Transparency & Accountability • 21 May 2019
#EP2019: Will you stand up for financial justice?Back to overview
The objectives of the European Union are being diverted from its foundations as a union for peace and solidarity, towards servicing the interests of the financial elite. As part of the Citizens for Financial Justice network, we’re calling on European election candidates to stand up for financial justice and pledge to put people before profit:
The European Union sometimes flies under the radar as a global financial actor. The truth is very different. The European Investment Bank lent €55 billion in 2018, making it the world’s largest international public lending institution.
And meanwhile, the EU, together with its member states, gave €75.7 billion in aid in 2017, making it the world’s largest donor. €15 billion of this came from EU institutions alone. These funds should be used for the benefit of citizens in both Europe and in developing countries where they are invested, rather than for the interests of banks and shareholders.
The European Union’s response to the 2008 financial crisis saw the burden for private lenders and financiers losses moved onto the shoulders of ordinary citizens. Banks were too big to fail, and citizens paid the price in terms of austerity, cuts to vital public services, and the privatisation of infrastructure, leading to a reversal of years of improved well-being.
Founded on human rights
It is important to recall that the European Union’s founding treaties are based on the respect of universal human rights in all of its operations, including in macroeconomic, debt, investment, tax, and budget policies.
The EU is also a signatory to the Paris Agreement and the 2030 Agenda that establish both internal and external obligations to aligning financial regulation and investments with human rights and the SDGs.
However, we see very little of such alignment in practice, with a continued push for profit-making rather than well-being and rights-enhancing investments and financial regulatory policies.
The objectives of the European Union are being diverted from its foundations as a union for peace and solidarity, towards the servicing of the interests of financial elites.
Ending financial injustice
Our mission as civil society organisations is to end the power imbalance which allows financial injustice to continue, by mobilising citizens across Europe to speak up for a better system, in which finance serves people – not vice versa.
Financial justice pledges for European election candidates
As a candidate in the forthcoming European Parliament elections this May, we call on you to pledge to stand against big finance and for financial justice.
I pledge to stand up to vulture funds by pushing for EU-wide legislation that limits their predatory practices.
What is a vulture fund?
Vulture funds are specialised investment funds that buy defaulted or distressed debt at highly discounted prices, and then try to secure high returns through a number of aggressive methods including legal action.
These funds have been notorious in undermining timely and orderly resolution of sovereign debt crises, impacting the ability of developing countries in particular to safeguard development priorities and human rights.
Why they need to stop
In the wake of the Eurozone crisis, public funds indirectly financed vulture fund profits in Ireland and Spain, while in Greece, vultures netted huge profits both through attractive bond exchanges and their traditional holdout tactics. Some EU states, such as Belgium have enacted laws to limit the illegitimate practices of vulture funds on sovereign debt, and in 2018, the European Parliament called for corresponding EU-wide legislation.
Across the European Union, vulture funds have also played a detrimental role in financialising infrastructure and basic services such as housing, notably by buying up non-performing loans from over-extended banks, keen to clean up their balance sheets.
The European Commission is now proposing a ‘Non-Performing Loans’ Directive which would effectively formalise a practice which has seen countless home loans moved out of high street banks, and onto the books of less-regulated shadow banks’ books. This is a poor and risk-laden attempt to resolve the continued debt and mortgage crisis faced by banks across Europe.
As a candidate for the European Parliament, we are calling on you to pledge to put the needs of people before the profits of vulture funds and:
- Call for and support EU-wide legislation to combat speculation and litigation by vulture funds on sovereign debt, building on existing national level laws.
- Oppose the extension of markets for vulture funds under the proposed Non-Performing Loans Directive.
I pledge to support efforts that make the European Investment Bank work for people, not corporations.
What is the European Investment Bank?
The European Investment Bank (EIB) is the financial arm of the European Union – the EU Bank – and it’s the largest multilateral lender in the world. As a public bank, the EIB is mandated to use its investments to drive public policy goals. Unfortunately, currently, the EIB remains a largely unaccountable institution. This needs to change.
As a candidate for the European Parliament, we are calling on you to back root-and-branch reform of the EIB, including:
- Making the EIB a climate leader by ensuring its investments align to the Paris Agreement and accelerate a fair transition, instead of continuing to invest in dirty fossil fuels;
- Prioritising Human Rights: the Bank needs to reinforce its due diligence at project level to ensure the projects it supports respect core values of the EU external action and do not further Human Rights violations.
- Democratising the EIB by creating mechanisms for citizen participation in its decision-making, and by enhancing oversight mechanisms to allow, in particular, the European Parliament and the Court of Auditors to better scrutinise its decisions and hold it to account;
- Making sure that EIB loans fully comply with the United Nations’ responsible sovereign lending principles, and are easy to restructure when a borrower country faces debt crises.)
I pledge to oppose the creeping privatisation of the EU’s aid budget, and ensure aid is not used to line the pockets of big corporations.
What is the privatisation of aid?
The European Commission has made much of its plans under the 2021-27 Multi-Annual Financial Framework, to increase its overseas spending by close to 30%. But along with this, has come an increasing emphasis on using for-profit, private corporations to deliver aid, and on ‘blending’, i.e. of subsidising private loans with public money from aid budgets – often in a manner which exposes countries in the Global South to debt and financial instability.
The EU’s aid spending should not be used as a tool to facilitate private investment opportunities. Public-private partnerships (PPPs), have been shown to be more expensive and less effective in achieving their objectives. In addition, they have been shown to increase hidden debt levels for governments in the global south, and increase those countries vulnerabilities to international financial shocks.
The future of EU development finance architecture is currently being discussed in the context of the post-2020 EU budget and by a High-Level Group of wise persons. In this context, the Parliament adopted a revised Neighbourhood, Development and International Cooperation Instrument in which it reinforced key principles and standards to make it a pro-poor and development-oriented instrument.
Nevertheless, key concerns remain about the priority given to public-private partnerships, publicly-backed private finance and blended finance in this prominent future instrument of EU aid policy and delivery.
Therefore, we call on you, as a candidate for the European Parliament, to push for an accountable and transparent development finance architecture which prioritises the sustainable development and well-being of citizens and territories where investments are targeted.