Europe and the U.S.: The Controversial Issues
Published in Le JDD
(France) on 20 September 2009
by Nicolas Prissette (link to original)
Europe and the U.S. are not necessarily in agreement on all the important issues to be raised at the G20.
Accounting standards: The Controversy
Should the value of assets be calculated at the market rate or at their buying price? Europe and the U.S. do not share the same accounting standards, neither for banks nor for other businesses. For example, Deutsche Bank is twice as rich according to the European accounting standard as it is by the American standard. America has promised that, one day, it will put its banks on the European standard, which is regarded as more rigorous, but that is still only a promise.
What's at Stake
Access to credit and finance. The harmonization of standards must enable us to make clear comparisons of businesses’ and banks’ finances, and to take a long-term view of the economy.
Traders’ Bonuses: The Controversy
“Why is it that we’re going to cap executive compensation for Wall Street bankers but not Silicon Valley entrepreneurs or NFL football players?” asked Barack Obama rhetorically. The U.S. president has said no to the trio of Nicolas Sarkozy, Angela Merkel and Gordon Brown, who all managed to reach an agreement to limit traders’ bonuses. Europe is still proposing a capping system based on a percentage of banking activity, but will not start a fight over Obama’s rejection of the idea. The proposals that remain to be discussed are: to defer the payment of bonuses for three years, the partial payment of bonuses in the form of shares and the possible withholding of bonuses in case of bad results.
What's at Stake
Traders are unanimously accused of having contributed to the collapse of the economy through their reckless risk-taking on the financial markets, which was encouraged by remunerations that sometimes exceeded those of their CEOs.
Banks’ Equity Capital: The Controversy
Tim Geithner, the U.S. treasury secretary, thinks the best way to secure the banks is to demand they raise their levels of equity capital, the amount of capital they must hold in reserve and keep risk-free. The Europeans prefer to restrict this requirement to investment banks only.
What's at Stake
The American banks, which were rescued by the state at great expense, will meet the criteria proposed by Tim Geithner. If European banks had to comply, they would be forced to suddenly find a lot of money and lending to businesses would leave them more depleted than their American counterparts. America is attempting to impose its leadership.
The Points of Agreement
Economic Rescue Plans
Should economic rescue plans be halted straight away? The G20’s answer will be no. Europe and the U.S. know that market recovery rests largely on the hundreds of billions of Euros of public money that has been injected into the economy. They share the view that conditions are fragile. There is therefore no question about bringing aid packages to a halt. The respective governments are promising that their exit strategies from the rescue plans will be coordinated later. It is still unclear how, and protectionism still needs to be avoided.
Tax Havens
The G20 should go further in the fight against “opaque” financial markets, even if Gordon Brown is terrified that the Channel Islands might get black-listed. “The revolution has only started, it has not yet been won,” as the French government puts it. The idea is to set up a procedure of sanctions against states that fail to respect the rules on publishing information on accounts or legal transactions beginning in March 2010.
Accounting standards: The Controversy
Should the value of assets be calculated at the market rate or at their buying price? Europe and the U.S. do not share the same accounting standards, neither for banks nor for other businesses. For example, Deutsche Bank is twice as rich according to the European accounting standard as it is by the American standard. America has promised that, one day, it will put its banks on the European standard, which is regarded as more rigorous, but that is still only a promise.
What's at Stake
Access to credit and finance. The harmonization of standards must enable us to make clear comparisons of businesses’ and banks’ finances, and to take a long-term view of the economy.
Traders’ Bonuses: The Controversy
“Why is it that we’re going to cap executive compensation for Wall Street bankers but not Silicon Valley entrepreneurs or NFL football players?” asked Barack Obama rhetorically. The U.S. president has said no to the trio of Nicolas Sarkozy, Angela Merkel and Gordon Brown, who all managed to reach an agreement to limit traders’ bonuses. Europe is still proposing a capping system based on a percentage of banking activity, but will not start a fight over Obama’s rejection of the idea. The proposals that remain to be discussed are: to defer the payment of bonuses for three years, the partial payment of bonuses in the form of shares and the possible withholding of bonuses in case of bad results.
What's at Stake
Traders are unanimously accused of having contributed to the collapse of the economy through their reckless risk-taking on the financial markets, which was encouraged by remunerations that sometimes exceeded those of their CEOs.
Banks’ Equity Capital: The Controversy
Tim Geithner, the U.S. treasury secretary, thinks the best way to secure the banks is to demand they raise their levels of equity capital, the amount of capital they must hold in reserve and keep risk-free. The Europeans prefer to restrict this requirement to investment banks only.
What's at Stake
The American banks, which were rescued by the state at great expense, will meet the criteria proposed by Tim Geithner. If European banks had to comply, they would be forced to suddenly find a lot of money and lending to businesses would leave them more depleted than their American counterparts. America is attempting to impose its leadership.
The Points of Agreement
Economic Rescue Plans
Should economic rescue plans be halted straight away? The G20’s answer will be no. Europe and the U.S. know that market recovery rests largely on the hundreds of billions of Euros of public money that has been injected into the economy. They share the view that conditions are fragile. There is therefore no question about bringing aid packages to a halt. The respective governments are promising that their exit strategies from the rescue plans will be coordinated later. It is still unclear how, and protectionism still needs to be avoided.
Tax Havens
The G20 should go further in the fight against “opaque” financial markets, even if Gordon Brown is terrified that the Channel Islands might get black-listed. “The revolution has only started, it has not yet been won,” as the French government puts it. The idea is to set up a procedure of sanctions against states that fail to respect the rules on publishing information on accounts or legal transactions beginning in March 2010.
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