In the midst of the European Union's efforts to restore confidence in its ailing banking system, the revelations about the US' extensive spying network against EU institutions and embassies require urgent damage control from Brussels.
Point 1: the European union wields a strategic "soft power" and is capable, as it hosts the largest consumer market worldwide, of influencing globalisation through the promotion of norms and regulations. Point 2: the EU, now composed of 28 countries with the accession of Croatia on 1 July, retains great confidence in its capacity to restore the credibility in its financial institutions, more than three years after the start of its sovereign debt crisis, inflamed by Greece's abysmal deficit, first revealed in May 2010. These two points are the main themes behind the Asia-Europe Meeting (ASEM) process and the EU campaign to promote its business interests in Asia through free trade or partnership agreements with Japan and several ASEAN countries.
In part, these assumptions are true. According to observers, the decisions approved on 28 June by European leaders is evidence that things are finally changing on the continent. After lengthy negotiations, largely hampered by each governments' desire to safeguard its own banks, taxpayers and reputation, the EU has finally decided to require financial institutions to contribute to the Community's coordinated national resolution funds, to place the ultimate supervision authority for the single currency area in the hands of the European Central Bank (ECB) and to warn banks' shareholders and creditors that they will not be systematically bailed out if a new crisis erupts.
The official message behind this action is that the European Union intends to become a stronger "financial policeman," and will not let its taxpayers become victims of a new round of financial follies. Risk-prone investors, pension funds, national funds - among them wealthy Asian individuals or institutions - shall bear the brunt of the responsibility if things turn sour again. And they shall contribute to a reliable bank insurance system based on those national resolution funds, expected for the end of 2014, to avoid being trapped in a future systemic shock.
Well, not quite. Because once again, the devil is in the details and in the implementation of these complex financial regulations. The pivotal European set of treaties may even have to be renegotiated. But more than this, true European...