panies became much more aware of a market need driven by the internationalization
of business. However, the EU instead of gaining from this new perception, also lost
as far as writing its own accounting rules was concerned in that the market pressure
is for global standards, and makes regional standards redundant. It is remarkable, for
example, how quickly Germany reacted to its multinationals’ needs to have interna-
tionally-based consolidated accounts by changing the law in a matter of months in
1997–1998, when it labored over introducing the Fourth directive for nearly ten years
in the 1980s.
The second cycle of harmonization seems to be quite different in that it primarily
addresses the needs of the capital market participants to have transparent, compara-
ble information to improve the effectiveness of investment decisions. By adopting
IFRS, the Commission avoids both the need to develop its own rules, and the prob-
lem that once they are enshrined in EU law it is an extremely long process to amend
them. If unlisted companies take the same route, this will probably be motivated by
their own wish for that, rather than because harmonization has been forced on them.
However, the new cycle is far from being without many dangers. Politicians may
find it difficult not to intervene in the endorsement process, or at least use the threat
of intervention as a bargaining chip, so the passage on IFRS into the EU may be prob-
lematic. After that, there will be the questions of enforcement and interpretation of
IFRS, where once again national habits and preferences are likely to come to the fore.
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