Committee for the Abolition of Illegitimate Debt

The 15^th of September marks the fifth anniversary of the most spectacular bankruptcy in the financial crisis of 2007-2008. On that day, renowned Wall Street investment bank Lehman Brothers filed for bankruptcy due to disastrous investments in US real estate through financial products. At the time, European leaders made bold promises to reform financial regulation in the EU “to respond to crises, but also to avoid them in the future”, Commission President Barroso said. Five years on, the results are woefully insufficient.

The financial crisis led to a devastating economic crisis in Europe. Unemployment in the EU has increased steadily to a record level of nearly 26 million – a staggering 10.7% of the labour force with youth unemployment much higher. It also set the euro crisis in motion which has resulted in painful austerity measures in almost all EU countries and hundreds of billions of euros in expensive bailouts of banks that made bad loans in the first place. Having paid such a high price, European citizens have every right to demand effective action from politicians to protect us from a repeat of this meltdown. But after five years of financial ‘reform’ in the EU, the return on our investment is woefully inadequate.

The evidence is clear: European banks continue to be undercapitalised, and EU banking regulation continues to allow banks – such as Deutsche Bank and Barclays – to borrow even more than Lehman Brothers did before it crashed1; derivatives Derivatives A family of financial products that includes mainly options, futures, swaps and their combinations, all related to other assets (shares, bonds, raw materials and commodities, interest rates, indices, etc.) from which they are by nature inseparable—options on shares, futures contracts on an index, etc. Their value depends on and is derived from (thus the name) that of these other assets. There are derivatives involving a firm commitment (currency futures, interest-rate or exchange swaps) and derivatives involving a conditional commitment (options, warrants, etc.). markets continue to grow and now stand at a value much higher than five years ago2; few toxic financial instruments Financial instruments Financial instruments include financial securities and financial contracts. have been banned, not even the complicated securities that played a key role in the crisis.

One key reason for this failure is the success of the financial lobby Lobby
Lobbies A lobby is an entity organized to represent and defend the interests of a specific group by exerting pressure or influence on persons or institutions that hold power. Lobbying consists in conducting actions aimed at influencing, directly or indirectly, the drafting, application or interpretation of legislative measures, standards, regulations and more generally any intervention or decision by the Public Authorities. to keep effective regulation at bay. The financial industry is spending millions to influence decision makers, and scaremongering is their standard argument: they claim that regulating finance would be costly to society in terms of unemployment. However, this is an absurd argument if one looks at the costs of the crisis in 2008, regarding bank bail outs and millions of people losing their jobs.

Financial corporations have enjoyed uninterrupted privileged access to decision makers, for instance in the debate on new rules on banking and on derivatives. As pointed out repeatedly by the Alliance for Lobbying Transparency and Ethics Regulation in the EU (ALTER-EU) and others, advisory groups of the Commission and the Council were, and are still, dominated by representatives from big financial corporations. A group recently set up to advice the EU on measures to stop tax evasion is full with representatives of the same accountancy industry that is so instrumental in advising companies how they can minimize their tax payments.

In order to start a genuine reform of the financial sector, a number of first steps are needed:

 A new, democratic approach to financial reform, including effective measures to curb the influence of the financial lobby in Brussels, by overhauling finance industry led advisory groups and closing the revolving door between government and the finance industry

 An immediate and structural revamp of the reform agenda of the financial sector to ensure this dreadful bitter financial and economic crisis leads to strong regulation and democratic control of the financial sector so that it is at the service of society and finances social and environmentally sound activities. The urgent first steps to that end include the introduction of a genuine Financial Transaction Tax (FTT), higher financial buffers for banks, the break-up of banks that are too big to fail, reduction of the importance of the financial sector in the economy, ending speculative activities such as speculation in food.

 Swift and effective measures to stop tax evasion. According to the Commissions own figures, this would bring 1.000 billion euro a year, which would be more than enough to cover for the current austerity measures.

 Introduce measures that would make those in the financial sector responsible for scandals, misleading of clients, fraud and criminal activities personally liable. It is not acceptable that, in case of scandals such as Libor LIBOR
London Interbank Offered Rate An average rate calculated daily, based on transactions made by a group of representative banks. There are several LIBORs for some ten different currencies and some fifteen duration rates, from one day to twelve months. or HSBC’s involvement in money laundering, banks make a financial settlement while the ones responsible walk away without punishment. Banks should never be ‘too big to jail’.

The five years of financial reform turned out to be a major disappointment. To citizens and citizens groups, that means regulation of the financial sector has to be on the political agenda for years to come, including at the European elections next year, to ensure the reforms that would make a real difference are introduced.

Signatories:

Action from Ireland
Friends of the Earth Flanders and Brussels
Friends of the Earth Ireland
Friends of the Earth Europe
Les Amis de la Terre (F)
Corporate Europe Observatory
European Federation of Public Services Unions (EPSU)
CNE-CSC (Belgium)
Transnational Institute
War on Want (UK)
Citizen Debt Audit Platform (Spain)
FairFin (Belgium)
Zukunftskonvent
Lost in Europe
Food & Water Europe
Tax Justice Network
transform!italia
European ATTAC Network
ATTAC-Finland
ATTAC Norway
ATTAC Poland
ATTAC Vlaanderen
ATTAC Spain
ATTAC France
ATTAC Austria
ATTAC Germany
ATTAC-Ireland
ATTAC Hellas
ATTAC Iceland
Kairos Europe
Ecologistas en Acción (Spain)
Jubilee Debt Campaign (UK)
World Economy, Ecology & Development – WEED (Germany)
Both Ends (NL)
CADTM Europe
World Development Movement (UK)
Auditoria a Cidadada Divida Publica – IAC (Port.)
Bank Track
Fondazione Culturale Responsabilità Etica (Italy)
Veblen Institute for Economic Reforms (F)
European Anti-Poverty Network