Local view for "http://purl.org/linkedpolitics/eu/plenary/2004-02-11-Speech-3-160"
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"en.20040211.6.3-160"2
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"Mr President, Commissioner, ladies and gentlemen, in his ‘A Short History of Financial Euphoria’, John Kenneth Galbraith denounced the belief according to which, and I quote, ‘economic success and intelligence go hand in hand’.
The Parmalat affair is the perfect illustration of this because the founder of Parmalat appeared to have economic success. The financial world, the media and political circles were satisfied with the appearance of success, and neither the auditors, nor the bankers, nor the rating agencies, nor even the Italian regulators questioned the accounts published by Parmalat. The list of companies that have deployed, above all, their criminal intelligence to deceive euphoric financial markets has become extremely long in recent years.
From Enron to Parmalat, there is no end of apparently respectable companies that have ended up by massaging their accounts so as not to suffer setbacks on the stock exchange. All these financial scandals are the product of the belief, spread by the markets, according to which it is possible, at no risk, to become very rich in a very short space of time. Now, large profits are generally the result of taking large risks and, when the risks produce not profits but losses, there is a great temptation temporarily to hide those losses in order quickly to offset them by a profit based on still greater risk-taking.
By mobilising all the resources of financial engineering, losses are allocated to special vehicles, turnover inflated through phoney operations, such as Parmalat’s phantom sale of milk powder to the Cuban regime, and non-existent profits shown thanks to creative accounting. Faced with these scandals, the business world is still affected by the same short-sightedness.
I was Parliament’s rapporteur for the Directive on market abuse and insider dealing. In that role, I asked around in financial circles and received an impressive number of lobbyists. Often – in fact, too often – I heard, at that time, that Enron was only an isolated case and a product of the irrational exuberance of the American market, but that Europe was quite different. We now know that criminal energy is divided equally between the two sides of the Atlantic.
There is only one way of preventing financial scandals. Europe, the United States, Japan and all the important financial centres must cooperate. Transparency is needed, together with a constraining regulatory framework imposed also upon tax havens, offshore centres and other black holes of international finance. It is not a question of banning the Caribbean or Pacific islands from playing with the big boys and offering facilities to the business world, but of prohibiting the big American, European and Japanese banks from financing anything through bogus companies situated in unsupervised and unregulated islands, if these banks are unable to guarantee that these operations are lawful.
The tool for achieving this should consist of new rules governing the
capital adequacy for banks, that is to say what is known in our jargon as the Basel II agreement. Conflicts of interest between the various supervisory and auditing functions etc. should also be avoided, but it is not a question of punishing the banks and other financial operators. Especially if we want it to have a social dimension, the market economy needs enterprising entrepreneurs and innovative financial circuits to fund them, but everything must be done to manage these markets in such a way as to ensure that employees, subcontractors, suppliers and shareholders do not become the victims of financial crime operating under the cloak of respectability."@en1
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