1. The EUs policy response to the financial crisis Karel Lannoo CEPS www.ceps.eu

2. 2 First phase of crisis Until mid-september: denial Crisis was US phenomenon 21% of subprime losses with EU-27 based banks, or 0.4% of assets Finance ministers reacted with roadmap More tasks for supervisory committees Trust in Colleges of Supervisors for CB banks Updated MoU (with 113 authorities) But no willingness to change institutional structure Regulatory changes CRA proposal Modifications to CRD Deposit guarantee schemes

3. 3 Steinmeyer, NY, 24/09/08 the solution to the present crisis must be sought first and foremost in the United States." The turmoil has dealt, he said, a serious blow to "the self-image of the motherland of the free market".

4. 4 Full-blown systemic crisis Reaction at national level, Europe was invisible Single market backfired against EU No European leadership - sauve qui peut No European solidarity: variable geometry in deposit protection schemes Eurogroup meeting (Oct 12) provided some coordination No European bail-out plan, variety in approaches Compare UK, French, German, Spanish, Dutch, Italian,... plans Non-discrimination ensured? Huge competition policy implications! Conditionality? Huge regulatory failures and supervisory shortcomings Too high leverage in banking, Basel ratios provided no comfort Massive moral hazard behaviour

5. 5 Spilling over to real economy Dramatic decline in growth perspectives From stagnation to recession Rapid return of the Big State Growing state aids to real economy bn for banks > bn for industry Growing protectionism Call for more Social Europe Impact on public finance Impact on evolution of EU integration