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P 041037Z JUN 09
FM USEU BRUSSELS
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INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCNMEU/EU INTEREST COLLECTIVE

UNCLAS SECTION 01 OF 02 BRUSSELS 000772 
 
SENSITIVE 
SIPDIS 
 
NOT FOR INTERNET DISTRIBUTION 
 
E.O. 12958:  N/A 
TAGS: EFIN ECON ETRD EIND EINV EUN
SUBJECT: EUROPE FINANCIAL AND ECONOMIC REPORT:              May 
29th, 2009 
FINANCIAL SERVICES: UPCOMING ISSUES /EVENTS 
------------------------------------------- 
ECOFIN to discuss EU financial supervision: 
-------------------------------------------- 
 
¶1. (SBU) On June 9, ECOFIN will meet in Luxembourg to discuss the 
Commission's proposals to reform financial supervision in the EU. 
The Commission seeks approval of the proposals by Finance Ministers 
ahead of the European Council on June 18-19.  Ministers will also 
continue to discuss concerns about growing divergences in U.S. and 
EU accounting standards, after last month's ECOFIN asked the 
Commission for further analysis. 
 
Commission unveiled proposals to set up macro-prudential and 
micro-prudential supervisory bodies, turn current supervisory 
committees into agencies: 
--------------------------------------------- ---------- 
 
¶2. (SBU) On May 27, the European Commission presented its formal 
proposal for reforming Europe's system of financial supervision. 
The proposal, which is open for comment until July 15, calls for the 
creation of a European Systemic Risk Council (ESRC), chaired by the 
European Central Bank, to monitor and recommend action to tackle 
systemic risks and a European System of Financial Supervisors 
(ESFS), which would integrate three new pan-EU Authorities for 
banking, insurance and securities markets supervision with national 
supervisors.  The ESFS would be given power to issue binding 
technical standards and interpretative guidelines and to settle 
disagreements between national supervisors.  The UK is opposed to 
the ESRC being permanently chaired by the ECB and would prefer a 
rotating chair.  Others, such as the Chairman of the Basel Committee 
on Banking Supervision (BCBS) Nout Wellink, have criticized the 
proposal for not addressing the question of burden sharing in 
banking crises, which he advocates should be legally binding.  Mr. 
Wellink noted that the current composition of the ESRC is too 
unbalanced towards central banks. 
 
Parent firms of Romanian and Hungarian banks agree to support 
subsidiaries: 
--------------------------------------------- ----- 
 
¶3. (SBU) In a coordination meeting in Brussels of the European 
Banking Group held on May 19, the parent banks of the nine largest 
foreign banks incorporated in Romania (Erste Group Bank, Raiffeisen 
International, Eurobank EFG, National Bank of Greece, Unicredit 
Group, Societe Generale, Alpha Bank, Volksbank, Piraeus Bank) 
reaffirmed their commitment to support their Romanian subsidiaries. 
The parent banks of the six largest foreign banks in Hungary 
(Bayerische Landesbank, Erste Group Bank AG, Intesa SanPaolo, KBC 
Group, Raiffeisen International Bank Holding and UniCredit Bank 
Austria AG) also made a joint declaration committing to maintain 
their overall exposure to the country and to ensure prudent 
capitalization of their subsidiaries.  The European Banking Group 
Coordination Meetings (for Romania and for Hungary) were jointly 
chaired by the European ommission and the IMF. 
 
Almunia calls for E banks to be stress tested: 
--------------------------------------------- -------- 
 
¶4. (SBU)On May 25, European Commissioner for Economic ad Financial 
Affairs Joaquin Almunia forcefully advocated that European banks be 
subjected to stress tests on a Europe-wide level.  Almunia urged the 
private sector to participate in recapitalizing the banks, but for 
this to happen transparency is critical to convince private capital 
to invest in financial institutions, whose outstanding capital needs 
have been estimated by Credit Suisse at 84bn.  The U.S. favors 
widespread strejOGQ*HLs to remain at the current level of 0.5%. 
 
European elections: 
-------------------- 
 
¶6. (SBU) From June 4 to June 8 the EU will elect the European 
Parliament.   Election day varies according to custom from country 
 
BRUSSELS 00000772  002 OF 002 
 
ECOFIN to discuss EU financial supervision: 
-------------------------------------------- 
 
to country.  Polls have generally predicted a low turnout amid 
widespread lack of interest in the European Parliament's activities. 
 A January Eurobarometer poll found that only 34% of voters intended 
to vote, but a recent (May 26) EU-wide poll found that 43% of 
respondents said they were certain to vote and a further 6% said 
they were very likely to do so. Political outcomes are difficult to 
predict, as they play more to national than to EU issues. 
 
RECENT EVENTS: 
-------------- 
 
Swedish Finance Minister Anders Borg sees financial reforms a 
priority: 
--------------------------------------------- -------- 
¶7. (SBU) Swedish Finance Minister Anders Borg, who will preside over 
the ECOFIN Council from July to December, said that Sweden will give 
priority to financial reforms during its Presidency, and in 
particular the de Larosiere report, despite opposition from the UK 
and Germany. 
 
S&P warns of downgrade UK sovereign debt: 
--------------------------------------------- ------- 
 
¶8. (SBU) On May 21, Standard&Poor's warned of a possible downgrade 
of the UK's sovereign debt, given the UK's debt-to-GDP forecasted 
ratio of 100%.  According to S&P, such high levels of debt are not 
consistent with a AAA rating.  The FT reports that France and 
Germany may also be subject to a credit downgrade, given the 
evolution of their debt levels 
 
March construction output and industrial new orders down: 
--------------------------------------------- ---------- 
 
¶9. (SBU) In March 2009, construction output was down by 1.0% in the 
euro area and by 2.1% in the EU27, compared with February 2009, when 
it declined by 0.6% and 0.2% respectively.  Year-on-year, the 
decline is 8.7% and 10.5%, respectively. 
The industrial new orders index for March was also down by 0.8% in 
the euro area and by 0.7% in the EU27.  Year-on-year industrial new 
orders decreased by 26.9% in the euro area, and by 25.5% in the 
EU27. 
 
Euro area May 2009 inflation estimated at 0.0%: 
                    --------------------------------------------- -- 
¶10. (SBU) Euro area annual inflation is expected to be 0.0% in May 
2009 according to an estimate issued on May 29 by Eurostat.  It was 
0.6% in April. 
 
German Unemployment rate falls slightly in May: 
--------------------------------------------- -- 
 
¶11. (SBU) The unemployment rate fell from 8.3% of the workforce in 
April, to 8.2% in May. 
 
ESI and BCI continue their recovery: 
--------------------------------------------- --------- 
 
¶12. (SBU) The Economic Sentiment Index (ESI), which is regarded as a 
guide to future trends in activity, has risen for a second 
consecutive month in May, gaining 2.1 points in the euro area and 
2.8 points in the EU, to 69.3 and 66.7 respectively.  The Commission 
believes that this month's increase is due mainly from a clear 
improvement in sentiment in the retail sector.  The euro area 
Business Climate Index (BCI) rose in May to -3.17, from -3.26 in 
April.  The indicator remains nevertheless at a very low level, and 
the Commission's indication is that y-o-y industrial production 
growth will likely be negative in April and will remain distinctly 
subdued in May. 
 
German Ifo rises for second month in a row: 
-------------------------------------------- 
 
¶13. (SBU) The German Ifo index also rose for the second time in a 
row, to 84.2 in May from 83.7 in April, reaching the highest level 
since November 2008.  However, the increase fell short of what 
experts had expected. 
 
 
DAVIS