Saturday

21st Apr 2018

Brussels pushing finance deregulation in third world

  • The commission wants market access for European banks in the developing world (Photo: EUobserver)

While EU and other global leaders have talked tough about re-regulating the financial sector in the wake of the economic crisis, they remain committed to pushing through banking deregulation in the developing world via trade deals.

This strategy is undermining poverty reduction in these countries and is reproducing the same type of circumstances that led to the crisis in the first place, warns a new report published on Wednesday (11 March) by the World Development Movement, an UK-based anti-poverty NGO.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

Both via the WTO negotiations on a General Agreement on Trade in Services (GATS) and potential EU bilateral or regional trade deals with 34 countries in Latin America, Asia and the Mediterranean, the bloc continues to push for the lifting of restrictions on how Western banks operate in developing countries.

The EU In 2002, via "GATS" global trade talks, requested that 94 countries open up their financial industry, 20 of which were least developed countries and 30 were low income countries.

A financial services component of GATS would mean that countries would not be able to introduce new rules that are more restrictive than those already operating, making it difficult to pass laws on risky trading such as "short-selling" or to limit the numbers of service providers or the number of transactions.

All new financial services would also have to be permitted, giving the green light to the very same complex financial products that have been held responsible for the creation of the toxic asset problem in the north.

Also under GATS, full ownership by foreign banks would be allowed, which can make it hard for a host country's financial supervisor to monitor the foreign bank's activities and to ensure it is acting in the interests of the host country.

Even in the EU, the problem of foreign bank ownership is exacerbating the crisis in the east. The tap of credit to much of eastern Europe - where most of the banks are owned by Austrian, Swedish and other EU parent companies - today has been all but turned off, as the owners focus on provision of credit in their home markets.

After seven years of talks, however, countries are still haggling over a GATS deal, and the EU has sought bilateral and regional trade deals to get over the impasse.

The bilateral strategy, known as "Global Europe," seeks to remove regulations on European financial service companies, along with other liberalising measures in a range of sectors, in case a deal at the WTO level is not reached.

The EU trade deals already signed with Chile and Mexico contain substantial chapters on financial services, while the Caribbean Economic Partnership Agreement with the EU signed in October last year contains many of the financial liberalisation clauses proposed in GATS. Similar pressure on central American nations is being brought to bear to open up their financial sectors.

The report reveals that where banking liberalisation has occurred, looking in particular at India and, crucially, Mexico - home to one of the most liberalised financial sectors in the world, with 80 percent foreign ownership, poor people and small businesses see their access to credit, bank accounts and other financial services restricted.

At the same time, where such credit does exist, it is in the form of credit cards, car loans or mortgages, boosting spending on consumer items rather than productive sectors of the economy such as farming or manufacturing.

On Monday (9 March), UK Prime Minister Gordon Brown himself spoke out against the "do as we say, not as we do" attitude of Western countries regarding economic policies promoted to the developing world.

At an international development conference in London, he announced that he would push the World Bank and other wealthy nations to create a new fund for developing countries to help the poor through the crisis, although he did not attach any figures to the idea.

While there, he criticised the imposition of "economic orthodoxy" on the developing world.

"Too often in the past our responses to such crises have been inadequate or misdirected - promoting economic orthodoxies that we ourselves have not followed and that have condemned the world's poorest to a deepening cycle of poverty," he said.

The World Development Movement (WDM) however, says that there is an acute contradiction between such leaders' words and deeds in pushing for financial deregulation in the third world.

"On the one hand, Gordon Brown has developed a mantra of tough talk on the re-regulation of banks," said Benedict Southworth, the director of WDM. "On the other, together with other European leaders, he is aggressively pushing free trade deals which demand that developing countries follow a deregulated and liberalised banking model."

"That model has clearly and spectacularly failed here and has also failed poor people in the developing countries," she added.

The study highlights how the presence of European banks in developing countries has resulted in foreign banks cherry-picking the richer customers, resulting in an overall decline in services and credit for others, and notably to rural areas.

In urban areas where foreign banks are concentrated, low-income householders and small businesses struggle to meet the criteria to open an account, let alone to receive a loan.

In response, WDM is calling for financial services liberalisation to be reoved from from proposed bilateral and multilateral EU trade deals.

An official with the European Commission told EUobserver that they were studying the report very closely, but that the report's authors had "confused liberalisation with deregulation."

"Market access for European financial service providers in no way restrains the ability of countries to regulate financial services," the official said. "The question is whether such moves become protectionist."

EU toes the line on Syria air strikes

EU foreign ministers to back Western air strikes on Syria, the same way they backed the UK over Russia's chemical attack on an ex-spy in Britain.

Analysis

Is Germany more hawkish on Russia?

Germany's socialist foreign minister just said the EU should "step up pressure" on Russia. Merkel aired "political" doubts on a Russian pipeline.

Western Balkans summit imperilled over Kosovo

While Bulgaria aims to have all 28 EU countries in Sofia in May to give a boost to EU accession of the Western Balkans, some EU countries want to make sure their reservations about Kosovo are noted.

Analysis

Is Germany more hawkish on Russia?

Germany's socialist foreign minister just said the EU should "step up pressure" on Russia. Merkel aired "political" doubts on a Russian pipeline.

News in Brief

  1. Audit office: Brexit 'divorce' bill could be billions higher
  2. MEPs urge better protection for journalists
  3. Dieselgate: MEPs back greater role for EU in car approvals
  4. European parliament adopts new organic farming rules
  5. EU granted protection to half million people in 2017
  6. Report: Facebook to carve 1.5bn users out of EU privacy law
  7. Greek court ruling permits migrants to travel to mainland
  8. Commonwealth summit hopes for trade boost after Brexit

Stakeholders' Highlights

  1. Nordic Council of MinistersWorld's Energy Ministers to Meet in Oresund in May to Discuss Green Energy
  2. ILGA EuropeParabéns! Portugal Votes to Respect the Rights of Trans and Intersex People
  3. Mission of China to the EUJobs, Energy, Steel: Government Work Report Sets China's Targets
  4. Martens CentreJoin Us at NET@WORK2018 Featuring Debates on Migration, Foreign Policy, Populism & Disinformation
  5. European Jewish CongressKantor Center Annual Report on Antisemitism Worldwide - The Year the Mask Came Off
  6. UNICEFCalls for the Protection of Children in the Gaza Strip
  7. Mission of China to the EUForeign Minister Wang Yi Highlights Importance of China-EU Relations
  8. Nordic Council of MinistersImmigration and Integration in the Nordic Region - Getting the Facts Straight
  9. Macedonian Human Rights MovementMacedonians in Bulgaria Demand to End the Anti-Macedonian Name Negotiations
  10. Counter BalanceThe EIB Needs to Lead by Example on Tax Justice
  11. ILGA EuropeTrans People in Sweden to be Paid Compensation for Forced Sterilisation
  12. International Partnership for Human RightsThe Danger of Standing Up for Justice and Rights in Central Asia

Latest News

  1. ECJ ruling set to end 10-year 'mouth tobacco' lobbying saga
  2. Whistleblowers, Syria and digital revolution This WEEK
  3. MEP friendship groups offer 'backdoor' for pariah regimes
  4. Macron and Merkel pledge euro reform
  5. Obscurity surrounds EU military fund's expert groups
  6. New EU party finance rules short circuit accountability
  7. Draghi to stay in secretive 'lobby' group
  8. Bulgaria offers lesson in tackling radical-right populists

Stakeholders' Highlights

  1. Mission of China to the EUChina and EU Must Work Together to Promote Global Steel Sector
  2. Swedish EnterprisesEU Tax Proposal on Digital Services Causes Concern for Small Exporting Economies
  3. Europea Jewish CongressCondemns the Horrific Murder of Holocaust Survivor Mireille Knoll in Paris
  4. Mission of China to the EUAn Open China Will Foster a World-Class Business Environment
  5. ECR GroupAn Opportunity to Help Shape a Better Future for Europe
  6. Counter BalanceControversial Turkish Azerbaijani Gas Pipeline Gets Major EU Loan
  7. World VisionSyria’s Children ‘At Risk of Never Fully Recovering', New Study Finds
  8. Macedonian Human Rights MovementMeets with US Congress Member to Denounce Anti-Macedonian Name Negotiations
  9. Martens CentreEuropean Defence Union: Time to Aim High?
  10. UNESDAWatch UNESDA’s President Toast Its 60th Anniversary Year
  11. AJC Transatlantic InstituteAJC Condemns MEP Ana Gomes’s Anti-Semitic Remark, Calls for Disciplinary Action
  12. EPSUEU Commissioners Deny 9.8 Million Workers Legal Minimum Standards on Information Rights