Although pressure has been rising to address the perils of low inflation, the European Central Bank held rates steady (April 3) at its meeting, but its president, Mario Draghi, emphasized the bank stands united in taking steps, including unconventional ones that include asset purchases, to combat inflation.
The euro was welcomed at birth on Jan. 1, 1999, as a new financial currency (coins and banknotes were issued three years later) and hoped by its promoters to be an alternative to the dollar, which had reigned as the world’s primary reserve currency since the 1944 Bretton Woods agreement. In its early years, the share of global official foreign exchange reserves denominated in EUR rose rapidly, while those in USD declined. But the Euro-zone debt crisis threatened, from late 2009, the euro’s very existence, making any speculation that it might replace the dollar as the world’s principal reserve currency seem a bad joke. The existential threat to the currency and even the European Union (EU), forced Euro-zone governments, the European Central Bank and the banking system to forge a more credible governmental, financial and regulatory structure to support the euro. 
The European Union’s long-delayed overhaul of megabank regulation now proposes curtailing or banning the riskiest financial activities in hopes of avoiding a repeat of the 2007-2009 global financial system meltdown.
Until now, the post-crisis EU banking reforms had not acted to rein in “too big to fail” banks, focusing instead on establishing a new regulator, the European Banking Authority; stepping up capital provisions to help banks weather economic shocks; launching a mechanism to bail out problem banks; imposing limits on bankers’ compensation as an antidote to the “more pay more problems” phenomenon; and, starting a common deposit guarantee. EU-based banks must also adhere to new global standards, notably Basel III capital requirements  These include a “leverage ratio” designed to curb banks’ reliance on debt by setting a minimum standard for how much capital a bank must hold as a percentage of its assets.
Alternative financing portals are proliferating throughout the European Union as more and more investors put their toes in the water of a new generation of high-risk start-ups they hope become a Skype, Rovio or Storify one day. With interest growing exponentially, though, questions are emerging about the adequacy of investor protections that new national regulations plan to address. The challenge ahead is to implement such protections without burdening entrepreneurs with regulatory overkill.
At the very moment when revelations about François Hollande’s private life were shaking up Paris, his radical political swing to center right policies have created even more surprise--from both supporters and opposition. Hollande has moved dramatically from his initial course of spending for social benefits and reducing unemployment by creating public sector jobs, and piling on tax increases for businesses, investors, and consumers. The French socialist president has invited his government to switch gears.
© COPYRIGHT THE EUROPEAN INSTITUTE 2009
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