European Policy Analysis Volume 2, Number 1, Spring 2016 | Page 43

European Policy Analysis

2012), and move their share of the market
closer to larger, more innovative vessels
closer aligned with investment banking
(Schmidt-Narischkin and Thiesen 2012).

Regarding investment strategies
for pension funds and insurers, the
current regulatory environment effectively
enforces a potentially dangerous
dichotomy. A growing share of assets has
to be invested into the safest of bonds. This
is politically welcome as it further lowers
the borrowing costs of certain European
governments (especially Germany), and it
plays well PR-wise as it ties in with macroprudential stability goals. Yet, it forces
investors who need to generate much
higher guaranteed (or at least advertised)
returns to take ever higher risks with the
remaining part of their assets, crowding
“alternative” investment markets (such
as commodities, emerging market bonds,
and so on) already saturated by cheap
central bank money and potentially
creating even larger bubbles there. In
combination, this two-pronged approach
raises the question whether capital-based
pensions will really turn out to be superior
in performance to the often discredited
1st pillar public pensions. Moreover,
the administrative costs pinpointed
by the Commission and the member
states might actually be increased by the
regulatory trend toward accounting at
market prices. Ceteris paribus, this leads
to pro-cyclical, short-term investment,
and higher portfolio turnover from which
the middlemen profit primarily—or even
exclusively (cf. Woolley 2010 for a broader

critique). Thus, the agenda for consumer
protection might, in fact, result in provider
protection. Insofar as overcoming
systemic risks in financial markets at its
core means politically guaranteeing banks
and insurers viable business models,
this is more straightforward—and more
ingenuous in terms of communicating
with voters—than it might seem at first
glance.

Undisputed as the need for
additi onal retirement provision beyond
the public 1st pillar has become for most
Europeans if living standards are to be
upheld, the open method of coordination
(OMC) by and large failed to catalyze
sustained efforts in that direction across
the union (Lodge 2007; Wolf 2014).7
Where they occurred, the benchmarking
and reporting exercises under OMC
remained ineffectual to them. Thus,
the Commission’s attempts at market
making for a Europe-wide standardized
private pension product can also be
interpreted as an admission of OMC’s
inadequacies. Ironically, though, the
over-optimistic belief in technical fixes
that hampered OMC (Lodge 2007) might
also return to haunt EIOPA and the
2nd tier. Thus, the Oxera report (Oxera
2007), commissioned by Directorate
General for the Internal Market and
Services (meanwhile renamed Directorate
General for the Internal Market, Industry,
Entrepreneurship and SMEs, or DG
GROW) in order to assess the effects of
investment restrictions between member
states on the performance of capital-

7

Only one stakeholder reacted to EIOPA’s invitation by stating that the PPP issue would be served
better by being further treated within the OMC (EIOPA 2014a, gen. com. 1)—in this case because
European regulation is argued to act as a disincentive to citizens’ saving efforts.

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