In terms of objectives, three main and one subsidiary areas were identified. Wholesale markets where the prize is cheaper, more flexible financing arrangements for corporates and where the 'present mass of barriers needs to be stripped away'. Retail markets 'rather than attempting harmonisation of products, mutual recognition … should be pursued' with 'progressive harmonisation of marketing and information rules'. Supervisory structures 'market integration has pushed the issue of reinforced EU collaboration to the forefront' and the highest standards of prudential regulation need to be maintained. General conditions for an efficient EU financial market such as Corporate Governance and Taxation.

For the Action Plan to deliver on its promise it will be essential not only to have legislation in place but for that legislation to further the aim of market integration by eliminating existing impediments rather than the legitimisation of existing impediments or creation of new ones. In other words, the goal is good legislation, not just any legislation.

The Commission's Fifth Progress Report on the Action Plan, 30th November 2001 [COM(2001)712 final] highlighted the need for "a broad and critical mid-term review … of what has been accomplished, what benefits of integration there are and what still needs to be done. Political action must follow."

A mid-term review with the financial industry took place on 22nd February 2002. It

Barcelona

The rhetorical context for the Barcelona Council meeting is the aspirations articulated at Lisbon in 2000. The promotion of prosperity through increased levels of productivity and employment, "to make Europe the most innovative dynamic knowledge based economy in the world by 2010."

Financial Services are seen as underpinning this whole effort, not least through the provision of competitively priced capital to the enterprises which would create employment and prosperity.

Politicians inflated expectations describing the meeting as 'make or break' whereas some commentators regarded the process as already broken because of the lack of tangible progress.

In the event financial markets merited one paragraph (No.35) in the Presidency Conclusion. The Council:

In addition, in the context of entrepreneurship and competitiveness (paragraph 15) comment was passed on the possible adverse effects on SMEs of the Basel proposals. The Commission was requested to produce a report on the general economic consequences of the Basel proposals with particular attention to SMEs.

Whilst Council Members have portrayed the outcome of Barcelona as a success, responses at large have been more muted.

WHAT REMAINS TO BE DONE

Keep the key objectives in mind.

It is worth reiterating what the objectives at stake are:

As underscored in all Council statements since Lisbon, these are not merely desirable ends in their own right, but the key foundations to building a prosperous Europe with a thriving economy which will benefit and be supported by all its citizens.

Make Lamfalussy Work

Agreement between the three institutions was a necessary but not sufficient step. There are three key issues still to be addressed:

Basel

The Basel Committee's review of international capital adequacy standards is proving to be more drawn out than anticipated and a conclusion is not yet assured. What is certain is that, at least in the wholesale markets, which are global in nature, a delay in implementing Basel in the EU by way of a new Capital Adequacy Directive, or a Directive which is significantly different to the Basel Accord, may well prejudice the European financial services industry vis-à-vis their US and other third-country competitors. If it is significantly disadvantaged then the ability of the EU's financial services industry to provide capital to industry to deliver on the Lisbon agenda will be impaired.

Wholesale - Retail dichotomy

In many respects the wholesale market is already a global one. Uniform market practices and corporates' ability to choose applicable law and jurisdiction with relative ease cut across national and regional boundaries, although legal and regulatory barriers in the Member States significantly add to the cost and risk of doing cross-border business even at this end of the market. In this context the challenge for the EU is to remove remaining barriers and to preserve the right environment within the EU to allow the market to flourish here. Damage to the stature of particular financial centres in the EU such as London, Paris, Frankfurt or elsewhere should not occasion Schadenfreude in any quarter. On the contrary, it should be a cause of deep concern for us all.

The retail market is different. As the EFSRT (European Financial Services Roundtable) sponsored report highlighted, besides the legislative and regulatory barriers which can and should be addressed, there will remain others which are cultural which may well take beyond 2005 to meld into a single market.

Accounting

Comparable and reliable financial information is fundamental for cross-border investment. In the interest of common accounting standards in Europe, the proposed directive is to be welcomed. But the problems for those European companies that apply US-GAAP will be solved only if until 2005/2007 an understanding with the US authorities on truly global standards can be reached.

Supervision

A final piece of the jigsaw is the thorny question of the nature of supervision. A number of alternatives to the Lamfalussy approach, if it should prove inadequate, have been suggested:

Serious questions which have been raised about these proposals include:

Discussion of these institutional issues is likely to continue up to the IGC in 2004, when a review of the Lamfalussy procedures will be undertaken. The important point to bear in mind is that any institutional arrangement for supervision should meet the dual tests of ensuring market stability and investment protection on the one hand, and promoting efficient, competitive markets on the other.

Conclusions

There has been progress on the FSAP and there remains strong but sometimes rhetorical support. In the coming months and years the underlying objectives need to be kept firmly in mind:

Regulation and alternative arrangements supported by market forces needs to promote these objectives and do so in a proportionate, flexible and consultative fashion. All three EU institutions have an important role to play in ensuring that this happens.