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PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHPOD RUEHROV RUEHSR
DE RUEHBS #0333/01 0710555
ZNR UUUUU ZZH
P 120555Z MAR 09
FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC PRIORITY
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INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCNMEU/EU INTEREST COLLECTIVE

UNCLAS SECTION 01 OF 03 BRUSSELS 000333 
 
SENSITIVE 
SIPDIS 
 
NOT FOR INTERNET DISTRIBUTION 
 
E.O. 12958:  N/A 
TAGS: EFIN ECON ETRD EIND EINV EUN
SUBJECT: EUROPE FINANCIAL AND ECONOMIC REPORT:              March 
6th, 2009 
FINANCIAL SERVICES: UPCOMING ISSUES /EVENTS 
------------------------------------------ 
Capital Requirement Directives (CRD): 
------------------------------------ 
 
¶1. (SBU) On March 9, the ECON Committee of the European Parliament 
(EP) will vote on amendments to the CRD report.  It is likely that 
there will be amendments passed asking the Commission to submit 
proposals to enhance transparency of the OTC derivatives market, 
including mandatory central counterparty clearing, by December 2009, 
though possibly not to raise capital requirements for non EU-cleared 
CDSs at this time. 
 
Credit Rating Agencies (CRAs): 
------------------------------ 
 
¶2. (SBU) On March 9, the ECON Committee of the European On March 9, 
the EP ECON Committee is set to discuss amendments to the report on 
Credit Rating Agencies.  MEP Gauzes (French, Conservative) will also 
start negotiations with the Council and the Commission to reconcile 
different approaches by the three institutions on the issue. 
 
 
 
 
EUROGROUP / ECOFIN: 
------------------ 
 
¶3. (SBU) On March 9, the ECON Committee of the European Eurogroup 
Finance Ministers will meet on March 9 and the ECOFIN will meet on 
March 10.  This week's ECOFIN will be almost entirely devoted to 
preparing key policy documents for the spring European Council of 
March 19 and 20.  The Council is expected to endorse the main lines 
of the EU's position for April's G-20, as well as the Commission's 
assessment on the 2009 Stability and Convergence Programs. 
 
European Council: 
----------------- 
 
¶4. (SBU) On March 9, the ECON Committee of the European Leaders will 
meet for the Spring European Council on March 19 and 20.  They will 
work on a common EU position for the upcoming G-20 meeting.  Leaders 
are also expected to endorse the country-specific recommendations 
for member States on economic and employment policy. 
 
FINANCIAL SERVICES: RECENT EVENTS: 
-------------------------------- 
 
Berlin mini-G-20 sees EU leaders move towards increased financial 
regulation and oversight: 
-------------------------------- ---------------------- 
 
¶5. (SBU) On March 9, the ECON Committee of the European On February 
22, leaders from Britain, France, Germany, Italy, Spain, the 
Netherlands, Luxembourg (representing Euro area nations), and the 
Czech Republic (current EU Presidency) met in Berlin with 
representatives of the European Commission (EC) and of the European 
Central Bank to lay the groundwork for Europe's position for April's 
G-20 meeting, and agreed on the following principles: 
* Strengthen supervision and regulation for financial markets, hedge 
funds, rating agencies; 
* Clamp down on tax havens with increased capital requirements for 
off shore centers; 
* Implement counter-cyclical measures for banks, and limit bonus 
payments; 
* A sustainability charter, reducing economic imbalances and 
stabilizing financial markets; 
* Empower the IMF and the FSF to implement the financial action 
plan; and 
* Doubling the financial resources for the IMF. 
 
COREPER agrees to a "general approach" on the Draft CRA Regulation: 
-------------------------- ----------------------------- 
 
¶6. (SBU) The Permanent Representatives of the EU Member States 
(COREPER) agreed to a "general approach" that confirms the 
Commission's intention to assign CRAs supervisory authority to the 
Member States.  The Council proposal would allow EU-registered CRAs 
to endorse ratings prepared by non-EU-registered CRAs, an approach 
already envisaged by the EP's report.  The latest Council document 
does not introduce a requirement for determining regulatory 
equivalence between jurisdictions.  The EP is likely to disagree 
with the Council document on a number of issues, including the 
registration and supervisory arrangements and the lack of a 
regulatory equivalence. 
 
De Larosiere proposes changes to EU supervision; the Commission 
pledges to implement by 2010 
 
BRUSSELS 00000333  002 OF 003 
 
Capital Requirement Directives (CRD): 
------------------------------------ 
 
--------------------------- --------------------------- 
 
¶7. (SBU) On February 25, Jacques de Larosiere released his report on 
the future of EU financial supervision.  The key recommendations 
include a revision of Basel II to reduce pro-cyclicality, a reform 
of mark-to-market and of IASB governance, and an overhaul of the 
European macro and micro financial supervision through the creation 
of a European Systemic Risk Council (ESRC) to improve 
macro-prudential supervision, and a European System of Financial 
Supervision (ESFS), to improve micro-prudential supervision. On the 
basis of the report, the Commission unveiled on March 4 the 
Communication "Driving the European recovery", broadly endorsing de 
Larosiere's recommendations, and announced proposals on liquidity 
risk and excessive leverage, and executive pay.  A roadmap will be 
presented by the end of May for discussion at the June European 
Council, and formal legislation will be sent to Parliament in the 
fall for an adoption target of 2010. 
 
Conference on hedge funds confirms EU's intention to legislate 
-------------------------- ---------------------------- 
 
¶8. (SBU) On February 27-28, the Commission organized a two-day 
conference as part of the Commission's consultation on the hedge 
fund and private equity industries.  MEPs from across the political 
spectrum noted that regulation is coming, though Commissioner 
McCreevy offered little specific policy indication, except to note 
his awareness of the highly transnational character of both hedge 
and private equity funds, and of the need for regulation not to 
stifle innovation.  He noted that such regulation would therefore be 
targeted at market failures, with investor protection provisions 
taking into account the professional quality of both industries' 
investor base. 
 
EC guidance on impaired assets 
------------------------------ 
 
¶9. (SBU) On February 25, the European Commission published a 
Communication providing guidance to Member States in dealing with 
impaired assets.  The guidance outlines various possible methods 
(asset purchase, "bad bank" scenarios, asset insurance schemes, 
swaps guarantees, or hybrid models), and explains the budgetary and 
regulatory implications of asset relief measures.  The design of the 
asset relief scheme remains the responsibility of Member States. 
The Communication details how State aid rules on such measures would 
be applied. Guidelines on the treatment of impaired assets 
 
ECONOMICS / FINANCE: UPCOMING ISSUES / EVENTS 
------------------- ------------------------- 
 
G-20 Finance ministerial: 
------------------------- 
 
¶10. (SBU) On March 14 and 15, the G-20 Finance Ministers will meet 
in London to set the stage for the April 2 G-20 meeting. 
 
ECONOMICS / FINANCE: RECENT EVENTS: 
----------------------------------- 
 
ECB cuts interests rates by 50 basis points,BoE gets authority to 
print GBP150bn 
--------------------------- ---------------------------- 
 
¶11. (SBU)On March 5, the ECB cut its main refinancing rate by 50 
basis points to 1.5% and revised down its economic growth forecasts 
for this year and 2010.  ECB President Trichet signaled that 1.5% is 
not necessarily the lowest level to which the ECB can cut its key 
rate, fuelling speculations that the ECB could cut interest rates 
again next month.  Meanwhile, Bank of England Governor Mervyn King 
received authority to print as much as GBP 150bn ($212 billion), to 
execute his strategy of quantitative easing.  . 
 
Commission assesses a second tranche of convergence programs (Italy, 
Luxembourg, Portugal and Lithuania) 
------------------------- ----------------------------- 
 
¶12. (SBU) On March 9, the ECON Committee of the European Commission 
assesses a second tranche of convergence programs (Italy, 
Luxembourg, Portugal and Lithuania) 
The assessment by the Commission of a second tranche of Stability 
and Convergence Programs (SCPs) last week yielded no new 
recommendations for ExcessiveDeficit Procedures (EDP), but the 
analysis found that budgetary positions are projected to deteriorate 
markedly in 2009 in Italy, Luxembourg and Portugal reflecting, in 
 
BRUSSELS 00000333  003 OF 003 
 
Capital Requirement Directives (CRD): 
------------------------------------ 
 
the latter two countries, the significant economic stimulus packages 
adopted.  The Commission noted that Italy's recovery measures are 
budgetary neutral, in line with the country's very high debt ratio. 
For Lithuania, the Commission considers that the restrictive fiscal 
stance planned for the whole program period is an appropriate 
response to the existing economic imbalances, but still sees 
significant downside risks to achieving these objectives. 
 
Commission authorizes controversial French proposal to aid 
carmakers. 
------------------------ ------------------------------ 
 
¶13. (SBU) On February 28, the EU competition authorities authorized 
the French plan to support the French automotive industry that 
caused tension between France and the Czech Republic.  The 
Commission's authorization came in the wake of the March 1 
extraordinary European summit and after having received written 
assurances from the French government that it will not make aid to 
car manufactures conditional to a repatriation of manufacturing 
activities or to a commitment to use national vendors. 
 
Extraordinary meeting of EU Leaders: 
----------------------------------- 
 
¶14. (SBU) EU leaders met in Brussels on March 1 to address growing 
concerns on the financial stability of the Central and Eastern 
European (CEE) Member States, and to discuss the possibility of a 
pan-European rescue plan for the auto industry.  EU leaders rejected 
requests for assistance for CEE to be given on a regional basis, 
opting for a country by country approach, and passing over a 
proposal by Hungary assistance of 180bn ($228 billion) for the 
newer Member States. 
 
Almunia sees European economic outlook worsening 
--------------------- -------------------------- 
 
¶15. (SBU) Speaking in front of a leading Brussels think-tank on 
March 3, Commissioner Almunia said that the economic outlook for 
Europe has worsened compared to the January interim forecasts, and 
warned of their possible downward revision.  Commissioner Almunia 
also indicated that the impact of European Economic Recovery Plan 
measures should begin to be felt in the second half of 2009, with 
recovery beginning in 2010. 
 
MURRAY