In September 2000 many thousands of us took to the streets in Prague to protest against corporate-led globalisation. Placards urged "people over profits" and "shut the World Bank". Vaclav Klaus, at the time Chair of the Czech Chamber of Deputies, said the threat posed by globalisation's opponents "should not be underestimated". He fumed: "I know these people want to destroy, want to complicate the situation and breach the peace and order. They do not have any other goal".

Now Klaus faces a presidency of the European Union that is considerably complicated by the collapse of the free market economic model we were complaining about. The anti-globalisation/corporate justice movement warned, correctly, that economic institutions had been captured by narrow interests, resulting in policies that were inequitable and unsustainable.

The lack of common European structures, decision-making, regulations, measures and positions has now become clear to all EU citizens, whether they work in Prague Castle, an activist NGO or a factory. The EU came into the 2008 crisis with very limited financial crisis prevention regulation and supervision in place and no unified financial crisis management. There was and is no common approach to deal with bailing out or liquidating cross-border European banks and securities.

A new study by my organisation the European Network on Debt and Development and member NGOs in three other EU countries maps in detail the mechanisms the EU has been using to govern financial and banking policies. The study, by Myriam van der Stichele from Dutch think tank SOMO, finds that responsibilities remain very fragmented with member states retaining much power while discussing coordinated or community measures in a tangle of committees with overlapping jurisdictions.

The EU has allowed the dramatic cross-border expansion of banks and other financial services companies without producing the mechanisms to keep an eye on them. There are several reasons. Some countries have many multi-national financial service operators, others merely host them. The latter have long feared loss of control over their financial markets. Countries with smaller domestic finance industries have questioned the increasing costs of regulation and supervision. Well-funded lobbying has certainly played a role in preventing agreement on a more onerous reporting and regulatory regime. Ideology has also played a part.

This is well summarised by economic historian Robert Skidelsky in the current issue of Prospect “banks, their regulators and the policymakers sitting on top of the regulators all succumbed to the ‘efficient market hypothesis’: the view that financial markets could not consistently mis-price assets and therefore needed little regulation.”

Some of this ideology found its way into the EU treaty, which provides that “the liberalisation of banking and insurance services connected with movements of capital shall be effected in step with the liberalisation of movement of capital" (Art 51). This was spelled out in more detail in a White Paper on Financial Services which sets out the European Commission’s objectives from 2005 to 2010 – to create “the best financial framework in the world” to lower capital costs, make retail financial products cheaper and improve pensions. It continued: “completing the single market in financial services is more and more recognised as one of the key areas for EU's future growth and jobs, essential for EU’s global competitiveness”.

Excessive financial liberalisation and internationalisation has now done the opposite – made several EU Member States look anything but competitive. The authors of the Nice Treaty or Commission White Paper presumably never imagined that the IMF would soon return to Europe to help countries cope with their balance of payment problems.

Developing countries are also beginning to face serious fall-out from the financial and economic downturn. European governments have long lectured impoverished countries, via the IMF and other institutions, on “the right policies” for economic governance, promoting irresponsible liberalisation attached to aid, investment and trade agreements. Will financial regulation and financial stability now be added to the EU’s priorities for “policy coherence for development”? They should be. The developing countries represented in the G20 will be very likely to insist on it, as well as significant concessions in EU governance of the World Bank and IMF.

The need for new institutions and instruments at national, regional and international levels could not be clearer. Will the European Union – in principle very well placed to promote international cooperation – be able to rise to the occasion with a new approach. These weeks, running up to the G20 summit in April, will give us a clear idea.

The European Savings Tax Directive, which provides for automatic exchange of information about consumer savings so that relevant taxes can be levied, has shown the potential when Europe acts together. But the automatic information exchange provisions in the directive (agreed in 2005) will come to be seen as baby steps when the current period of reform is over. Now it is leading politicians in major EU Member States, not just megaphone waving agitators, who are calling for far more dramatic measures including shutting down offshore finance centres or penalising companies which use them. The countries which have allowed the most aggressive financial practices – such as the UK and Ireland – are the ones now in the direst straits. They should come to future discussions humbled, and ready to listen to radical reregulation proposals.

As ten leading economists wrote to the Financial Times in October “To prevent future crises of this nature, regulation of the European financial markets and institutions at the European level will be required”. In principle, yes. But not before a major overhaul of the mandates of DG Internal Market and DG Competition, and of structures such as the obscure Lamfalussy process – which brings together the Council, Commission, Parliament, national supervisors and private sector actors. So much public money is now being poured into previously private organisations that consumers and other civil society groups have every right to expect a different set of objectives for such processes – no longer liberalisation for its own sake – and more direct participation in such fora.

On the streets of Prague we chanted “another world is possible”. Now is the time for Vaclav Klaus and his counterparts to shed their ideological or bureaucratic objections and show that is the case. Otherwise public protests will only get louder and harsher.

Strategic mapping of EU financial regulation:
Available at: http://www.eurodad.org/debt/?id=2190