Ladies and gentlemen,
It’s good to be back at the Atlantic Council. As was already mentioned, I was here three months ago speaking about how Europe is adapting to global developments. I set out the work we are taking forward to be able to deal with the unexpected. Since then, the unexpected has happened. For the first time, a Member State has voted to leave the European Union. That’s a challenge that goes to the heart of the European project. Getting the response right will be crucial for Europe’s future.
Following the resignation of my British colleague Lord Hill, I have been asked to take over his responsibilities, once again as it has been mentioned, for financial stability, financial services and for building a single market for capital in Europe. I’m pleased to be in Washington DC for the first working day of this job.
What will my approach be? Above all, continuity. Lord Hill has done excellent work over the past two years to deepen the capital markets, to strengthen Europe’s Banking Union and to review existing regulation to check and make sure that it is as growth friendly as possible. He has built momentum and support across the piece. This is work we will build on. And where we can, we will quicken the pace of work.
Following the UK's decision to leave the EU, ensuring financial stability is our first priority. We need to work towards an outcome that gives European industry and our international partners as much clarity as possible. It’s in our collective interest to maintain an environment that is friendly to investment and growth.
We want the UK to remain a close partner. But any future agreement concluded with the UK as a third country will have to balance rights and obligations. Access to the Single Market would require the UK to accept four freedoms: free movement of goods, services, capital and labour. The first step now needs to come from the UK. The new government has to set out what it wants from a future relationship with Europe. That would give us more predictability and a basis on which to negotiate. It is worth emphasising that until the UK leaves, and there is at least two years negotiating period, it remains a full member of the European Union, with all the rights and obligations this entails.
Our immediate focus is to deal with the uncertainty arising from the UK vote. The EU economy has what it takes to cope with the downward pressure on growth the referendum has created. Our preliminary assessment shows that uncertainty stemming from the vote to leave the EU could reduce the UK’s GDP by 1 to 2.5 percentage points by 2017. In the other 27 Member States, the impact could be between 0.2 and 0.5 percentage points. So the pressure is real. But if we respond with the right policies we will be able to limit the impact of this adjustment. That should be the main goal for both sides in the upcoming negotiations.
Politically, the remaining 27 member states have shown a strong commitment to stay united. This is a feeling that extends well beyond political leaders. In Germany, opinion polls last week showed a 13% increase in support for European integration. There’s similar sentiment in other countries. And none of Europe’s core strengths have disappeared. Europe's talent for innovation is still there. Our industry is still competitive. Our workforce is still highly productive.
Moving on to the questions on the EU banking sector. The EU’s banking sector is much more resilient than during the crisis. Our regulatory architecture has been strengthened, and the supervision and resolution of banks are now coordinated at the European level. Our banks are better capitalised and asset quality has also improved. The ratio of non-performing loans has been decreasing in recent years and the coverage ratio is increasing. Despite historically low interest rates, bank deposits have been rising. This makes banks' refinancing more stable. Favourable financing conditions - partly due to the ECB's accommodative monetary policy and stronger demand for loans – is supporting the recovery in bank credit. Meanwhile, the costs of borrowing for companies and households have further converged across the euro area.
Completing Europe's Economic and Monetary Union is an essential part of maintaining stability. So work on the Banking Union continues.
This means properly implementing and enforcing the EU's new regulatory framework to protect depositors and taxpayers. Nearly all countries across the EU have now implemented rules governing bank recovery and resolution and deposit guarantee schemes. European finance ministers have committed themselves to setting up a common backstop to the Single Resolution Fund. Technical work to make it happen will start soon.
We have also come forward with a proposal for a European Deposit Insurance Scheme - EDIS. This is the missing third pillar of the Banking Union. It is part of a much broader plan to deepen our Economic and Monetary Union. The objective of EDIS is to gradually mutualise all national deposit guarantee schemes across the EU. This sharing of risk will be accompanied by further risk reduction measures. This is the balanced approach we need to make progress.
We are also driving forward work to build a Capital Markets Union - a CMU. Some have asked whether we should continue with this project now that the Europe’s largest financial market is about to leave the EU. We believe the UK’s referendum vote means that we need the CMU more than ever.
The goal of the CMU is to help capital flow throughout the EU. At its heart, is an effort to improve funding opportunities for businesses. For companies in their start-up phase, we’ve just amended existing legislation governing venture capital funds to build up scale, diversity and choice. To free up bank lending to the wider economy, we’ve made a proposal to restart Europe’s securitisation markets. For companies that are growing, we’re overhauling legislation to make it simpler, faster and cheaper for companies to raise money on public markets, the Prospectus regime. We also want to look at existing private placement markets that work well and see how we can build on them to help medium sized companies raise capital.
To create deeper capital markets for companies of all sizes, we want to knock down some longstanding barriers to cross border investment. This year we’ll bring forward proposals to try to reduce differences between national insolvency regimes to give cross border investors more certainty. We’ll see whether we can simplify the system to reclaim withholding tax when these are subject to double taxation. And to inject more savings into capital markets we’re considering proposals for a European market for simple personal pensions.
As part of the CMU Action Plan, we will look at the financial services legislation that we have passed to make sure it is working as intended. We’ve just completed our analysis and we are now taking forward recommendations to increase funding to the wider economy; make our legislation more proportionate; and reduce the compliance burden for businesses.
Moving on to EU-US relations. The United States and the EU already have a strong trade and investment relationship. Together, our markets make up 50% of global GDP. We're each other's first source of, and destination for, foreign direct investment. Flows of capital across the Atlantic continue to grow. I believe this relationship can be driven further in both directions.
My meetings in Washington this will week concern regulatory cooperation. This morning, I discussed with my counterparts our joint approach to implementing international standards.
The EU is working to implement Total Loss Absorbing Capacity on time. We want to find an intelligent way to making it fit with our own system - the minimum requirement for own funds and eligible liabilities, or MREL. I was also interested to hear more about the implementation of TLAC in the US. It’s important we maintain a level playing field for companies in both jurisdictions.
We have made good progress in preparing an EU system for CCP recovery and resolution. We will publish a legislative proposal in this area later this year.
And we are also preparing a legislative proposal that will help finalise EU implementation of the Basel III package.
I’m delighted that we have been able to set up a new platform for regulatory exchange between EU and US financial regulators and supervisors – the Joint EU-US Financial Regulatory Forum. The US and EU financial services industries attach great importance to regulatory cooperation. We need to build on successes we’ve had in recent months with our agreement on cross border derivatives regulation, allowing US CCPs to provide services into Europe and EU CCPs into the US.
We’re clear we need to talk to each other more often. To clarify the scope of future rules. To ensure we understand the impact of legislation on the ground - even beyond our own jurisdictions and to promote the recognition of each other's standards. This should reduce compliance costs and improve implementation. We should continue working towards further regulatory cooperation as part of TTIP.
The forum we launched today will meet more often than its predecessor – the Financial Markets Regulatory Dialogue. Its purpose is to identify potential problems at an earlier stage of the regulatory process. The US Secretary for the Treasury and I will meet once a year to review the functioning of the forum and agree priorities for future work. This provides a solid basis for improved cooperation.
To conclude. As you see we have an ambitious agenda. In Europe, we’re working to complete the Banking Union. We’ll continue to press ahead with our efforts to deepen our capital markets. We will act on our review of existing legislation to make our regulatory framework as growth friendly as possible. And I’m pleased we have been able to deepen EU-US cooperation. This gives us a firm basis on which to move forward, to maintain stability and to support growth on both sides of the Atlantic.
Thank you!