Glass-Steagall Pushed in European Parliament Debate on Capital Market Union

In a floor debate strongly critical against the EU scheme for a Capital Market Union, Member of European Parliament (MEP) Zanni spoke in favor of a Glass-Steagall reform on Oct. 7. As we have reported, the CMU scheme is an assault on the savings and loans (S&L) and credit union-based system of community banks, which in many European countries, notably Germany and Italy, are the unique source of credit for small and medium enterprises (SMEs, e.g. Mittelstand). In Italy, for instance, whereas large banks have reduced credit to the economy, the S&L system has increased it in the last years.

Zanni spoke by saying that ultimate aim of the proposal is different from its stated aims. “Its final goal in fact, is a new financial deregulation on the line of the wicked decisions taken in this sector over the last 20 years. I am not surprised that it is Lord Hill to push for this proposal: He is expression of the City of London financial lobby.

“It is not by pushing small savers to invest in financial products that problems are solved; if anything, we are creating new ones, as happened already in 2008. On one point, however, we agree— on the fact that there is a real problem in accessing credit, especially for SMEs.

“For us, there is only one solution, and that is: Banks should go back to performing their traditional role of depositing savings and issuing credit, and this is feasible only through a banking separation after the American Glass-Steagall model. Only in this way we can distinguish those who want to make free speculation activity and those who shall have a much more important role, i.e. financing the real economy.”

Zanni published the video of his intervention on his website, under the headline “No To CMU and Financial Deregulation; Yes To Banking Separation.” The video is accompanied by the invitation to watch an earlier video with an explanation of Glass-Steagall by Zanni and his colleague Marco Valli.

Fabio De Masi (GUE/NGL), another supporter of Glass-Steagall, also blasted the CMU plan. Both the Bank for International Settlements (BIS) and Alan Greenspan have warned about new financial crises. “The EU Commission will re-open the gambling house with the Capital Market Union. Banks and Insurances should invest in the infrastructure. Costs should be paid by taxpayers. The securitization industry — i.e. the packaging of junk loans — should be revived, this time instead of American mortgages, perhaps with European car loans. Volkswagen teaches us a lesson.

“Europe needs serious banks instead of gambling shops which are too big to fail. Therefore we should finally do our homework in the matter of bank structural reforms, as well as of a public investment program.”

Molly Scott Cato, a Green MEP from the U.K., said: “For those of us who are not yet ready to forgive and forget the financial crisis of 2008, this sets alarm bells ringing. With securitization, market traders created a dangerous game of pass the parcel where nobody could be sure whose parcel contained the toxic assets. Securitization is an attempt to pretend that hiding risk is the same as reducing risk, when it is nothing of the sort.”

Similarly, Spanish MEP Miguel Urbán Crespo from the Podemos party said that CMU could not be a mechanism for creating a “casino economy where the bank always wins.”

Strong critics of the CMU came also from conservative circles, especially German MEPs such as Werner Langen and Markus Ferber, who stressed that SMEs are well served by community banks and that capital market costs would be too high. Joachim Starbatty, a member of the anti-euro AfD party, said that the EU scheme envisions a single Deposit Insurance Fund out of many national, differently funded schemes. This has to be rejected, he said, and insisted, regarding the euro: “The euro divides Europe and feeds conflicts. It must be dissolved.”

His colleague Beatrix von Storch, however, spoke in favor of the deregulation idea on the basis of the CMU concept.