How to vote for a fair financial system

A Finance Watch Guide to the #EUelections2019

By changing the financial system, we can address many of the pressing and linked economic, societal and environmental issues that urgently need to be solved for all European citizens.

Finance Watch has checked the financial reform proposals of all political groups ahead of the #EUelections2019 against a set of policy demands we think are key. Find out how the parties scored! https://bit.ly/2P8LYeD

Our Vision for a reformed financial system

The fundamental reform of the financial system that was promised after the outbreak of the 2007/8 crisis has not been delivered. Today, we still suffer from an unstable financial system which is propping up an unfair, unequal society and an unsustainable economy.

In order to restore the purpose of a financial system that serves society, we urgently need to make it more stable and to re-direct capital to where it is needed for society as a whole.

Our vision

How did the political groups score?

Finance Watch has analysed and rated the commitments separately in four areas of policy changes needed to make finance serve society:

  1. Stabilize the financial system,
  2. Democratise the financial institutions as well as financial policy making,
  3. Re-direct capital to a sustainable economy and
  4. Prepare for a future financial crisis.

1) STABILIZE

The financial system needs to become more resilient to better absorb shocks on its own instead of socialising its losses. Stability has also a positive impact on the time-horizon of investors and lenders, encouraging them to focus on the long-term. It is crucial to discourage harmful speculation and credit-fuelled bubbles, but also to ensure that no financial firm is too big to fail.

Who scored best?

To know which national political party belongs to which European political group, please check this table.

Which party wants to make the financial system more stable? 1. Greens @GreensEP (100%), 2. Socialists and Democrats @PES_PSE (67%), 3. Left @GUENGL (55%), 4. Christian Democrats @EPPGroup (0%) and Conservatives @ecrgroup (0%) and Liberals @ALDEgroup (0%) | A Finance Watch guide to the #EUelections2019 https://bit.ly/2P8LYeD

Learn more:

Our key policy demands to make the financial system more stable
  • Ensure that no financial firm is too big to fail including by proposing legislation to separate traditional banking and investment banking activities.
  • Regulate the governance of financial firms so that risks and stranded assets from social and environmental damage are avoided.
  • Introduce regulation to discourage harmful speculation and credit-fuelled bubbles, e.g. by implementing proposals to regulate all shadow banking, introducing an EU-wide Financial Transaction Tax, and bringing an end to tranching of securities.
What do the political groups propose to make the financial system more stable?

Greens (Greens/EFA) pledge for measures to address systemic risks and to stop financial institutions getting too big to fail, including higher capital requirements, bank separation, as well as a financial transaction tax. They also want to introduce stronger measures to combat market manipulation, abusive speculation and insider trading.
Update: Furthermore, they want to set aggregate limits on exposures to shadow banking entities, increase transparency on non-cash collateral re-use as well as on synthetic leverage and empower competent authorities to monitor credit institutions’ exposures to shadow banking entities. They also want to regulate the governance of financial firms so that risks and stranded assets from social and environmental damage are avoided. 

Socialists & Democrats (S&D) pledge for strengthening the rules of the financial and banking sectors, including adequate firewalls between commercial and investment banking and taxing financial transactions. They also campaign for a new economic model that combines social progress, economic development and environmental stability, based on the Environmental, Social and Governance (ESG) criteria.

The Left (GUE/NGL) campaigns for a fundamental overhaul of the European banking landscape, including separating investment banking from retail banking, reinforcing the public control of the financial sector, revising of the Basel III framework for capital requirements and introducing a financial transaction tax.

2) DEMOCRATIZE

Large, shareholder-owned financial institutions have little democratic accountability and are disconnected from a broader, coherent economic vision. We need more mission-oriented financial institutions such as public, development, community-based, stakeholder-owned and ethical banks, impact investors, among others.

This will allow citizens to have a positive impact by putting their money into a range of different local, ethical, sustainable projects. We also need to ensure that finance serves the needs of all citizens, by achieving social inclusion and avoiding societal detriment.

Who scored best?

To know which national political party belongs to which European political group, please check this table.

Which party wants to democratise the financial system? 1. Greens @GreensEP (100%), 2. Left @GUENGL (70%), 3. Socialists and Democrats @PES_PSE (58%), 4. Conservatives @ecrgroup (-2%), 5. Christian Democrats @EPPGroup (-4%) and Liberals @ALDEgroup (-4%) | A Finance Watch guide to the #EUelections2019 https://bit.ly/2P8LYeD

Learn more:

Our key policy demands to democratise financial institutions and policy making
  • Make private financial institutions accountable for the impact of their lending and investments on the UN Sustainable Development Goals, starting by implementing mandatory reporting of such impacts.
  • Ensure a diverse banking sector by promoting small, local, community and ethical banks, different ownership structures and the representation of a broad range of stakeholders.
  • Free up public investment capacity by adapting deficit rules, changing spending priorities and/or strengthening tax revenues.
  • Investigate and if necessary, redefine State aid rules and fiscal accounting in order to remove potential barriers to public banking.
  • Increase the accountability of the ECB to the European Parliament as regards the effects of their policy on inequality, climate change, environmental depletion and sustainable development of the EU economies and societies.
  • Ensure that all citizens have access to a set of basic financial services that are needed to fully and equally participate in society.
  • Ensure that the public interest in properly represented in the regulation of the financial system, through sufficient representation of civil society organisations in expert and stakeholder groups and the transparency of the legislative process.
  • Reduce the influence of the financial lobby by setting limits on access to policymakers, regulators, supervisors and politicians who should guarantee integrity of legislation and prioritise public and citizens’ interests.
What do the political groups propose to democratise financial institutions and policy making?

Greens (Greens/EFA) pledge for measures to encourage communities throughout Europe to develop sustainable and accessible alternatives to the current dominant roles of the market economy and its lobbies. They call for an updated and reformulated Stability and Growth which puts social and environmental objectives on an equal footing with the budgetary targets, complemented by an Sustainability and Prosperity Pact. They campaign for radically increased transparency in European institutions including the ECB as well as new transparency and ethics rules to reduce the influence of the financial lobby such as a mandatory legislative footprint for EU laws, a binding lobby register for all EU institutions and cooling-off phases to close the revolving doors between politics and big business. They also call for a guaranteed access to basic financial services.
Update: They also want to have clear definitions of “green investment”  and of “brown investments” for investor transparency. They support a simpler, and therefore less burdensome, regime for simpler, smaller banks that offer basic services to households and smaller firms (and not just tighter requirements for G-SIBs). They call for redefining State aid rules in order to remove potential barriers to public banking. They continue striving for more transparency in the legislative process and deplore the under-representation of civil society groups in consultations. 

The Left (GUE/NGL) campaigns for better informing consumers about ESG risks and wants to give more powers for national competent authorities to ban products that will partake in fuel speculation and entail high risks. They also want to promote small scale local banking. They ask for more fiscal space for manoeuvre to provide further liquidity for investments and strengthen the welfare state, the abolition of the fiscal pact as well as ending austerity plans through a public investment program in socially important areas and by revising the rules on state aid. They want to change the mission of the European Central Bank (ECB) including employment goals and override its autonomy towards a real democratic accountability. They want to ensure a universal access to basic banking services and to take back power from finance capital by respecting popular sovereignty and by promoting citizens’ involvement in EU decision-making. They also want to limit the influence of the financial lobby by addressing the revolving door problems.

Socialists & Democrats (S&D) campaign for a Sustainable Development Pact with social and ecological targets, including a corporate responsibility passport requiring them to respect a set of corporate governance, social and environmental exigencies. They also want to introduce a Just Transition Fund and measures against greenwashing. They want to put an end to austerity policies, to review the European fiscal rules to foster sustainable growth and Employment and to introduce a ‘golden rule’ for productive public investment. By revising the Stability and Growth pact, they want to exclude public investment for transition from the public deficit calculation, but within a precise framework in order to avoid abusive practices. They pledge for measures to tackle unemployment and social exclusion collectively. They want to promote financial inclusion and social entrepreneurship through the development of appropriate guarantee mechanisms and/or the creation of “Social Entrepreneurship Funds” at the EU and national levels. They also want to ensure that stakeholders in the policy making process such as NGOs have adequate funding to represent the public interest as well as an increased democratic accountability and responsibility in European financial and economic policy-making.

Update: They campaign for more investments to support small and medium-sized enterprises (SMEs), Environmental, Social and Governance (ESG) projects as well as cultural and local projects. They want to keep prioritising the further development and enhancement of the first and second pillar to provide a secure and substantive social protection for all citizens in old age. 

Christian Democrats (EPP), Conservatives (ECR) and Liberals (ALDE) propose even counter-productive measures such as restricting potential public spending capacities.

3) REDIRECT

We need to use all adequate means to shift capital flows from unsustainable to sustainable and socially responsible lending & investments, including alignment with biodiversity and ecosystems restoration and conservation: from economic to financial regulation, various penalties and incentives, improved reporting, increased consumer demand and financial employees’ engagement, among others.

Who scored best?

To know which national political party belongs to which European political group, please check this table.

Which party wants to re-direct capital to a sustainable economy? 1. Greens @GreensEP (83%), 2. Left @GUENGL (77%), 3. Socialists and Democrats @PES_PSE (66%), 4. Liberals @ALDEgroup (17%), 5. Christian Democrats @EPPGroup (11%), 6. Conservatives @ecrgroup (0%) | A Finance Watch guide to the #EUelections2019 https://bit.ly/2P8LYeD

Learn more:

Our key policy demands to re-direct capital to a sustainable economy
  • Ensure that the EU Action Plan on Financing Sustainable Growth takes clear steps towards meeting the Paris climate objectives and the UN Sustainable Development Goals. All legislation should be aiming at phasing out the lending and investing in all social and environmentally damaging activities.
  • Ensure that central banks integrate climate and environment-related risks and impacts, as well as risks to raising inequality in the conduct of their monetary policy and prudential supervision tasks.
  • Ensure that regulators properly take into account climate, social and environment -related risks and make full use of their micro- and macro-prudential tools – such as additional capital requirements, capital buffers, sectoral leverage ratios, credit guidance, large exposure limits and stress tests.
What do the political groups propose to re-direct capital to a sustainable economy?

Greens (Greens/EFA) campaign for all possible efforts to limit the temperature increase to 1.5 degrees above pre-industrial levels. They call for a high-level implementation of Sustainable Development Goals across all EU internal and external policies. They propose a sizeable Green New Deal to finance and leverage investments into areas such as cross-border train connections, renewable energy, sustainable innovation and just transition. They ask for more funding to enforce basic measures for healthy environments as well as stronger financial regulation to ensure that the financial sector fully contributes to a resilient and sustainable economy.

Update: They also want to connect the two types of carbon benchmarks clearly to the Paris Goals. They oppose the introduction of a Green Supporting Factor. Regarding the sustainable finance taxonomy, they want to introduce a ‘brown list’, which allows investors to identify and take action against the most environmentally harmful investments. They want the ECB to investigate how the exposure to high carbon investments might pose a systemic risk to our financial system. They also want the ECB to explicitly take into account the Paris Agreement and ESG goals in its guidelines orienting its purchase programmes; to reduce its holding of bonds linked to fossil fuel industries and increase its holdings of bonds linked with sustainable investments; and to carry out a research exploring the legal feasibility of channelling newly created money towards sustainable investments.

The Left (GUE/NGL) pledges for integrating climate policy and climate change policy into all EU policies and calls for higher ambition as regards binding targets shown to date by the European Commission. They want to ensure that central banks integrate climate and environment-related risks and impacts in the conduct of their monetary policy and prudential supervision tasks. They also want regulators to properly take into account climate, social and environment -related risks and make full use of their micro- and macro-prudential tools such as additional capital requirements, capital buffers, sectoral leverage ratios, credit ceilings, large exposure limits and stress tests.

Socialists & Democrats (S&D) campaign for a Sustainable Development Pact with social and ecological targets combined with a Just Transition Fund, a new European economic model that combines social progress, economic development and environmental stability based on the Environmental, Social and Governance (ESG) criteria as well as more transparency of the financial sector regarding its contribution to a low-carbon and resource-efficient economy, better ESG financial products as well as new public issuances of green financial instruments at EU level. They call for a European taxonomy framework that should bring together environmental factors and social factors. They want a better calibration of prudential incentives and disincentives to the adjustment to a low-carbon economy, including specific capital surcharges for ‘brown investments’ and a sustainability stress test for banks to accelerate the gradual dismissal of stranded assets.

Update: They want the EU to lead the transition to a low-carbon, climate-neutral economy that promotes biodiversity and makes an efficient use of resources. To counter neo-liberal trends that increase inequalities and over-exploit natural resources, they want to put in place new consumption and production models, with the Circular Economy package negotiated by their Group as a good first example.

Christian Democrats (EPP) pledge for creating incentives for more efficiency and renewable energy through emission trading as well as more sustainable consumption in general. They would like to tackle water supply challenges and stop environmental degradation in general, but without proposing concrete measures.

Liberals (ALDE) campaign for a stable framework for sustainable investments and finance, an increased international climate and environmental cooperation as well as establishing an economic value for natural capital and ecosystem services.

4) PREPARE

The long-term effects of the current experimental monetary policy are still unclear, but what is certain, is that our economies have not recovered from the last financial crisis. Economic, business and credit cycles are indicating that we are overdue for another downturn, yet the decisions of policy makers do not reflect this situation.

Who scored best?

To know which national political party belongs to which European political group, please check this table.

Which party wants us to be better prepared for another financial crisis? 1. Greens @GreensEP (95%), 2. Socialists and Democrats @PES_PSE (40%), 3. Christian Democrats @EPPGroup (31%), 4. Left @GUENGL (29%), 5. Liberals @ALDEgroup (14%), 6. Conservatives @ecrgroup (2%) | A Finance Watch guide to the #EUelections2019 https://bit.ly/2P8LYeD

Learn more:

Our key policy demands to be better prepared for another financial crisis
  • Set up contingency plans to deal with another financial/economic crisis.
  • Review the current regulatory instruments and ensure they are operational in the event of a major crisis.
  • Build up national deposit guarantee schemes to sufficient levels and reduce the levels of non-performing loans to be able to eventually phase in the European Deposit Insurance Scheme.
  • Ensure the full and proper use of the single resolution mechanism and avoid further precautionary recapitalisation.
  • Reduce operational risk through strengthened governance, end the shifting of responsibility down the organisational hierarchy and ensure staff of financial firms are given the resources, time and training they need to properly meet necessary regulatory requirements.
  • Improve the current stress testing to include not only banks, to include ESG factors and forward-looking scenarios.
  • Ensure the security and integrity of financial services IT infrastructure, which is essential for the protection of critical IT infrastructures at the national and European level.
What do the political groups propose to be better prepared for another financial crisis?

Greens (Greens/EFA) pledge for revised statutes of the European Central Bank to act as a last-resort lender for Member States and to provide temporary relief from crisis in government bond markets, and to foster full employment as well as a completion of the banking union must with a workable EU deposit insurance scheme.

Update: They want a properly funded crisis fund of a few percent of its annual GDP – a “European Monetary Fund”. They want the framework should be negotiated and implemented according to the community method and closely involving the European Parliament. They want to increase the resolution fund to make it significantly bigger than current 55 billion maximum in order to be of real use if several big banks fail during a crisis. In particular, they want the common fiscal backstop for the Single Resolution Fund to be made operational rather sooner than later. They want to restrict the ability for one country’s supervisor/government to unilaterally refuse to abide by a decision of the board of an ESA on the grounds of potential fiscal damage, to cases where the putative fiscal damage significantly outweighs the damage to other countries in case of non-compliance. They also want to give supervisors the right to impose the separation of real economy from capital markets activities in banks where, in the supervisors judgement, this is not in the public interest. They demand a workable EU deposit insurance scheme and ensuring fully funded national schemes at all times and a credible insurance scheme to step in when a national scheme is over-depleted. The Greens are in favour of the establishment of a reinsurance scheme implemented from day one. They want to reduce NPLs by absorbing losses internally to the banking system and not transferring them at artificially low risk premia, to capital markets and/or aggressive debt-workout agencies. They want to limit the usability of the BRRD “capital injection without resolution” clause and the “government financialisation tools”. They want to analyse the compliance of recent national state aid measures with European law.  They want to include conduct risk explicitly in the operational risk category to force banks to ensure protection of consumers, competition in the single market, protection of human rights, tax justice and the avoidance of money laundering. They call for a binding publication of stress testing results by EIOPA and ESMA. They support the importance of secure IT infrastructure for the security and integrity of financial services.

Socialists & Democrats (S&D) pledge for mechanisms, such as the European Stability Mechanism, to support economies hit by a significant crisis. They want strengthened rules of the financial and banking sectors, greater guarantees that the banking sector will foot the bill for failing banks as well as stronger safeguards for depositors. They want to include ESG risks and factors in the mandate of the European System of Financial Supervision by putting in place the corresponding long-horizon monitoring systems and by using of mandatory Union-wide ‘carbon stress tests’ designed to measure the exposure of financial firms to climate change risk.

Update: They want to introduce Sovereign bond-backed securities (SBBS), backed by a diversified portfolio of euro area central government bonds.

Christian Democrats (EPP) campaign for a sound Banking Union including a European deposit guarantee only when the risks in the European banking system have been significantly reduced which can be done through a reduction of NPLs and of the regulatory privilege of government bonds. They want to introduce certain policies to address the problem of ‘banks and countries deadly embrace’, a fiscal backstop for the Single Resolution Fund as well as ensuring the right digital infrastructure and security to enhance confidence and trust in the online world.

The Left (GUE/NGL) pledge for a fundamental overhaul of the current economic governance framework. They want the ECB to act as a lender of last resort and to enlarge its mandate by including employment and social indicators. They want to abandon the Stability and Growth Pact and the Fiscal Compact. They want to prevent the continued use of public money to bail out major bank shareholders, let alone stopping banks from engaging in self-interested financial manipulation or speculation. They call for significantly higher capital ratios for systemic banks and for only allowing precautionary recapitalisation when the bank is put under permanent public control.

Liberals (ALDE) campaign for a rapid implementation of a banking union in the Eurozone, based on strengthening the responsibility of owners and creditors of banks rather than increasing the liability of either the taxpayer or competitors for the failure of a bank. They also want to take measures to address the issues of cyber security.

Conservatives (ECR) campaign for rules that incentivize a continual pursuit of market stability.

What you can do

  • It’s not enough to just hope for a better future: we all need to take responsibility for it. You can vote yourself, and you can persuade others to vote too. #ThisTimeImVoting
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  • If we want to change finance, we also need to set rules to limit the influence of the financial lobby over our policymakers, by increasing lobby transparency and introducing stronger rules on conflicts of interest and revolving doors. This is the aim of the current campaign of the #ChangeFinance Coalition, check it out!
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Finance Watch is politically impartial and not affiliated with any party. Our aim is to ensure all parties and political groups have the strongest possible policies to make finance serve society.