EU OKs New Financial Oversight Deal    09/07 07:27

   BRUSSELS (AP) -- The European Union agreed to create new financial oversight 
institutions Tuesday, hoping to prevent a repeat of the government debt crisis 
that nearly left Greece bankrupt and brought the European banking system to its 
knees.

   The union's 27 finance ministers --- the so-called Ecofin --- decided to 
establish a new supervisory board over the financial industry and demand a more 
transparent sharing of government budgetary information.

   The move still needs the formal backing of the European Parliament, but that 
is expected later this month.

   However, the finance ministers failed to agree on the introduction of a levy 
on banks or on a new tax on financial trading.

   Belgium's finance minister Didier Reynders, who chaired the meeting, said 
stricter supervision was one of the most important lessons from the government 
debt crisis and insisted the deal was necessary now to make sure the new 
oversight structure begins work at the start of 2011.

   Although many countries in the EU have decided to impose a levy on bank 
profits, there is no Europe-wide agreement about what to do with the proceeds. 
Germany wants the revenues to be put in a rescue fund to pay for future banking 
bailouts while Britain wants to use the money for its own budgetary needs.

   "I made it clear ... that we did not support proposals for a European 
resolution fund," said British Finance Minister George Osborne.

   The transactions tax, which has been backed by non-governmental 
organizations, trade unions and politicians, does not look like it's going to 
get the broad backing within Europe's capitals, even though French President 
Nicolas Sarkozy said it's going to be a priority when France takes the chair of 
the Group of 20 countries next year.

   Osborne said the problem with the trading tax is the same as it has been 
since Nobel Laureate James Tobin first proposed it in 1970s --- if it's not 
introduced everywhere, then firms will just move their dealmaking elsewhere to 
avoid paying the tax.

   "I suspect that transaction taxes will be discussed for many decades to 
come," said Osborne.

   Proponents of the measures say they will curb excessive risk-taking and 
place the financial burden of any rescue package on financial institutions 
themselves instead of the taxpayer. During the financial crisis, governments 
across the EU provided financial institutions public support worth an 
astonishing 16.5 percent of the union's total worth.

   Worries about the European economy and its ability to deal with large 
amounts of government debt have been eased recently by a run of 
better-than-expected data, progress by Greece in strengthening its bailed-out 
finances and the results of stress tests on 91 of the EU's banks.

   The most apocalyptic scenarios openly discussed a few months ago, such as 
the collapse of the euro currency, have been put on the back burner.

   But policymakers remain wary that the government debt crisis could flare up 
again, particularly as the 16 governments that use the euro are set to issue 
more debt this month than they did in August.

   Eurozone governments have bond repayments of (euro)80 billion ($103 billion) 
in September, with around (euro)30 billion ($38 billion) due from Italy alone 
--- and the results of the debt sales will reveal what bond investors think of 
government finances.


(KA)