The need for an EU Financial Regulatory Authority – Interview with Professor Donato Masciandaro

Jun 25th, 2010 | Category: Interviews

Donato Masciandaro, (Prof.), Bocconi University

June 11 2010

ELIAMEP: Professor Masciandaro, thank you very much for giving us this short interview for ELIAMEP’s website, we are here together in the context of ELIAMEP and Bruegel’s Economic governance in the eurozone and the EU conference. How do you assess the progress made regarding financial regulation at the EU level?

Donato Masciandaro: We have no progress in financial regulation. EU politicians seem to be more able to face a crisis, and they did very well during the crisis, but they seem to be unable to prevent a crisis. To prevent the crisis means to build up growth for the case of public debt, and public debt means to build up fiscal growth and this is, as you know, more difficult both from the economic and from the political point of view. So, politicians in general, are more able to manage a crisis rather than to prevent it. Regulation means prevention of a crisis. From this point of view, the reaction was slow and not adequate at all.

ELIAMEP: You think that politicians haven’t done enough so far, but why?

Donato Masciandaro: They reacted using political cost-benefit analysis. In normal times, who cares about financial stability. If nobody cares this means that financial regulation and supervision is a matter for bureaucrats. Then during and after the crisis, they [politicians] arrived and tried to provide solutions but they don’t know anything [about the issues]. So they prefer to build up very urgent and temporary measures rather than trying to implement structural reforms. This is the reason why you had different reactions during different phases of the problem.

ELIAMEP: How do you react to the recent attacks of EU political leaders against speculators?

Donato Masciandaro: They know the right problem. The problem is to regulate markets that are so far not regulated. For example, the derivative market, the CDO market, the current account market. This is a problem, but they use the wrong approach in my view. They prefer to ban activities rather than to regulate them. Because to ban is easier. It is easier for politician, easier for the bureaucrats. So, instead of trying to build up new markets, they prefer to ban them.

ELIAMEP: Would it be enough to regulate the supervision of financial markets or does the EU need certain institutional changes?

Donato Masciandaro: It is urgent and it would be important to build up a European financial supervisory. In my idea, the architecture should be very simple. There are two public goals. On the one side monetary stability and the European Central Bank is already in charge of pursuing monetary stability. We have monetary financial stability, and we have to have financial regulatory authority, different from the ECB. This should be the final point of the architecture. Actually we have a proposal in which the politicians choose the whole approach: a banking authority, a security market authority and an insurance authority. This is an absolute view of the market, but you know in this manner you can protect your bureaucrats and politicians are happy. It is easier to build an obsolete architecture rather than a new one.