EU Pushing Finance Deregulation in Third World
Online Publication Date: 16 March 2009
EU Observer, 11
pushing finance deregulation in third world
BRUSSELS — While EU and other global
leaders have talked tough about re-regulating the financial sector in the wake
of the economic crisis, they remain committed to pushing through banking
deregulation in the developing world via trade deals.
This strategy is
undermining poverty reduction in these countries and is reproducing the same
type of circumstances that led to the crisis in the first place, warns a new
report published on Wednesday (11 March) by the World Development Movement, an
UK-based anti-poverty NGO.
Both via the WTO negotiations on a General
Agreement on Trade in Services (GATS) and potential EU bilateral or regional
trade deals with 34 countries in Latin America, Asia and the Mediterranean, the
bloc continues to push for the lifting of restrictions on how Western banks
operate in developing countries.
The EU In 2002, via "GATS" global trade
talks, requested that 94 countries open up their financial industry, 20 of which
were least developed countries and 30 were low income countries.
financial services component of GATS would mean that countries would not be able
to introduce new rules that are more restrictive than those already operating,
making it difficult to pass laws on risky trading such as "short-selling" or to
limit the numbers of service providers or the number of transactions.
new financial services would also have to be permitted, giving the green light
to the very same complex financial products that have been held responsible for
the creation of the toxic asset problem in the north.
Also under GATS,
full ownership by foreign banks would be allowed, which can make it hard for a
host country’s financial supervisor to monitor the foreign bank’s activities and
to ensure it is acting in the interests of the host country.
Even in the
EU, the problem of foreign bank ownership is exacerbating the crisis in the
east. The tap of credit to much of eastern Europe - where most of the banks are
owned by Austrian, Swedish and other EU parent companies - today has been all
but turned off, as the owners focus on provision of credit in their home
After seven years of talks, however, countries are still
haggling over a GATS deal, and the EU has sought bilateral and regional trade
deals to get over the impasse.
The bilateral strategy, known as "Global
Europe," seeks to remove regulations on European financial service companies,
along with other liberalising measures in a range of sectors, in case a deal at
the WTO level is not reached.
The EU trade deals already signed with
substantial chapters on financial services, while the Caribbean Economic
Partnership Agreement with the EU signed in October last year contains many of
the financial liberalisation clauses proposed in GATS. Similar pressure on
central American nations is being brought to bear to open up their financial
The report reveals that where banking liberalisation has
occurred, looking in particular at India and, crucially, Mexico - home to one of
the most liberalised financial sectors in the world, with 80 percent foreign
ownership, poor people and small businesses see their access to credit, bank
accounts and other financial services restricted.
At the same time, where
such credit does exist, it is in the form of credit cards, car loans or
mortgages, boosting spending on consumer items rather than productive sectors of
the economy such as farming or manufacturing.
On Monday (9 March),
Minister Gordon Brown himself spoke out against the "do as we say, not as we do"
attitude of Western countries regarding economic policies promoted to the
At an international development conference in
London, he announced that he would
push the World Bank and other wealthy nations to create a new fund for
developing countries to help the poor through the crisis, although he did not
attach any figures to the idea.
While there, he criticised the imposition
of "economic orthodoxy" on the developing world.
"Too often in the past
our responses to such crises have been inadequate or misdirected - promoting
economic orthodoxies that we ourselves have not followed and that have condemned
the world’s poorest to a deepening cycle of poverty," he said.
Development Movement (WDM) however, says that there is an acute contradiction
between such leaders’ words and deeds in pushing for financial deregulation in
the third world.
"On the one hand, Gordon Brown has developed a mantra of
tough talk on the re-regulation of banks," said Benedict Southworth, the
director of WDM. "On the other, together with other European leaders, he is
aggressively pushing free trade deals which demand that developing countries
follow a deregulated and liberalised banking model."
"That model has
clearly and spectacularly failed here and has also failed poor people in the
developing countries," she added.
The study highlights how the presence
of European banks in developing countries has resulted in foreign banks
cherry-picking the richer customers, resulting in an overall decline in services
and credit for others, and notably to rural areas.
In urban areas where
foreign banks are concentrated, low-income householders and small businesses
struggle to meet the criteria to open an account, let alone to receive a
In response, WDM is calling for financial services liberalisation
to be reoved from from proposed bilateral and multilateral EU trade
An official with the European Commission told EUobserver that they
were studying the report very closely, but that the report’s authors had
"confused liberalisation with deregulation."
"Market access for European
financial service providers in no way restrains the ability of countries to
regulate financial services," the official said. "The question is whether such
moves become protectionist."