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Naughty Germans

At least two years after the UK and most other good European states, Germany may finally implement two EU directives that are vital to safer, fairer and more harmonious European finance. Who has gained and who has lost from the delay? David Shirreff reports.

Eurocrats in Brussels enjoy the thought that Germany could face fines of Ecu250,000 ($287,500) a day for failing to implement the EU's investment services directive (ISD) and the capital adequacy directive (CAD).

They regard it as "disgraceful" that such a key member of the single European market is two years late, and they want some revenge. Enforcing these two directives ­ designed to harmonize standards of investment services, risk management and soundness of financial institutions across the EU ­ is hard enough without one recalcitrant member adding to the disharmony.

The situation adds little to Germany's reputation as a financial centre, and will keep the playing field decidedly unlevel for at least the next 18 months. German banks have the advantage of noncompliance with the CAD's crude and expensive market risk requirements. German securities firms continue to be unregulated except at a rudimentary provincial level. One German banker's advice to indignant foreign competitors: "Relocate here and enjoy the advantages while you can."

Most EU countries have implemented the two directives, which were supposed to come into force in January 1996. Germany is the only country to have delayed on both. And it hasn't yet responded to a "reasoned opinion" sent by the European Commission (EC) in February.

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