BRUSSELS, May 21 (Reuters) - The credit crunch shows the finance industry can’t keep its house in order and measures are needed to protect the economy from market fallout, senior politicians from Europe’s centre-left said on Wednesday.
European politicians on the left are frustrated the European Commission -- which has sole right at European Union level to propose financial regulation -- has largely opted for industry-led solutions to rectify flaws highlighted by market turbulence.
“This crisis is a failure of poorly or unregulated markets and shows us, once more, that the financial market is not capable of self-regulation,” the politicians said in a joint letter to EU president Slovenia.
Signatories include former German Chancellor Helmut Schmidt, former European Commission presidents Jacques Delors and Jacques Santer, former French prime ministers Lionel Jospin and Michel Rocard, and former Danish prime minister, Poul Nyrup Rasmussen. Defaults in the U.S. home loans market started a global credit crunch last August that has pushed up borrowing costs for consumers and companies, crimping economic growth in Europe and the United States.
“The financial world has accumulated a massive amount of fictitious capital, with very little improvement for humanity and the environment,” the letter said.
Big banks were involved in “questionable packaging” of debt, with misguided incentive schemes, short-termism and blatant conflicts of interest enhancing speculative trading, it added.
EU president Slovenia said it had no immediate comment.
The letter calls for a European Crisis Committee made up of high-profile politicians, economists and financial experts to suggest measures for EU governments to take.
The new committee should also organise a World Financial Conference to “rethink the rules of international finance and the governance of global economic issues”.
EU governments have already agreed to “roadmaps” to apply lessons learnt from market turmoil with changes to bank collateral rules already in the pipeline. Ratings agencies will also have to abide by a tougher code of conduct and perhaps a new EU oversight body.
The roadmaps are part of a global regulatory review being conducted by the G7 major mature economies and the IMF’s Financial Stability Forum to improve transparency in financial markets.
Signatories Rasmussen and Rocard are members of the European Parliament where the left has criticised EU Internal Market Commissioner, Charlie McCreevy, for not coming forward with enough legislative proposals in response to the credit crisis.
McCreevy’s spokesman had no immediate comment.
The assembly’s economic affairs committee gave McCreevy a toy horse last month after he decided to attend a horse race meeting rather than a debate on financial supervision.
(Reporting by Huw Jones; Editing by Ruth Pitchford)
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