollar, $ per €). Then, in January 2001, the exchange was the lowest in the history of currency relations – 0,942. Already in November 2003, the parity was 1,147, during 2007 (1,368) and in 2008 it was at 1,467 (with the highest ever level at 1,576 – in June 2008). During 2009 the exchange rate balanced between 1,359 in May and 1,425 in July. Euro against dollar during 2010 balanced between 1.45 in January to 1,227 in May 2010 and somewhere at 1,35 at the end of 2010. Thus, during the decade’s history, the euro’s ups and downs has ended at the level of its initial value, i.e. somewhere at 1,3 euro against the dollar. (8)

Some researchers, analyzing the debt crisis in the EU (e.g. O. Hishow from the German Foundation for Science and Politics), argued that the EU member states might not reduce their debts significantly before 2025. The report’s authors suggested the establishment of a rule that would assess the amount of debt “development” in the light of economic growth. According to the report, the European Commission should manage the control of debt and sanction the debtors (9).

To counter the economic crisis the Council of the European Union adopted a regulation (1054/10, 3 June 2010) facilitating access to the EU’s structural funds following the agreement reached with the European Parliament. The new regulation aims to guarantee the liquidity of the worst affected Member States in the crisis to improve the absorption of the funds with regard to certain operational programmes and to simplify the structural funds’ management rules. MEPs of the European Parliament’s Regional Development Committee declared that more flexible access to the EU’s regional fund should help the regions that have been hit by the economic crisis recover more quickly. In addition, MEPs added that micro-loans and aid to SMEs, professional training, R&D and innovations, industrial and rural modernisation will work towards sustainable growth and employment.

According to the Council Regulation (1054/10), Latvia, for example, will receive additional advance payments of € 52,8 mln, which is 4 per cent increase in ESF fund and 2 per cent in Cohesion Fund. Total for the three Baltic States additional advance payments will account to € 178,7 mln out of total 775,2 mln for 5 states, including also Hungary and Romania (10).

It seems that though the global economy in general has been recovering after nearly three years since the first signs of economic collapse, numerous regions in the world are still combating with its negative outcomes. Thus in Europe, unprecedented monetary and fiscal response of its 27 member states, has shown, presently, extensive and coordinated efforts to tackle both the economic and financial sides of the crisis’ aftermath. On the economic side, the coordinated efforts ended, generally, in the new EU-2020 strategy, though some extra measures were taken too. On the Council’s level, the EU’s full-time president, Herman Van Rompuy, since March to July 2010 headed a European task force on economic governance. The task force, consisting mainly of the member states’ finance ministers, made various suggestions: tightening sanctions on countries breaking the EU fiscal rules, monitoring states’ macroeconomic imbalances, such as, e.g. public and state budgets’ deficits. Almost the same kind of analysis and consequential proposals the Commission suggested twice – on May 12 and on June 30, 2010. These efforts of the two most powerful – though independent- EU institutions provided for “parallel solutions”.

On the financial side, it was the designed pan-European financial regulatory system. The EU-27 has committed to an integrated “single market” in financial services along the existing economic one (within the so-called “four basic freedoms”). The mentioned EU institutions – the Council and the Commission’s – were supplemented by the ECB’s analysis on economic governance with some of the member states’ comments.

The reason is that creating common financial market is a much more complicated task to accomplish. Thus, German and France are anxious to keep control over the Europe’s economic development and governance. In this regard, the leaders of the two most powerful continental economies are often conflicting with the Commission, while making more active the position of Mr. Rampuy, the European Council’s president coordinating the economic development among the EU-27 governments. Thus, the economic governance’s issue in Europe was dominated by the Germany’s chancellor (at least in the first half of 2010), and in association with France, in the second half.

The “corrections” to the European financial sector, by a “gentlemen agreement” among the big EU powers, was generally left to the British financial center, the City. Hence, the new European Financial Stability Facility was established in London to the apparent dissatisfaction of other continental powers. The former EU commissioner Mario Monti, in his report to the Commission in May 2010, about the possibilities of the EU progressive development, made an important analysis of expected reforms. (11)

“Stress test” for banks . In July 2010, the EU undertook an unprecedented step: 91 banks in more than 20 European countries were put under “stress test” aimed at restoring confidence in the EU financial system. On behalf of the EU, the test was conducted from the City in London, the home of the European Union’s Committee of European Banking Supervision (CEBS). According to its Dutch-born secretary-general, Arnold Vossen, the number of banks and jurisdictions involved, the scenarios used and the risk factors taken into consideration, all that was done for the first time in the EU’s financial history.

There were several “tests”; one of the biggest “test” was the banks’ balance sheet in response to crisis, so-called “tier one capital adequacy ratio” of 6,0 per cent – the minimum pass mark. Quite remarkable, that only 8 banks – less than 10 per cent- fail to stand the test; otherwise the EU banks showed a strong financial stability. The top ten EU banks with the tier one capital ration of 11,4 to 19,7 per cent were in eight countries: Spain (two banks), Hungary, Poland (two banks), the UK, Denmark (two banks), Netherlands, Finland and Luxembourg. Quite notable is that three countries under the loop were from the Baltic Sea region (12).

CEBS from January 2011 will turn into European Banking Authority with about 50 staff, and quadrupling within the next two-three years. In future, the CEBS will be less coordinating but more controlling and “directing”, as more binding financial standards would emerge, acknowledged CEBS’ secretary-general.

As soon as most EU practical efforts to tackle the crisis dealt with changes in the EU financial sector, the attention will be devoted to recent steps in this sphere . Thus, already in September 2010, Commission’s President revealed the perspectives for the long-expected changes in the EU financial sector. In fact, the EU-27 states have explored two approaches to the financial sector’s revival: one, from governments and average people, another – from wizards at stock exchanges, banks and various financial institutions. These two different outlooks on the same issue portrait the problems incurred in the financial markets; they reflect the reality of Europe’s growing economic interdependence. According to the Commission’s President, the crisis has shown with dramatic clarity the consequences of member states’ action (and inaction) in tackling threats of reckless macroeconomic policies, as well as regulators’ overlooking risky new practices and traders irresponsible betting on ever-higher bonuses. The price of failure was paid by all the EU member states.

The new regulatory approach represents the EU’s response, which takes into account the member states’ interdependence. Thus, the EU is delivering a fundamental overhaul of regulation, governance in Europe’s economies and a holistic approach that allows stabilising, consolidating and reforming. The EU will take immediate actions to support banks, when the EU member states are struggling with sovereign debt; the EU actions would prevent a meltdown (13). The Commission is trying to fix the fundamental gaps and weaknesses in those regulation and supervision instruments, which were highlighted in the invaluable report by the group of experts headed by Jacques de Larosiere and delivered in 2009 at the Commission President’s invitation. Many measures proposed by the Group, e.g. including those on credit rating agencies, protection of depositors, and improved bank capital – are already in place. Others, like rules on hedge funds and private equity, are awaiting final approval (14). Only after a year since its inception, the achievements in the Jacques de Larosiere’s report and ideas for a new supervisory architecture for Europe are being realized.

Of particular interest are the EU efforts towards the Union’s 2011 financial reform. As is known, from the beginning of 2011, the EU will have in place a European Systemic Risk Board and a European System of Supervision aimed at bringing together national supervisors with three new European supervisory authorities. These arrangements are the bedrock for the EU reform and setting up the global standard. The EU intends to use the potential of the new authorities to the full in order to complete the reform. The Commission promised to make outstanding proposals by spring 2011; the proposals are being prepared by the Commissioner Michel Barnier staff.

Another key challenge is that of getting the right “financial rules” in place for dealing with systemically relevant institutions – those that are “too big to fail”. The Commission will set out a crisis management and resolution framework in October 2011.

Next EU step is to ensure that the new prudential rules at international level agreed in Basel (so-called Basel II and Basel-III) are properly reflected in the EU member states’ legal framework. The EU is conscious of the need to maintain this sector’s international competitiveness with a view to strong European financial markets, competing fairly and winning on a global level playing field (15).

Among some new EU proposals, are the ideas of sovereign debt crisis, which already in the start of 2010 exposed gaps and weaknesses in macroeconomic surveillance, in particular in the Stability and Growth Pact, which cannot continue in its present form; for example, the time has come to complete the EU monetary union with the economic union. Alongside regulatory reform, the EU urgently needs an overhaul in its economic governance tools. The Commission is making new proposals in these directions, which will be build on the consensus fostered in the Task Force, chaired by the President of the European Council. The idea is to better monitor and address imbalances, improve budgetary surveillance, look at government debt in a more sustained way, and give real teeth to the Stability and Growth Pact (mainly through EU-2020 Strategy (16).

Greater stability at macroeconomic and market level is an essential foundation for the major structural changes needed in the EU economies. The EU-2020 Strategy is aimed at guiding Union’s economy towards new sources of growth and cohesion, in order to achieve smart, sustainable and inclusive growth. Financial services are viewed as a positive contribution to stable growth. The Commission is expected to see growth in new seed funds, and private equity or venture capital funds. It needs to offer young, innovative companies alternative ways to raise capital. The EU is looking at releasing potentials of private investment through properly regulated retail products. With this in mind, the Commission intends to submit to the member states proposals for an innovation union at the very end of 2010.

At the same time, the Commission does not intend to restrict the bankers or fund managers’ activity; the EU’s aim is a thriving and sustainable European financial services sector, e.g. in London, in Paris, in Frankfurt and beyond. Thus, the financial industry is engaged in a very positive activity, i.e. the broad direction of reform over the past months. But now bankers need to put money in the perspective directions. They are under pressure to show that the culture of excessive bonuses is over – not just for a few months but forever; the bankers have to prove that they can develop products that are sustainable and innovative, i.e. to put financial services back at the service of the economy.

That also means that banking sector shall assist citizens through access to basic banking services, responsible lending, and transparency of bank fees. These are the Commission’s priorities in the coming months. At the same time, it means making a fair contribution to cover the costs the sector has incurred for the taxpayer; the Commission will present ideas for taxing financial activities. In parallel, the Commission will continue to discuss a global financial transactions tax with international partners. Together with the EU member states and the other institutions, i.e. the European Parliament and the Council, the Commission is implementing balanced solutions to get Europe out of crisis and back to growth (17).

In dealing with the roots of the crisis, there is a general belief that at the background of the present financial crisis was a crackdown in the US financial sector. Tough new regulations in Europe expected at the start of 2011 have frightened the big banks in the world (18). For example, Goldman Sachs’ chief executive, Lloyd Blankfein, has voiced a clear warning that the bank could shift its operations from Europe if regulatory efforts on the industry become too tough from next year. Although he backed current moves to toughen bank regulations in efforts to ward off another financial crisis, he warned that the introduction of “mismatched regulation” in Europe would tempt banks to search out the cheapest, least intrusive global jurisdictions in which to operate (19).

European region remains of vital importance to a number of US banks, e.g. Goldman Sachs, which has more than half of the bank’s business now generated outside the US. Goldman carries unusual weight in financial world as the leader and most profitable investment bank. According to Mr. Blankfein, financial operations can be moved globally and capital can be accessed globally, as well; the comment, which can be seen as a warning to re-consider bank’s operations in Europe.

It has to be mentioned that the Basel Committee on Banking Supervision, the global regulatory oversight body, raised concern about the new European rules to toughen banks’ capital and liquidity requirements. The rules could ban certain financial products or activities in times of market stress. More serious restrictions were introduced in the US financial market as well. The lobbying in the US has already done a lot to substantially watering down of the Dodd-Frank legislation. Hence, Goldman, like other big competitors such as JPMorgan Chase and Morgan Stanley, has already been forced to shut down or pare back some of their most profitable trading operations as a result of the US reforms.

The uniform implementation of financial regulations and enforcement would create a level playing field in Europe based on fair competition rules. However, numerous gaps exist in the world of commerce and taxation that could be exploited to the detriment of fair competition, e.g. global financial players are ready to compete with “cooperative regions”. Thus, Goldman Sachs launched recently the biggest advertising campaign in its history in an attempt to improve its reputation with the US public by highlighting its role in job creation and economic growth (20). The US regulators have alleged Goldman of fraud; politicians attacked the firm in the media on its pay practices, close ties to governments and pervasive presence in capital markets. The bank has since settled the fraud case with the Securities and Exchange Commission, paying a record $ 550 mln fine without admitting any wrongdoing.

The years 2008-09 have been the years of political consultations and deliberations on the ways the EU shall follow to eradicate the crisis’ consequences. In 2010, the EU-27 managed to achieve a certain stability and growth after “mastering an uncommonly severe period of financial and monetary turbulence” (21).

At the end of 2010, the crisis aftermath in Europe is far from being over: both in the euro-zone and in “regular” EU members the economic situation shows signs of concern. Several countries are dragging the EU economy back into the red: compared to the EU “economic rulebook” (max. 3% of budget deficit and 60% public debt) the corresponding figures are – in Ireland 14,4% and 65,5%, in Portugal – 9,3% and 76%, in Spain – 11% and 53%, in Greece – 15,4 and 127%, according to Eurostat 2009 account. E.g. Eurostat warns that Greece’s 2010 budget deficit would be significantly higher than forecast.

The EU governments opted for economic policies aimed at reduction in public budget and GDP’s deficit. However, national situations are extremely different and contrasting: in some, e.g. Germany high economic and financial performance is recorded (the chef of Deutsche Bank since 2002, Josef Ackermann was named in 2010 the “European Bankman”), in others – great unemployment and the need for restructuring banking systems is evident, e.g. Ireland and the Baltic States. Important, though, it is that the EU “big states”, as well as the small ones, have demonstrated ability to define a joint ground to tackle the aftermath of the crisis.

Prof. Eugene ETERIS, European Correspondent

References

1. Borchardt K-D. The ABC of European Union law. – European Commission, Publishing Office, 2010. – P. 34.

2. See: www.ft.com/capitalism and other publications in the Financial Times during these years.

3. Ireland resists bail-out pressure // Financial Times, 15 November, 2010. – P.1 and 3.

4. See: material on “Integrating EU financial markets” –

http://ec.europa.eu/economy_finance/eu/integrating/index_en.htm

5. See: Data from Thomson Reuters DataStream, IMF and Financial Times, 28 May 2010.

6. See: Eurostat Publication: STAT/10/91, 21 June 2010, First estimates for 2009.

7. See: EU-Russia Partnership, Rostov-on-Don, 30 May-1 June 2010.

8. Source: Thomson Reuters Database, IMF and Financial Times (June 1, July 15, 2010).

9. See: The debt crisis – reducing and preventing debt via new sustainability rules. Report of the German Foundation for Science and Politics, Berlin, June 2010.

10. See: Council of the European Union, Regulation 1054/10, 3 June 2010.

11. A new strategy for the single market. Report to the President of the European Commission by Mario Monti, 9 May 2010 (In particular, ch. 2.8, “The single market for capital and financial services”. – P. 61-63).

12. See: Enduring the stress of testing 91 banks. Interview with A.Vossen // Financial Times, 26 July 2010. – P. 14.

13. See: Driving European recovery – http://ec.europa.eu/financial-crisis/index_en.htm

14. See: The High-level group on financial supervision in the EU. Chaired by Jacques de Larosiere. – Brussels, 25 February 2009. – 86 pp. The report can be found at: http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf

15. See: Masters B., Murphy M. Suspense over: bank reform // Financial Times, 19 August 2010. – P. 5.

16. See: http://ec.europa.eu/financial-crisis/index_en.htm and

http://ec.europa.eu/economy_finance/sgp/index_en.htm

17. See: e.g., www.baltic-course.com, and information on Commission priorities, 29 September 2010.

18. See, e.g. http://www.baltic-course.com/eng/baltic_states/?doc=32120

19. See: Jenkins P., Murphy M . Goldman warns Europe on regulation // Financial Times, 29 September 2010.

20. See: Guerrera F., Farrell G. Goldman in ad blitz to repair reputation // Financial Times, 30 September 2010.

21. Fabre A. The Euro Area in Autumn 2010: Economic policies on a Razor Edge? –

http://www.robert-schuman.eu/question_europe.php?num=qe-185

№12(50), 2010

The anatomy of the European economic and financial crisis: past, present and future