Banking and finance key to sustainable reconstruction and recovery after COVID-19

Just before the summer break, Commissioner Mairead McGuinness joined an extraordinary meeting of the Diversity Europe Group of the European Economic and Social Committee (EESC) to debate the role of finance and banking in Europe's recovery. The Commissioner for Financial Services, Financial Stability and Capital Markets Union talked about the Commission's response to the COVID-19 pandemic, gave some insights into its ongoing and future initiatives, and engaged in a lively debate with Diversity Europe members.  

In his welcome address, Diversity Europe Group president Séamus Boland got the ball rolling by asking if there could be recovery across the board in the Member States given the diversity of their economic situations. Mr Boland pointed to high levels of debt in the Member States and recommended considering the role that conventional and alternative banking systems could play in the financial recovery, especially for small socially minded businesses, the social economy sector and SMEs. The Group president saw the need for a shift to financial and banking systems that take more account of citizens' choices and preferences.

Commissioner McGuinness addressed different aspects of finance and banking in Europe's recovery from the public health crisis. She pointed out that the role played by the financial system in the recovery was crucial for a sustainable future.

There is a lot of money looking for a home. We would like that money to flow to sustainable economic activities and to social investments. The pandemic and the consequences of climate change have raised awareness about the need to redirect money towards sustainability so that economies, businesses and society become more resilient to shocks. One of Ms McGuinness' key objectives is the promotion of financial literacy.

Referring to the Commission's Fit for 55 package for implementing Europe's climate goals, the Commissioner noted: We need companies, both in the financial and non-financial area, to step up. Clarity was needed about what companies are doing to make themselves more sustainable.

The Commissioner said that the pandemic had brought about a tremendous acceleration in digitalisation, particularly in the financial system. Financial stability is crucial. We are looking carefully at these innovations, which are positive, but equally we have to manage the risks that can arise from innovation and make sure that we protect citizens, she explained.

The Commissioner accepted that there was work to do on issues such as the Banking Union and the Capital Markets Union. We need to have a stronger Banking Union. We also need alternatives to bank lending. Our capital markets are not fully developed and that's something we need to look at. The Commission is also mindful of the regulation of local and cooperative banks and asset price inflation.

A number of members took the floor during the debate with the Commissioner. Ioannis Vardakastanis, vice-president of the Diversity Europe Group and of the bureau of the EESC's ECO section, stressed that recovery efforts need to address existing problems that had been exacerbated by the pandemic. He said that borrowing must become possible again and warned: There will not be any economic or social recovery in Europe if financial and banking actors do not work together in the interest of the economy and society as a whole.

Giuseppe Guerini, spokesperson for the EESC's Social Economy Category and member of the EESC's ECO section bureau, said: There is a lot of speculative finance that's becoming more interested in ethical investment funds and in the social economy, and that has to be part of the Banking Union and the Capital Market Union in the EU. Regarding the digitalisation of finance, it was important to strike a balance between the necessary regulation and the need to encourage innovation.

Other members asked questions or commented on issues including:

  • the Commission's action plan to tackle non-performing loans;
  • the EU Taxonomy for sustainable activities, e.g. in forestry and agriculture;
  • the role of financial advisors and the regulations applicable to them;
  • the future of the financial sector in view of digitalisation; and
  • the future of the Banking Union and Capital Markets Union.

In response to the many questions from Diversity Europe Group members, Commissioner McGuinness said that the Commission was working hard to avoid a financial crisis as a result of the pandemic. It was important to prevent a build-up of non-performing loans on bank balance-sheets: Our work on trying to develop European secondary markets for non-performing loans is important and we need to have a strong protection of the borrower in all of this.

Addressing members' concerns on the EU Taxonomy for assessing sustainability, Ms McGuinness said large and small businesses should see the taxonomy as a management tool to show how you can transition towards being sustainable, stressing that it did not force businesses to do anything, but that sustainability was the only viable course. The taxonomy is a living document, and work is ongoing at international level to get partners on board in the fight against climate change. The Commission is also looking at a transitional taxonomy to address issues raised by the EU Taxonomy.

In the context of sustainability, the Commissioner also encouraged businesses to review supply chains to identify vulnerabilities and make changes in their structures where necessary.

On the role of financial advisors and kick-backs for financial advice, Ms McGuinness was reassuring: We are conscious of the potential for inducements to influence advice and therefore we are looking at this very crucial issue.

Finally, Ms McGuinness announced the Commission's intention to present a proposal on an initial public offering (IPO) for SMEs by the end of the year as part of its efforts to ensure access to finance for them.

The Commissioner summed up: There is a role for all of us to make sure that our citizens both understand and are part of the journey to sustainability, and that we leave no one behind. Financing the recovery needs to take account of the different starting-points, as the impact of COVID-19 has varied within and between Member States. We have to use this crisis to change for the better", she underlined. "We in Europe have the resources and the capacity to make these changes. So let's face this daunting but brighter future together.