Examination of Witnesses (Questions 480
- 486)
THURSDAY 13 DECEMBER 2007
Mr Charlie McCreevy
Q480 Lord James of Blackheath:
I wonder if you could give us your opinion of the European Union's
reaction (or lack of reaction) to the British Government's intervention
to provide a very substantial financing package to the survival
of Northern Rock. How does that stack up in the context of the
Union's well known attitude towards state aid?
Mr McCreevy: That matter was discussed last
week and I assume the decision is out. That will come under the
writ of my colleague Neelie Kroes who covers competition and state
aid. I am more involved in financial services Regulation. Mrs
Kroes finally decided, I think last Thursday or Friday, and we
were involved in the decision as well, that it was emergency aid.
The UK has a period, I think, until March to show that this has
to be done in the context of restructuring aid, so at the moment
it has not got any difficulty. Can I say, not because I know Mr
Mervyn King very well and I have a lot of respect for him, that
I cannot see myself what the UK authorities could have done other
than what they did. Coming from a position of being a minister
before, I cannot see any other way of dealing with it; you have
to make a fairly quick decision. The decision that was made last
week is all right for the UK, they seem to be okay, but we hope,
and it is until the end of March that the UK has got, it will
be regarded as restructuring. However, I read it in the press
that people are interested in restructuring the Northern Rock
institution and hopefully they are correct, so it should be okay
but it would not be my decision in any event.
Q481 Lord James of Blackheath:
By the time we get to March we will have passed through at least
two very important rollover dates for the funding of other financial
institutions and there may be a recurrence of the same issue having
to be addressed. We have had in the last 24 hours the announcement
of this five central-bank package raising £50 billion to
support a rescue fund. Would there be any advantage for Europe
in actively seeking to participate in that five-bank approach
to the extent that they would then require the European participants
who were contributing, like the Bank of England in Britain, to
make the contributions to the fund centrally and then it would
be allocated out from that fund so you would effectively take
the burden from the local national governments to do it and take
it upon Europe to have the funding provided by using that structure?
Mr McCreevy: That would not be possible at the
present time because there is not in Europe as we speak a central
way of regulating or supervising the regulation of institutions.
Each Member State looks after its own institutions and regulates
them. There is this vexed question which I have been speaking
about recently as to what you would do in terms of a financial
institution if, say, Northern Rock was active in six Member States.
How would the regulators have dealt with the crisis? Would the
French regulator have dealt with the queues of depositors in the
same way as the UK person? Would the Spanish regulator have done
the same with Northern Rock as other countries? There were also
two banks in Germany who had difficulties but they were German.
Their reach was within Germany and Northern Rock's reach was in
the UK. There was a little bit of spillover into Ireland but the
UK Treasury announced that Irish deposits would be treated the
same way so that solved that problem. What the central banks had
done, the US Federal Reserve, the Bank of England and the European
Central Bank, is that they have said the question at the moment
is a question of liquidity into the markets, and what really has
happened in the markets is first of all this turmoil. Banks are
not lending to one another, they are not accepting paper, and
that might be good, bad or middling, and there is a question about
their funding arrangements. What these central banks have done
is that they say they will provide funding and they will take
paper and lend to those particular banks within the jurisdiction,
and they will not name them, that might have temporary difficulties,
but they have all said that they will extend lines of credit to
one another. The US said they would send lines of credit with
dollars. That is what they tried to do but that will not have
a spillover effect vis-a"-vis the ECB. The ECB itself
would not be aware of the strength or weakness of any financial
institution. It might find out but they are not a regulator. Even
in the UK the Bank of England is not the regulator. It is a tripartite
arrangement in the UK between the Bank of England, the Treasury
and the FSA. In Germany it is something similar. I set up a single
regulatory authority in Ireland but I learned how difficult it
was to put together. This matter with the banks is going to provide
liquidity into the market and they have decided to take paper,
and they will buy this paper off the banks or whatever. It is
not a bail-out situation.
Q482 Lord James of Blackheath:
My question was directed from the point of view that there may
be others like Northern Rock that come upon us and how Europe
would react to a repeat of the Northern Rock survival package
that was provided by the British Government and whether this provided
a way round the problem so that it could be sanctioned by Europe
and still go forward.
Mr McCreevy: The other question is that if there
is another institution that is, say, active in seven or eight
Member States, who will deal with the problem? I do not like naming
a bank, but take, say, these five banks in the UK that operate
in, say, Ireland, UK, France, Germany, Italy and the Netherlands.
Suppose that institution was to get into difficulties like Northern
Rock. Each and every regulator at the present time in his own
Member State has a grip on it. The Dutch regulator knows exactly
what is the situation in the Netherlands but he is not communicating
with the regulator in London, nor with the regulator in Dublin,
and if things went wrong how would they decide what to do? The
answer to that is that it is not clear because we have not got
round to agreeing a methodology of dealing with cross-border financial
crises, and that will be a problem if it occurs. Your question
is more specific. If the British Government had another Northern
Rock I think the answer is that it would have to be judged on
its merits at the time. The UK authorities have decided what to
do and they have done it, but your question is, is this all going
to be on this whole question of state aid? I think the Commission
have enough common sense to deal with that problem.
Q483 Lord James of Blackheath:
Thank you for all of that. My other question concerns intellectual
property and patent law, and here I have to claim an interest
in that I am chairman of a company which is in medical research
and it has a lot of patents. We are finding huge difficulty in
addressing breaches of patents, particularly in Italy, and it
is a persistent problem. The only way round it, not just for ourselves
but for anybody to counter the problem of a patent breach is to
do the usual modification of your existing patent and apply for
a new one and leapfrog past the one you have got, which is fine;
we do not mind doing that. It is perfectly easy to do if you can
get the process to work, but the whole system in Europe at the
moment appears to have ground to a near halt in terms of getting
the new patents cleared through, so we cannot move at any speed
which gives us a legitimate response to the breaches in Italy.
Is there anything that can be done to speed up this process, please?
Mr McCreevy: You may have a case through EPO,
the European Patent Office, in Munich. As you know, we have been
trying for over 20 years to have a Community patent but it has
been stuck with all kinds of difficulties. We thought we had it
two years ago but it got blocked on the question of more or less
language. Most people would agree that that should be English
but other governments do not see it like that, so it got blocked.
I then tried to get around it by starting off the process with
the EPLA, the European Patent Litigation Agreement, and that got
into some difficulty last year. Just when it was about time to
throw my hat in there has been in the last four months under the
Portuguese Presidency a little bit of movement, and I do not like
to be stalwart in saying (because this has been going on now for
over 20 years) that we will get some movement in this area, but
there is a little bit more hope. At least there has been some
bit of movement under the Portuguese Presidency and we are trying
to put a number of things together. I would be very foolish to
predict that that will be solved during my last two years here,
but at least we are trying to do something. I think there are
something like over 100,000 applications not yet processed in
the EPO and we will endeavour to try and make some progress there,
but this whole thing of patent law is bogged down with great national
sensitivities, particularly from one or two Member States, but
not the UK.
Q484 Lord James of Blackheath:
Given the extent of the delay perhaps an alternative would be
to introduce a better process of correction of breaches at the
present moment by some other form of access.
Mr McCreevy: That kind of approach has been
thought about to see if we can make some progress there in this
logjam, and it is a logjam, I accept.
Q485 Lord Paul: Your commitment
to simplifying the legislation is marvellous and we are all very
impressed by your commitment to it, but is there some danger that
with over-simplification some of the countries may start applying
their own rules again, like France and Germany with gas and electricity?
Mr McCreevy: Yes. As part of the better regulation
agenda, and Lord Freeman was speaking about the simplification
part of it, each DG had to perform its own proposition. We perform
things in the area of accounts and company law and many other
areas, and some have come back to us and said by repealing total
directives we have a lack of harmonisation. Some of them might
be very complex and convoluted. By going the other route you might
end up with a situation just as you allude to that Member States
then are going to have more discretion. Our thinking was that
we would only interfere in any piece of legislation where it really
is domestic and should be left to the Member State, but other
people have come back, just as you have said, to say that where
we are attempting to do that we might end up with allowing Member
States too much discretion and we will end up with a very uneven
playing field. Either the playing field is a bit too heavy at
that level or we lower that level and there will be higher undulations,
so we are considering trying to marry the two things. It is funny
that you mention it today. I was just talking about it two hours
ago.
Q486 Chairman: Thank you very
much indeed. Your voice has held up. You have helped us enormously.
We will send you a copy of our report in due course and we are
strongly supportive of the initiatives you have taken personally
and the Commission has. We are on your side. Thank you.
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