Interview: MEP decries 'populist' MiFID II regulation
"Political actionism" is clouding members of the European Parliament's (MEPs') judgement over regulation of the energy market, according to Holger Krahmer, a member of the European Parliament's Committee on Industry, Research and Energy (ITRE).
The upcoming vote on the draft text of the second Market in Financial Instruments Directive (MiFID II) has caused bitter divisions between opposing camps in the European Parliament, in particular over exemptions from the regulation for non-financial firms.
Markus Ferber, the special rapporteur for MiFID, is seeking to bring as many trading institutions and financial instruments as possible within the scope of the directive, despite strong objections from energy market participants.
Ferber derided commodity speculation as a "horrible thing" and declared that there is "no need" for financial speculators in energy markets in an interview with ICIS (see EDEM/ESGM 8 March 2012). His hard-line stance comes as little surprise to Krahmer, who dismisses such thinking as a "typical political reaction" to the recent financial crisis.
"Many people think that financial market activities are the reason for the current crisis, but the opposite is true. Speculative activities are following wrong developments such as too-high deficits, as well as the consequence of central banks printing a lot of money - which creates speculation bubbles in different markets.
"It is a typical political reaction not to go back to real sources, real reasons. From my point of view, we are now addressing the wrong activities [with the proposed text of MiFID II]."
Unfair target
The ITRE's draft opinion on MiFID II, which was published in April 2012, calls for significant amendments to be made before the MiFID II text is presented to the European Parliament's Economic and Monetary Affairs Committee (ECON) ahead of a 9 July vote.
Krahmer supports the broad principle of regulation, but calls for such measures to be more balanced and far less bluntly applied than the draft text proposes.
He believes that the energy market is being unfairly targeted by the likes of Ferber, whose "populist" approach Krahmer sees as doomed to create "collateral damage" in the marketplace.
Ferber's belief is that if physical players engage in speculative activity, "they are behaving as banks [and so] should be treated as banks". However, Krahmer is adamant that, unlike the international banking system, there is no systemic risk posed by the energy market, and that the MiFID II regulation needs to reflect this major difference in its approach to energy trading. Exempting physical players from MiFID II is of paramount importance, said Krahmer, in order to prevent smaller firms being forced to exit the marketplace.
"In other debates [at the European Parliament] we say very strongly that we need more competition in the energy markets, that we need decentralisation, that we need smaller units there as competition. But if we overregulate the financial market directive, the consequence will be that smaller companies are not able to fulfil the administrative burdens and the costs [and cease market operations]."
EU exit
Attempts to standardise financial instruments used by the energy industry could also backfire, according to Krahmer.
"Bigger players will move to a separate market outside the EU, to third states and regions where the regulation is not so tight it is not possible to standardise the gas and energy business - the majority of this business will be covered by over-the-counter [OTC] derivatives.
"We have to acknowledge that we create collateral damage with the financial market regulation if we go too deep into the business of industrialists and energy companies. At the end of the day, we will not achieve the target of what we want to achieve [instead] we will destroy business."
Lobby
Financial market regulation will create a "bureaucratic monster", Krahmer said, who describes himself as a "business-friendly liberal".
Industry sources see Krahmer as one of the few MEPs working on MiFID II with whom they can have an honest and constructive dialogue. Krahmer himself "feels like I'm the only one [in the European Parliament] who has an open door for that issue."
"We need our industry in Europe, we need our energy business, and there is no reason to penalise airlines, chemical companies and all the energy companies who are bringing benefits to the European economies."
He sees it as "crucial" that industry actors lobby MEPs on the issues at hand, in order to present their concerns to as wide an audience as possible ahead of the crucial 9 July vote.
Should the text be adopted by ECON in July, the next step towards MiFID II becoming law will be negotiations between the European Commission, European Parliament and European Council in the run-up to a plenary vote on adopting the final text in September 2012.
"There will not be a final decision before 2013," said Krahmer.
He noted that even after the plenary vote "we have to have discussions with the member states, and I hope that many member states are not willing to overregulate their energy and industry markets via financial markets regulation."
The lengthy period before the directive becomes law is one of the only positives, according to Krahmer, who is disheartened by what he perceives as lack of comprehension on the part of many of his political peers.
"This business is so very complex and many politicians who have to decide [on the issue] don't know what they are talking about. A lot of my colleagues, as soon as they hear the words OTC derivatives, they step completely out of the debate." SF
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