Committee on Economic and Monetary Affairs Ordinary meeting
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ECON European Parliament
Follow its sittingsSpeaker 2
My engagement with the European project intensified with the start of Croatia's EU accession negotiations in 2005, when I was appointed deputy chief negotiator. Since becoming governor in 2012, I have worked with determination to steer Croatia through the next stage of integration, joining the euro area. Despite major external shocks, including the pandemic, our strong commitment led to Croatia's successful entry into the Euro Area in 2023, a milestone that I consider one of the defining achievements of my career. This experience taught me an essential lesson. Large, complex transitions require long-term focus and resilience.
If entrusted with the role of Vice President of the ECB, my main focus would be on the ECB's primary mandate: price stability. Price stability is the foundation of economic confidence and the well-being of citizens in the Euro Area. As a member of the ECB's Governing Council for the past three years, I have been actively involved in monetary policy debates and decisions that have brought inflation back on track to our 2% medium-term target. But although inflation is back at our medium-term target again, the overall economic and geopolitical environment leaves no room for complacency. I will, therefore, continue to support the monitoring of evolving risks and data-driven decisions, balancing short-term challenges with our long-term goals.
In addition to price stability, financial stability is key to public trust. I think that my track record at the Croatian National Bank, when it comes to debt, by proactive use of macroprudential and macroprudential policy, speaks best for itself. I will bring this same proactive and forward-looking mindset to my work at the ECB, especially in light of ongoing geopolitical tensions and the challenges posed by digitalization. That said, the ECB is already pursuing a proactive approach in several key areas. A prominent example is a set of initiatives aimed at reinforcing the resilience and strategic autonomy of Europe's payments ecosystem.
Chief among these is Digital Europe, a project that they consider vital for preserving the role of central bank money in an increasingly digital economy. Its purpose is twofold. On one hand, it will provide citizens with a secure and universally accepted means of digital payments alongside banknotes, which will be reinforced as an option for them. And on the other hand, it is crucial for strengthening Europe's monetary sovereignty and reducing dependence on non-European payment providers. Alongside the digital euro, the ECB is developing the next generation of wholesale settlement, interlinking the fast payment system with key foreign partners, and expanding the euro liquidity provision framework globally.
I fully support this comprehensive and forward-looking approach. At the same time, further progress is needed on broader structural reforms. From the financing side, advancing the Savings and Investment Union is a priority if we want Europe to remain competitive on the global stage. A more integrated capital market is essential for financing critical transitions, like the green and digital transformations. Completing the banking union is equally important, as it will increase resilience against geopolitical shocks and strengthen confidence in our financial systems.
As Vice President, I would support the ECB's role in these integration steps while ensuring that financial stability remains a priority. Turning back to the ECB's work, I will highlight one final point. ECB policies need to remain responsive to the needs of European citizens. This implies not only delivering on our primary mandate of price stability but also, without prejudice to that objective, supporting the general economic policies in the union. It also means ensuring that our actions are well understood and that their transmission across the euro area is effective.
Clear communication, transparency, and active engagement with the public are essential for maintaining trust. Throughout my time at the Croatian National Bank, I have always worked hard to communicate complex economic issues to the public and ensure that citizens understand how policy decisions impact their daily lives. I would bring this same commitment to transparent communication to the ECB. Finally, I would like to highlight the importance of the ECB's independence, which is vital for its effectiveness. However, this independence must be matched by strong accountability.
And this is where the European Parliament plays a key role. The relationship between the ECB and Parliament has evolved significantly.
In recent years, I have looked forward to strengthening our dialogue if I am given the privilege to serve as the vice president. Thank you for your attention, and I look forward to your questions.
Speaker 3
Yes. Thank you very much, Mr. Vucic. Thank you for coming to speak before us. I've got two brief questions for you. First of all, we've got member states with a lot of accumulated debt, especially in the wake of the pandemic.
Also, following the peak in inflation that has led to increasing interest rates and increasing costs for the servicing of debt, there is a risk of fiscal dominance, that is to say, fiscal policy passes on its requirements to the interest rate setting policy. So, how would you position yourself when faced with that kind of dilemma? Secondly, you are taking over the role of Vice President. The previous occupant of that role had a task force on the simplification of banking regulations. They made recommendations on reducing bureaucratic burdens.
Speaker 4
Now, these recommendations have to be implemented. That leaves a number of open questions. There's a lot of technical follow-up work that will be required. What work will you be pursuing to ensure that these proposals don't remain a dead letter? Thank you very much.
Thank you.
Speaker 2
Thank you very much for your questions. On the first one, on fiscal dominance in a situation where debt has gone up and interest rates have gone up, although, of course, over the last year, the interest rates came down to 2%. I can say that the ECB, the Central Bank, has a very clear mandate. That's price stability. We set our interest rates only based on our primary mandate of price stability.
And fiscal policy is, of course, the remit of the ministries of finance of different countries, and they have a duty to maintain fiscal sustainability in their countries. And by doing that, of course, they broaden the scope of the monetary policy as well. So, everybody should do their own job: us setting the interest rates to achieve our goal of price stability, and the Ministry of Finance rein in the budget deficits, if necessary, in order to allow for the space for such a monetary policy. When it comes to the simplification of regulation, it's a very complex and broad area, which encompasses a lot of activities that will now be done mainly by the Commission. We had a high-level task force, which recommended the actions without specifying exactly in technical terms what needed to be done, like simplifying the stack of the capital as the main thing, but also a number of other reporting requirements, etc.
I would think that this is just the first step, in my view. I think that, going forward, we should try to simplify the regulation even more, which would then probably mean thinking about the level one regulation. What we are doing now is Level 2, Level 3 regulation. That can go some way. But the real simplification, without, again, deregulation, doesn't mean deregulation.
Simplification, we always emphasize, is not deregulation; it would maybe go towards level one. And then, if we open that, we will encounter some issues like the standardized models, output floor versus the internal rating models. And we would also have to have a view on how we deal with the simpler, smaller financial institutions, which have an easier, I would say, to understand and to conduct business models, and ask ourselves whether they require the same type of regulation as large, complex financial institutions. And there, I think we have to draw the line. And as you know, the ECB itself has had an initiative and has supported the initiative of simplifying the regulation, particularly for the smaller and non-complex financial institutions.
Speaker 6
Thank you very much, Chad. Good morning. I'll speak Spanish. First of all, thanks for coming. Thanks for your introductory speech.
I'd like to share one thought and ask one question. The simplification of banking regulations is a process where sometimes some people may appear to be justifying deregulation on the grounds of supposed competitiveness, whereas, in fact, some of us think that banking union is a better way to achieve competitiveness; what we actually need is a true deposit insurance, capital, and liquidity requirement right at the heart of a banking union. Having a solid banking union like that is the best way to achieve competitiveness. An implementation of Basel in the US, changing our capital requirements and greater prudential guarantees, may be appropriate if the US is not respecting Basel. On MICA, we know that there is a difference of opinion between multicurrency stablecoins, the European Commission, and the ECB.
Speaker 7
What do you think of that particular difference of opinion? And what is your own opinion?
Speaker 2
Thank you very much for your question. I fully agree. As I said in the previous answer, simplification should not mean deregulation. And the competitiveness of the banking system in Europe, again, I agree, depends primarily on having access to the size of the European market. So that means basically completing the single market and the banking union, which would give space for the European banks to grow and therefore become more competitive. That's the key thing.
Everything else of the secondary is of the secondary order, and we can, of course, discuss it. But let's take, for example, what you mentioned about Basel III. The risks associated with post-trading in Europe have also always been cited by European banks as too high for anybody to consolidate post-trading. Who is doing it? American banks in Europe.
Why? Because they have a size. They have a size. They can tackle these risks. Their legal departments can tackle those risks better compared to the European banks.
If we allow European banks to grow and have access to the size of the markets that American banks have, they will also be able to do that. That will immediately increase their competitiveness. When it comes to regulations like Basel III, it's true. I mean, we don't have full and equal adoption of the recommendations of the BCSB and the Basel Committee. Take, for example, the trading book, which has now been postponed also in Europe because it has not been adopted in the U.S.
S. But I would think that we should insist, as Europe, on the international standards and the adoption of the international standards everywhere. I don't think that regulatory arbitrage is a good way forward because it will weaken the regulatory framework that we have built around the banking system. And in spite of the fact that, at times, we might not have somebody on the other side who is willing to hear our arguments in the same way that we see them, I think we should persist over the long run in having very strong international cooperation on regulation because this is the only thing that can ensure that we do not face financial crises further down the road. And I personally went through three financial crises in my career, and I have seen the strengthening and weakening of the regulation of the banking system.
And it's almost a cyclical process. We have to be very careful not to see that repeated again because, as you know, banking crises are extremely expensive. Average banking crisis costs 7% of GDP. So it's as expensive as anything else.
And MYCAR?
Speaker 2
And MYCAR, yes. On the MYCAR, I think that we have a good piece of legislation. But when it comes to the multi-issuance of stablecoins, which is a matter of debate right now, I fully concur with the opinion of the ECB and the ESRB, which point to the risks of multi-issuance in the current regulatory environment. Why? Because we do not have aligned regulatory requirements on both sides of the Atlantic.
So, if there is a multi-issuance, we run the risk of having a run on the stablecoins, which are fungible and issued by the two entities, but basically fungible on our side of the Atlantic, not on the other side of the Atlantic. So, we need to align the regulation in order to reduce these risks. For example, the mere fact that in Europe, there is no possibility of redemption fees. And in the U.S. So, you can have redemption fees.
Even the smallest redemption fee could push everybody to come to Europe and basically run on the European part of the reserves, which creates a basis for the issuance of the stablecoins. So, we have to deal with these safeguards before we can allow, I think, multi-issuance of the stablecoins. We are not in that position right now.
Speaker 10
I will speak French. Dear Sir, You have a lot of experience with central banks and financial stability. You also defend the ECB's independence towards the parliament as well. When it comes to the banking union, the debate has been a stalemate, especially with EDIS as well.
Speaker 9
So, when it comes to legislators, what is the realistic outcome that you see for this impasse between member states? Oncoming risks: what do you think is the fragile or breaking point of the financial system? We hear a lot about non-banking financing and leverage risks. We hear about liquidity. We hear about assets.
What worries you the most in the coming 2 or 3 years? What are the blind spots that you see in the banks between the NBFE banks and the markets? What are the blind spots there? Thank you.
Speaker 2
For these, there are two questions. Basically, on the first one, if I understand well, it's more about the completion of the banking union. The third pillar that we are missing is the EDIS. And I think it is crucially important. I think that the completion of the banking union solves many problems, including those that we discussed a bit earlier.
But I would think that the realistic move would be to have some kind of package solution. I think if we try to solve the situation in Europe at the moment one by one, it will be very difficult to get the agreement of all sides. I think everybody should get something and give up something in a kind of package proposal that can get people to agree on the things which are difficult, like the EDIS, like the common backstop for the resolution of the banks in Europe, like basically the main common financing vehicles that we need to have a single, well-functioning banking union. Now, what are these compromises? There are some proposals.
I will get engaged in those discussions when it is time. But one thing that I'm sure of is that if we try to tackle things one by one, we won't succeed because we tried for 10 years, and it didn't work. So, we have to put the whole package together. Somebody should say, okay, if there is a request for less exposure of domestic banks to sovereign debt because there are fiscal risks, somebody should give up. But then, maybe we should agree on having a common deposit insurance scheme where the risks of somebody paying for somebody else's banking crisis will be minimized.
This is the kind of solution that we will have to look for. On the risks going forward in the next two to three years, I think that one we mentioned is the elevated debt levels. Although I would say that we have also seen lots of good developments in the European countries since the GFC. Countries that were most affected by the global financial crisis and the Eurozone debt crisis at that time have shown remarkable success since then. And we have seen declines in the debt-to-GDP levels.
In many of them, there is strong growth and structural reforms. And this is very encouraging. That shows that these things can be done. In the financial market itself, if I look at the current valuations in the equity market, and I've been around for a long time, when I see price-to-earnings ratios that are higher than my age, and when I see price-to-forward earnings that are higher than my children's age, I get worried. Maybe the nice expectations about the technology will be fulfilled.
But if they don't, we might see a significant correction. And by design, European financial institutions are also exposed to this type of risk, although most of that risk is on the other side of the Atlantic. I was recently giving a speech to the large asset managers, mainly pension funds and insurance companies in the Nordic countries. By simple construction of their portfolios, their exposure to the Magnificent Seven increases day by day. And they scratch their heads.
They are a bit worried, but they have to get ready for the possible correction if it happens.
Speaker 11
Thank you. Welcome to the European Parliament, Mr. Wojcic. Pleased to see you here today. You mentioned the digital euro in your remarks.
Just for the record, I remain very critical. And I think there's also a major risk that, in the end, consumers will choose not to use the digital euro. And after a lot of expense, that may be the outcome. But that is not my question. I had a question regarding the impact of the euro in Croatia, in particular.
Public spending in the last 9 years has increased by more than double, more than 100%. And this is, I think, the main reason we still have relatively high inflation in Croatia. The euro indeed led to a boost in the growth of the tourist sector. It has kept interest rates relatively low and stable. These are all good things.
But my question regards the impact, if you could evaluate it, of the euro on inflation. It's not just public spending. I think there was an initial rise in prices after its introduction. Was that in line with your expectations? How would you assess today, after three years, the impact of the euro on Croatia's economy?
Thank you.
Speaker 2
Thank you very much for that question. Well, the euro's impact on the Croatian economy was definitely, on balance, very positive. If you look at what has happened over the last three years, the rating of the country went up to A from a low investment grade rating. Public debt to GDP has declined by 30%. So, public debt to GDP in Croatia was 87% in 2020, and now it's at 57%.
So, it's a big achievement, and it shows that it can be done. The Euro did have an impact on the inflation that we expected. It increased inflation, but not by a lot. There are three studies, and they show that the impact of the euro introduction on the price increase was between 0.2 and 0.4 percentage points. And this is all in services because of the rounding up of the prices, etc.
And at the time when the inflation was double-digit, that was not the major contribution. Yes. So I say yes, the euro has increased prices, but not as much as people perceive. And I always say, if it were for the euro, then the inflation in Croatia would have been higher than in the countries that have not introduced the euro. In reality, it was lower than in Romania, Bulgaria, Hungary, the Czech Republic, and Poland, and lower in Croatia than there.
So, it's not because of the euro that prices went up. So overall, I would say that the euro has contributed positively, but the inflation differential now, you're right, in Croatia is, I would say, mainly due to the large increase in wages. Wages in Croatia increased a lot in the last three years, basically 40% nominally. And, of course, you cannot have inflation at 2% with such an increase in wages. If any student comes to your class and asks, "Why don't we have a 2% inflation after the wages went up?"
So now you tell them to go back home and reread the textbook. Sometimes people scratch their heads. Why do we have to? Of course, in spite of the fact that the debt-to-GDP ratio has come down by 30 percentage points, we have to make sure that we keep the fiscal house in order, also looking forward, because that will contribute to inflation coming back to 2%.
Speaker 13
You, Chair, thank you for coming. I have two questions. The first question is a follow-up to Marcos' initial question. Your answer was that actually, if everybody does their job, everything is okay. And there is no fiscal dominance, and monetary dominance prevails.
And for monetary policy, that's an easy job. But that's not exactly the situation every time in the history of the European Union. So, I wanted to ask about government bond purchase programs and also the TPI mechanism in order to stabilize some of the debt markets in Europe. How do you see the perspectives of government bond holdings at the ECB, given the fact that there is still a substantial amount on the balance sheet of the ECB? And the second question is a bit related to Croatia in the sense that, on financial stability, since we do not have all three pillars of the banking union, there are a lot of home-host issues, which are very delicate ones.
Speaker 14
And you are in a fortunate position where you can judge this from a host country perspective, not just a home country perspective. So, in this regard, I wanted to ask: how do you see, until we get to the full banking union, what are the most important measures you can have at the ECB? Thank you.
Speaker 2
Thank you. Thank you for those two questions. Let me first go back to the possibilities of fiscal dominance and the relationship between monetary and fiscal policy. As I said, everybody has their own clear mandate. One is the price to build; the other one is fiscal stability.
But we can get into situations, of course, when we have disturbances in the market, and sometimes in the market of public debt. The job of the ECB is not to cater to the fiscal challenges of countries when they are fundamentally caused by wrong policies. We can intervene in the markets when there is a problem in the transmission of monetary policy, and that's what our tools are designed for. One, and these were the bond purchases, was basically a consequence of the fact that we reached the lower bound with inflation below our target. And the bond purchases were then basically an extension of the monetary policy to achieve our primary goal, and that's price stability. What we've learned from that is, yes, that can be affected to some extent, but with size, the marginal efficiency of QE declines.
So, it doesn't necessarily get you to your goal. Where it has proved very efficient, and I use it in Croatia, QE was implemented during the times of the crisis. When there is clear disturbance in the markets, when there are no buyers, when there are fire sales and runs for redemptions, doing QE at that time can be very helpful. We basically cooled down all the problems in the market with preannounced QE, in the sense that we said we're getting into QE, but we immediately announced what the exit is. We immediately said we will just hold it until maturity, so everybody knows what we are doing.
So QE can be a very useful tool. It is in our toolbox, but we have to be careful about how we use it. We should not use it for inappropriate goals where it is not effective or efficient. For the TPI, it's the same thing. There are clear conditions for the use of the TPI.
And if there are conditions in place for the use of the TPI, we will use it. If not, we will not. But I usually say publicly, the less you discuss TPI, the more effective it is. So, I will stop here. The home-host relationship has been at the center of my career.
I've been doing home-host for the last 25 years, and I'm chair of the Vienna Initiative institution, which was set up between the home and host supervisors at the time of the GFC and the Eurozone debt crisis, which also involves the ECB as well as other European institutions. And that one has proven to be very efficient. The good dialogue between the home and host supervisors can prevent, at that time, disorderly deleveraging, which we were facing in Central East Europe, because Central East Europe is the only part of Europe where you, in a way, have more banking union than elsewhere, due to the penetration of Western banks into the East European market, which happened during the transition. The relationship between the home and host supervisors is very sensitive in that area. How can we solve the home host issues?
And you alluded to the fact that this is having a real banking union. Once you have an EDIS, when you have a win, the home host issues will become much narrower. Up until then, we have to strive through institutions like the BNA initiative to have a continuous dialogue between the home and host supervisors, and we have proven we can do that. At the time when it was most risky for the particularly Central and Eastern European banks, we managed to find a common standing and prevent disorderly deleveraging.
Speaker 17
Thank you. Thank you very much for the good answers. Actually, in Finland, inflation is not a problem; on the contrary, the economy has drifted into deflation due to tightening fiscal policy. As a result, unemployment causes a spate of debt, so cuts take the government further away from the goal they had. But this uneven development of the Euro Area is always a very important issue, so if you want to say something about it, please do.
But my main question is about something else: the international role of the euro. For many years, the ECB has maintained that the international role of the euro should be primarily determined by market outcomes. However, there seems to be a shift in tone, as investors are increasingly turning away from the US dollar and US assets. Recently, President Lagarde stated that a step towards greater international prominence for our currency will not happen by default. In your view, what should the ECB and the EU institutions concretely do to support the international role of the euro?
Speaker 16
And what kind of benefits would strengthening the international role of the euro bring to EU citizens and businesses? Thank you.
Speaker 2
Thank you very much. The main thing I think that the ECB can do to strengthen the international role of the euro is, first and foremost, to do its job properly because that then gives investors confidence in a stable, strong international currency. So that means maintaining price and financial stability, as well as preserving the independence of the Central Bank. This is very important in the eyes of the investors. Apart from that, the main goal, I think, is that we are now working on, as I said, the digitalization of the European payment system.
It's a digital euro, but it's not only a digital euro; it's also the projects of Pontes and Appia, where we interlink our instant payment systems with other payment systems in the world. So, I'm talking about not only non-EU neighbors, but also that we're working with India and Asian countries, which is very important for the international role of the euro. And also, as you know, we have now extended the repo lines in a much broader, more framed, and secure way to anybody who is using the euro. This is also a very important factor for the international currency. By pursuing these three goals, I think the ECB can go a long way in supporting the international use of the euro, which I believe will grow gradually.
But it's, as you hinted, also in a way a result of both what we do and what others do, and how the confidence of international investors shifts between the two.
Speaker 1
Thank you. Second round of questions. So, one minute for the question, two minutes for the answer. And I will start with Tudek Nidarmeyer for APP.
Speaker 18
Thank you, Madam Chair, and congratulations to the Governor for his work in Croatia. I have a question on monetary policy. Last year, but even now, we have seen significant differences in the inflation levels of the member states in the Eurozone. If you look at the growth figures, the divergence is sometimes even greater. So, how complicated is it to perform monetary policy in such circumstances?
And as the second part, what are the main reasons based on such substantial differences?
Speaker 2
Thank you for mentioning that. That was also hinted at a little bit in the previous statement rather than the question. But it's true that in the monetary union, we might have differences in business cycles, inflation rates, and growth rates. Since the beginning of the monetary union, they have not been too large. But recently, they have increased.
They increased primarily because of the supply shocks that we faced after COVID and when inflation spiked. The largest inflation differences we saw in 2022 were when the inflation rate ranged from 6% to 25% in Estonia. Those were really large differences. Overall, inflation rates were higher in Central and Eastern Europe than in Western European countries, to a large extent because of the difference in GDP per capita and the difference in the construction of the consumption baskets. Poorer countries consume more food and more energy than the richer ones; therefore, the inflation rates can differ.
But we are now in a situation back to an inflation rate of 2%. And the difference in inflation rate, I think, was between 0.4% in France and 4.2% in Slovakia. It's not that big. We are coming back to the historical average of the inflation differences. If you look at our December projection over the whole horizon, we are now projecting the inflation difference between the highest and lowest inflation within the Eurozone countries, which is within the historical averages.
So, I think it's much less of a problem now than it used to be two years ago. Of course, some countries can also be hit by idiosyncratic shocks. If you look at Finland, for example,
Speaker 2
It is on the border of Russia. It is a kind of idiosyncratic shock in these circumstances. So once you have this type of shock, where growth comes down, unemployment goes up, and inflation comes down, you have to find some structural responses to that. It's very difficult to answer this type of problem with a single instrument, such as the interest rate, of the monetary policy.
Speaker 22
Thank you, Mr. Wojciech, thank you for being here. In your questionnaire, the answers that you sent us, I very much welcomed your response on the importance of incorporating climate risk into the operational framework and monetary policy analysis of the ECB, especially your recognition that market neutrality is a tool that should at times be departed from in the case of climate externalities. Now, in light of this, I wanted to ask your view on the role of the ECB in helping the EU reduce fossil fuel dependencies and increase the uptake of renewables. Madame Lagarde outlined in her speech in October that our dependence on imported fossil fuels is no longer sustainable.
Speaker 19
I wanted to get your views on physical climate risks and ask what, in your view, would be appropriate further action from the ECB to facilitate the energy transition? Thank you.
Speaker 2
Thank you for that question. As you rightly say, in my written answers, I said that climate change and nature degradation can actually have such externalities, which affect our primary goal, and that's price stability. And if you look at the evidence that we have recently, it is the evidence of more frequent extreme weather conditions, which, for example, affect food prices. And we always, in our assessment of the risks around the projection of inflation, cite these risks as material because we already have empirical evidence that it affects the volatility of prices. In that sense, this also justifies the monetary policy action in that direction.
Of course, the main job is for the governments, particularly for those who can do the taxation, to do their part rather than the ECB. But the ECB can also incorporate this type of policy in its own framework, as it did in the past through the corporate bond purchase program. And now, recently, in July, through the tilting of the collateral framework of the ECB, this discussion might appear again in the context of the discussion of the operational framework and monetary policy operations. So, these are basically monetary policy areas. In the supervision, we ask banks to recognize the risks for them, for their portfolios, that might stem from climate change and nature degradation, which is also a different part of the, I would say, ECB tools but is connected more with the SSM than the monetary policy.
Speaker 20
Thank you, Chair. Mr. Wucic, I would like to ask you one thing. Spoke about accountability, and Central Bank independence requires strong accountability. It has been recently disclosed by Ms.
Lagarde told me, in an answer to a written question, that she received an additional salary from the Bank for International Settlements. It is handled differently by major central banks. The Federal Reserve doesn't allow such remuneration. Bank of France, I believe, takes 50% of it. Would you be supportive of the ECB disclosing, in future years and for past years, such additional remuneration that has been received by the Bank for International Settlements?
Speaker 21
That would be my question. And for the other question, I don't have time anymore.
Thanks. Thank you. Thank you.
Speaker 2
Thank you very much for that question. I must say that I am not yet fully knowledgeable about the remuneration schemes in the ECB. I might get it in a few months' time. But in general, I would definitely support transparency on any type of income that we receive. In my own country, we publish all income that we receive on the Internet, and it is available to everyone.
So I'm used to a very high standard and level of transparency in my jurisdiction.
Speaker 2
Thank you very much, Madam Chair. So, thanks once again for the opportunity to address this committee today. I truly appreciate the chance to share with you my views on the future of the ECB and Europe's economic and financial landscape. I'm grateful for the valuable feedback I have received, and I look forward to any that will follow. Let me reiterate that, should I be appointed, I will work rigorously to ensure we continue to deliver on the ECB's core objectives, particularly in maintaining price stability and safeguarding financial stability.
In that spirit, I will take your remarks as guiding inspiration for my future work. A strong partnership and constructive cooperation between the ECB and the European Parliament have never been more important, especially as we navigate mounting challenges. And as I find out, this relationship has been evolving in a good direction over the last few years. Europe faces a markedly different geopolitical landscape than it did five or ten years ago, one that is more fragmented and less predictable. In this environment, it must act with greater determination to safeguard its interests.
The priorities we discussed are essential for strengthening the competitiveness and resilience of the euro area. In doing so, they also reinforce the international role of the euro, an objective that has become increasingly relevant in today's global context. If I am given the honor to serve as the ECB's vice president, I will be very conscious of that special responsibility, and I hope to bring a fresh perspective from a new Euro Area member state, which could contribute to the diversity of views on the ECB's executive board and enrich our collective decision-making. Thank you again for your time and this fruitful exchange, and I look forward to the possibility of working closely together in the future.
Speaker 1
Thank you. Thank you, Mr. Vucic. So, the vote on this appointment is scheduled for tomorrow during the committee meeting, of course, and the plenary vote is foreseen for March 1. Thank you. Thank you to all the members of the Econ Committee.
You. Thank you very much.
Much. I
I think so.
Speaker 1
Okay. So now we turn to the consideration of amendments to the securitization package. The securitization package includes two proposals from the Commission published on 06/17/2025: an amendment to the Capital Requirement Regulation and an amendment to the Securitization Regulation. The draft report was presented to the committee on January 15. The deadline for amendment was January 27.
Overall, more than 500 amendments have been tabled. Hey, please, guys. Thank you. Let me give the floor to the reporter, Mr. Zikatz. And I hope that everyone will be quiet so that we can listen to you.
You have six minutes, and then there will be, of course, the Chateau Roberta, and they will have three minutes here. So, dear reporter, now that everyone is listening to you, you have the floor.
Speaker 24
Colleagues, thank you very much for the mostly very constructive proposals on the two legal proposals for the securitization market. There are a couple of the most destructively minded MEPs who want the Commission to withdraw the proposal, so they're outside. But I proposed my draft report in January, and it's been interesting to see the ideas of the MEPs in the room. And I'm interested in working out where compromises might be possible. On CRR, I was very pleased to see that other groups agree with my idea of strengthening true sale securitization.
The resilient principle was designed for synthetic securitizations to allow more risk sensitivity. But I think that this is not appropriate for true sale securitizations. I'm thinking particularly of trade receivables or car ABS. These are things like ABS for cars or agricultural machines, which is a standard system used by farmers, for example. So, if you're going to securitize ABS and trade receivables, they are very secure.
They don't have any real risk or consequences. So, if you've got this very low risk of default, the senior tranche is very safe. But with the resilient concept, that would actually increase the capital requirements. So, you'd be punishing market players for using these kinds of securitizations. So, as rapporteur, I think I see things somewhat differently from the commission.
So, for traditional securitizations, resilience doesn't function. Rather, we would like to strengthen the existing SDS category. Then, on the 244 amendments that have been put in on the CRR, there is one demand that has come from pretty much all of the political groups. And that is, for example, that capital requirements should only be, well, I see that national interests are quite in line when it comes to setting the basic minimum level for capital requirements for the output floor. So, this is all a question of finding the right balance.
Having a variable floor would allow for lower capital requirements for safer asset classes, and it would make certain asset classes more attractive to originators. We have to look at the level of complexity required to try to reduce the requirements of capital without threatening financial stability. We have to look at how we can find the right kind of compromises for the CRR so that we can calibrate all of the requirements effectively. Over the coming months, I'll be working closely with you on all of this. On the securitization regulation, there were 251 amendments.
I wanted to focus on a couple of important points that I did not mention in the last debate. Some of the amendments are calling for supervision competencies to be transferred to ESMA. That's not so much a political but more of a technical issue. The key competencies have to stay with the EU agency that has the required knowledge and experience. Whether it's the ESMA or ECB that is in charge, that's a second-ranking issue.
We need to ensure that there is a single agency with overarching responsibility, and we can't have individual member states turning all the different dials and knobs. So, there are also a number of technically complex specific points that are going to cause us a bit of a headache over the next few weeks. For example, the uninsured credit protections in use. I think that these issues are important to ensure that insurance companies can invest more in securitizations. But these are complex issues, and we have limited data available to us.
When it comes to uncollateralized credit protection, we need to be a bit more ambitious in the Commission's proposal so that we can make securitization more attractive. On the EU SITS limits for securitizations, that was not part of the Commission proposal. To that extent, it is going to be important to see how the Commission looks at the different options on the table. Our key goal has to be strengthening the EU securitization market by reducing administrative costs without endangering financial stability. Effective but thorough prudential requirements are the best protection against a future financial crisis.
If we calibrate this correctly, then we can be more ambitious on the capital requirement side without endangering stability. Thank you very much for your attention.
Speaker 1
Thank you, Dara Porter. I will now give the floor to the Chateau reporter, and I will start with the S and D and Mr. I was Enaluoma for three minutes.
Eero Heinäluoma
Thank you, Cher. I also believe that securitization could play an important role in supporting our economy, as outlined by, in fact, nearly all of the high-level reports in recent times. However, to achieve this, we need to have a balanced regulatory framework, as Robert just said. And this is just what our amendments aim to bring: more balance to the proposals. Indeed, this framework should not become a free pass for certain banks to circumvent the CRR rules.
I also agree with Rabota's earlier comments that we could look into the successions made by the ECB to ensure that our proposals are balanced and represent the idea of financial stability. In the securitization regulation, I believe there is room for some flexibility, as proposed by the Commission, as long as we do not lose sight of sufficiently protecting investors and making sure our system is stable and secure. On the CRR part, we have to be very careful, though. I understand that the existing framework can sometimes be a bit too conservative, but at the same time, it's important to acknowledge that there is room only for targeted, risk-based adjustments. Let me focus on some key points.
First, changing capital requirements can only be done in a very cautious, targeted, and risk-based way, not in a linear way as proposed by some amendments. Secondly, the idea of the securitization product is to shift risks out of the banking sector, and this is good and acceptable so that other investors can invest in these. But we have to avoid banks investing in each other's securitizations and using them just as a tool to get capital release. Thirdly, an originator and investors are different. Originators of securitizations have much more information and understanding about loan books than investors, so they need to be treated differently.
Fourthly, financial institutions that shift low-risk products from their balance sheet do not need to be rewarded for this with prudential adjustments and lower capital requirements. Fifth, on covered bonds, it's important that we remain Basel-compliant. And sixth, we also need a monitoring system to assess how the released capital following a securitization transaction is used to support the economy. And then finally, looking at its booming numbers today, it is quite clear that there is no problem with synthetic securitization in the Union. And there is, therefore, no need to facilitate this further via prudential adjustments.
Speaker 27
Madam Chair, I'll speak on behalf of Mr. Siste. The commission's proposal and the reporters' draft report on securitizations contain both strong and some problematic elements. I would like to briefly address a few key points that are of crucial importance to us. And, in general, I see no convincing link between lowering capital requirements through synthetic securitization, which allows banks to reduce their capital buffers, and an actual increase in lending to the real economy. The fact that banks would have more liquidity or capital available through such measures does not automatically mean that the investment projects suddenly become profitable.
Speaker 26
On the contrary, maybe the lack of economic growth in Europe has less to do with a shortage of debt financing by banks and much more to do with structural factors such as unrealistic growth expectations, among other sectors, the highly centrally planned renewable energy market, general overregulation, and the current monetary claim made in the EU. Moreover, lowering capital requirements and relaxing risk weightings is not without risk. The geopolitical context is particularly unstable, while green and digital investments often prove less profitable and practical than policymakers and the media portray. Before we know it, we risk landing in another subprime crisis, and we'll be standing here again next year to tighten the rules we are relaxing today. This would not only undermine the credibility of the EU legislators but also create legal uncertainty and deter investment in the European economy.
There is room for simplifying certain reporting requirements, which is beyond dispute. We, therefore, will come to the proposals made by both the commission and the rapporteur in this regard. However, this simplification logic is not consistently applied. For example, the new definition of "resilient securitization" is particularly unclear, while the current simple fixed risk weighting thresholds are being replaced by complex calculations that increasingly deviate from the Basel guidelines, which were mentioned a year before. The fact that the report has incorporated our amendments regarding the highly problematic broadening and definition of public securitization, which would subject virtually all securitizations to stricter and more complex reporting requirements, is a step in the right direction, let's say.
Finally, we also have serious concerns about the proposed sanctions regime. It is stricter than the existing regimes in the Capital Requirements Regulation, the Investment Directive, and the Fund Manager's Directive. On the one hand, the commission wants to encourage securitization, but on the other hand, the stricter sanctions regime risks stigmatizing the spurts and deterring both fund managers and investors. Thank you.
Thank you.
Speaker 28
You, Madam Chair. Thank you, rapporteur. Rather than just listing our amendments to you, perhaps I could talk you through the underlying thinking of the text and our own textual proposals, changing the securitization framework as a first step towards a savings and investment union, with a text that will set the tone and define the level of ambition we have for a savings and investment union. The Draghi and Letter reports made it clear that the securitization market will be extremely important to the capital markets overall, to free up capital, to help growth, and to help the real economy. That's the underlying aim.
Speaker 29
It's not a magical formula, but it's not a disaster either, which is what you might believe if you listen to people at the extremes. It's just one element in a toolbox for achieving that union, and we want to get the balance right. So then, on the one hand, we're developing a market that will be useful, but on the other, we're managing any related risks. We believe that capital requirements should be risk-proportionate, relating to the underlying risks of securitization activities, and we want to ensure that financial stability overall is not undermined. For that reason, we have amendments regarding a lower risk weighting for safer assets, in accordance with the overall line of logic.
Speaker 28
And in this parliament, we talk about the competitiveness of the banking sector, the need for simplification, creating a true single market for financial services, and so on. You hear a lot of talk about that. We also talk about completing the banking union and share those ambitions, which is why I think that ESMA should be given the role of supervising STS securitizations Europe-wide with European supervision. We could simplify the supervision framework and, in this way, facilitate the creation of a true single market, which I believe is an aim shared by many of us here in this room. Without going into detail, I would nonetheless like to stress that we have certain proposals relating to sanctions.
There too, it's about striking the right balance. We want to ensure that undesirable behavior does not go unpunished. But at the same time, we want to ensure that our overall aim of developing a market is not undermined. And if we're too heavy-handed about our sanctions, there's a danger that there will be a deterrent effect, and actors will no longer wish to develop that market if they're too fearful of those sanctions. So that's the underlying thinking of our proposals, and I trust that we will manage to strike the right balance together in order to ensure that we can grow the market and not undermine financial stability, which, of course, none of us would wish to do.
Thank you.
Thank you.
Speaker 30
Thank you very much. Like my colleague, I won't be listing all the amendments that we put forward, but I will perhaps just highlight the main points. First of all, I'd like to say to the report that sidestepping isn't marginalization, but just thinking about our priorities. So, thank you to our chair for putting forward the amendments that she did. But to integrate this idea into what I want to say, we have a shared will here, and I think this has been brought up before, where we're trying to think about how we can free up capital to invest in the real European economy. I think that's something we need to bear in mind as we examine this dossier.
The question is quite simple. Will the capital freed by securitization, if it is freed, be able to be invested in SMEs and then create real income? Or are we just going to create a new market of buybacks? Are we going to be building a new financial crisis that we will have to fight in the future? In the text that we have here, there is no follow-up mechanism.
And there's the idea of shoring up the mark to market banks, which aren't as relevant to the idea of freeing up capital because here we're thinking about different topics. We're talking about investing in the real economy. So, we've put forward a number of amendments about credit benchmarks and the implementation of securitization, which would allow supervisors to limit the distribution of dividends if the money freed up doesn't fuel the real economy. I also have a few more comments to make since we have limited time and we're talking about capitals and financial stability. The commission's proposal was already a risky idea, and the rapporteur's proposal and certain amendments go even further based on analysis by the European Central Bank.
We could be able to go to levels which are below 2,008 figures. So, we have to be very careful if we want to avoid that risk. And then there's also the idea of transferring risk to the public, which is quite worrying because, in a number of the amendments about lowering the thresholds from 15% to 8% and the younger people, we are transferring risk from private investors to the general public, which doesn't make much sense, especially given public budgets right now. Another topic that is very close to my heart is housing and people who take out loans. We are coming up with a European concept for housing, and securitization was at the heart of one of the subprime lending crises.
Markus Sauer?
Speaker 3
Thank you very much. First of all, thanks to the rapporteur for the excellent report that he has presented to us. I could also say that the Commission's proposal is not really a very high-quality proposal. I'll try to put it softly. And if you consider the relevance of securitizations in areas like leasing, well, you do wonder what the commission has been up to for the last two years when they've been telling us they've been working on this file and wanted to present us with something good.
As for the usefulness for the real economy, well, I meant to enter some amendments on this, particularly on the sale of receivables. That topic has not really been addressed properly at all. Securitizations are a tool. They can contribute to savings and investment union and to capital market union. But to do that, they have to be useful for the real economy.
They should not be just some kind of financial tools for banks. With respect to what the reportee has said, the commission's proposal was really not very good at all.
Speaker 32
Thank you. More requests for the floor? No? Okay. So, I give the floor back to the reporter.
Yeah. Yes.
Speaker 24
Thank you very much for all of your many comments. Of course, we know that we are going to have to move towards the Council's position because these trialogues are not going to be easy. The council position has some good ideas for solutions, but it is not going to be easy to find a way out. We're also going to have to look at the issues that the council hasn't really found good solutions for under some time pressure. Yes, we need a clearly European approach.
We need to increase market integration. In concrete terms, that means we want to make the growth of the European market a priority. We need a stronger European level of supervision. The European true sale market should not be neglected or abandoned. That's where the greatest potential is, in fact.
And that is the best possibility for us to target support for our mid caps. We need to put new life into the securitization markets, where the market hasn't recovered since the financial crisis. This is particularly important in small member states, where the markets are not very well developed. I'd like to thank the members for all the amendments I have received. I'm looking forward to a very constructive cooperation. After today's debate and this morning's positive shadows meeting, I'm sure that we'll get a reasonable and ambitious text.
Thank you very much.
Speaker 1
And the vote in Econ is scheduled for May 5th, I think. Thank you. So the joint committee meeting, Econ and Willi Bey, will start in 8 minutes, right?
Speaker 36
Well, dear colleagues, please take your seats so we can proceed to the boat.
No. You can do it.
I do it very well. Yeah?
Please, colleague.
Speaker 33
Colleagues are going to begin the vote, so I'd like to ask you to return to your seats.
Speaker 35
Colleagues, if you can go back to your seats, we've got two voting sessions. Please, we will start with a vote. And I give the floor.
Am I at school? What's happening?
Speaker 38
Well, dear colleagues, I welcome everybody to this Econ MB Alive meeting. Well, welcome everybody to this Econ MB and Liebe joint committee meeting. The first point is the adoption of the agenda. If there are no remarks, the agenda is adopted. The interpretation is available in all official languages except Irish, Latvian, and Maltese.
Javier Zarzalejos
And today, we will have the vote on the so-called mid caps Omnibus regarding the extension of certain mitigating measures available for small and medium-sized enterprises to small mid-cap enterprises, and further simplification measures. The core reporters of this file are Maria Teresa Vivaldini for Econ, Niels Hansen for MB, and Lucas Mandel for Liebe. The vote will be an electronic one, and if successful, it will be followed by a vote on the mandate to enter into internal institutional negotiations. And now, I give the floor to the MB Co-Chair.
Speaker 37
A warm welcome to all members to this joint committee meeting. We proceed with the vote. I give the floor to reporters for one minute each. I will start with the Econ Reporter, Maria Theresa Vivaldini. She's present. She's.
Not present. Okay.
Speaker 50
Thank you very much. Today, we vote on a very important file because this is the file where we also look into what sizes an SMC and an SME company have and what threshold we want to secure for them in the future. That is why this file is so important, and thank you for the huge turnout today.
Speaker 37
Thank you. Now I leave the floor to the Liebeco reporter, Lukas Mandel.
Speaker 40
Thank you very much. This is a very good day for Europe's economy and future prosperity. We lift burdens against our companies. We follow the spirit of this mandate, I would say, and we also have to spread the message that Europe will be in better shape in the future due to simplification and the lifting of regulatory burdens. This is an important step we will take today.
It's a strong parliamentary endeavor for the companies, for the employees, for prosperity, and for the opportunities of Europe in its entirety.
Speaker 37
Thank you to Corporal Mrs. Lalouk. The floor is yours to lead the votes.
Speaker 45
Thank you, dear Chair. Before we proceed to the vote, we will start with a test vote. I open the vote. Yes. This is a test bot.
Speaker 1
So, the close of the vote. Okay. We can now proceed to the voting session, and we will start by showing the end. Compromise Amendment One. Who is in favor?
Who is against it? Who abstained? Adopted. Okay. So, amendment in TAF 4.
Who is in favor? With, against, or abstain? Adopted. INTA five, who is in favor? With, against, or abstain?
Adopted. INTA seven, who is in favor? With, against, or abstain? Adopted. INTA 8, who is in favor?
Who is against it? Who abstained? Adopted. We move to compromise three. Who is in favor?
Against? Abstain? Adopted. Compromise four is in favor. Against: abstention, it is adopted.
Compromise five was in favor. I was against it. Who abstained? Adopted. Compromise.
Six were in favor. I was against it. We abstain. Adopted. Amendment.
Speaker 1
Who is in favor? Who is against it? Who abstained? It is adopted. We can check if you want.
Speaker 1
So, we move to compromise two. Who is in favor? Who is against it? It is adopted. INTA one.
Who is in favor? Who's against it? Who abstained? Adopted. Is INTA two in favor?
With or against. Who abstained? Adopted. Final vote by a whole call. Voting is open.
The vote is closed, and it has been adopted. Thank you. Now, we can proceed to the vote on the mandate to enter into inter-institutional negotiations. The vote is open. By roll call.
Speaker 46
And the bot is closed, and it is adopted. Congratulations. Now, I give the floor to the Liberté Chair. So, please, just one second, your attention. We have to proceed to another vote.
It will be a Libby Econ vote. So please, the member of the envy committee, take off your card to make sure that we can proceed with the vote. Okay. So, we will move to this joint committee meeting, a call on Libbey meeting. We will start with the adoption of the agenda.
Speaker 1
If there are no remarks, the agenda is adopted. Today, interpretation will be available in 21 languages. The corporate report of this file is Ms. Sivaldini for Econ and Christian V. Guinness for Libbey.
The vote will be an electoral one. If successful, it will be followed by the vote on the mandate to enter into inter-institutional negotiation. Before we proceed to the vote, I will give the floor to them for one minute each if they wish so. So, we will start with Miss Vivaldinich. The floor is yours.
She's not here.
Okay.
Speaker 1
She's not here. So, I will give the floor to the co-reporter, Mr. Do you know if he is here? Mr. Vigenio ?
He's here. Okay. So, welcome. I give you the floor for 1 minute.
Speaker 48
Thank you, Chair. The adoption of this proposal would mean that, in the future, mid-cap critical infrastructure companies in the fields of energy, transport, water, and more can also benefit from simplified SME requirements and extra guidance in fulfilling their obligations. We take the opportunity to formulate a clear and future-proof definition for small and mid-cap enterprises so that it can be used consistently going forward. This will become a reference point for EU law in the years to come, while preserving a supportive legal framework for small and medium-sized enterprises. I would like to thank the Corps Aperture and the Shadows for the very fruitful work that we've done together.
Speaker 47
And the work on this omnibus, in general, is a good example of how we can achieve good results in good spirit for Europe and for European citizens. Thank you.
Speaker 1
Thank you, dear Botter. And I will now give the floor to the chair of the Libbey Committee.
Javier Zarzalejos
Thank you, Chair. Well, we can clearly see that this is a quorum. The voting system has already been tested. So, we start the voting session by raised hands, and we start with Compromise Amendment 2: in favor, against, abstentions, adopted. Then, Compromise Amendment three was adopted in favor, against, and abstentions.
Then Compromise Amendment Four was adopted in favor, against, and abstentions. Compromise Amendment One, in favor against abstentions, was adopted. Then, we vote on the proposal as amended. That will be a roll-call vote. The vote is open.
The vote is now closed, and it has been adopted. And then, we vote on the mandate to enter into the institutional negotiations. Again, the roll call vote is open. It is now closed, and it is also adopted into inter-institutional negotiations. If that's all, the session is concluded.
Thank you.
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