The Steep Road to European Banking Union: Constructing the Single Resolution Mechanism

in Journal of Common Market Studies (2014), 52(s1), 1-16

Banks and the False Dichotomy in the Comparative Political Economy of Finance

in World Politics : A Quarterly Journal of International Relations (2013), 65(4),

The wide-ranging Varieties of Capitalism literature rests on a particular conception of banks and banking, which, we argue, no longer reflects the reality of modern financial systems. We take advantage of ... [more ▼]

The wide-ranging Varieties of Capitalism literature rests on a particular conception of banks and banking, which, we argue, no longer reflects the reality of modern financial systems. We take advantage of the greater information regarding bank activities revealed by the financial crisis to consider the reality, across eight of the world’s largest developed economies, of the ‘financial power’ of banks to act as bulwarks against market forces. This article offers a ‘market-based banking’ framework that transcends the bank-based/capital market-based dichotomy that dominates Comparative Political Economy’s (CPE’s) consideration of financial systems, and argues for a future CPE research focus on the activities of banks. By demonstrating how market-based banking increases market influences on the supply of credit, we highlight an under-appreciated source of financial market pressure on non-financial companies (NFCs) that has potential impact across the range of issues that the Varieties of Capitalism (VoC) literature has seen as differentiating national systems, with implications in areas such as labor, welfare, innovation and flexibility. [less ▲]

Banking Union as Holy Grail: Rebuilding the Single Market in Financial Services, Stabilizing Europe's Banks and 'Completing' Economic and Monetary Union

in Journal of Common Market Studies (2013), 51(S1), 103-123

A Panacea for all Times: the Politics of the German Stability Culture

in West European Politics (2013), 36(4), 750-770

The German Stability Culture is frequently pointed to in the literature as the source of the country’s low inflationary policies and, at the European Union (EU) level, the design of Economic and Monetary ... [more ▼]

The German Stability Culture is frequently pointed to in the literature as the source of the country’s low inflationary policies and, at the European Union (EU) level, the design of Economic and Monetary Union (EMU). In Germany, the term was regularly wielded by central bankers and Christian Democrat (CDU-CSU) politicians to legitimise the move to EMU in the face of a large majority of public opinion opposed, and subsequent EU-level policy developments, particularly in the context of the eurozone debt crisis that erupted in 2009. An ordered probit analysis is used to demonstrate the depth of the German Stability Culture, showing that support for low inflation cuts across all party and ideological lines. Despite this ubiquity, the term has been wielded with regularity only by the centre-right Christian Democrats and is strongly associated with this party. A strategic constructivist analysis is employed to explain this uneven but persistent usage in German domestic politics. [less ▲]

Framing Market-Based Banking and the Financial Crisis

in Howarth, David; Hardie, Iain (Eds.) Market-Based Banking and the International Financial Crisis (2013)

This chapter considers market-based banking in more empirical depth across eleven countries. It argues that levels of market-based banking are now a more useful way to compare national banking systems and ... [more ▼]

This chapter considers market-based banking in more empirical depth across eleven countries. It argues that levels of market-based banking are now a more useful way to compare national banking systems and serve, when combined with a focus on other market sources of non-financial corporation (NFC) financing, to provide an alternative to the standard dichotomy of bank-based and market-based financial systems. The chapter considers the degree of market-based assets and liabilities in banks in the eleven banking systems and highlights the differences between systems. It demonstrates how this detail helps explain the differential impact of the financial crisis in terms of timing, the required levels of government support to banking systems, and the impact of the crisis on lending to NFCs. [less ▲]

A Peculiar Kind of Devastation: German Market-Based Banking

in Howarth, David; Hardie, Iain (Eds.) Market-Based Banking and the International Financial Crisis (2013)

This chapter describes the shift of the German banking industry from the traditional bank-based financial capitalism to ‘market-based banking’, which took place from the late 1990s. German banks have long ... [more ▼]

This chapter describes the shift of the German banking industry from the traditional bank-based financial capitalism to ‘market-based banking’, which took place from the late 1990s. German banks have long had high levels of market-based liabilities, but their borrowing has been from more stable wholesale markets, including via covered bonds. However, the rapid rise of market-based banking on the asset side of the balance sheet for German commercial and public sector banks, eager to expand in the context of cloistered national markets, explains the very high exposure of the German banking/financial system to the early stages of the financial crisis. German banks imported instability from the United States through the large-scale purchase of securitized loans. As a result, the German banking system was among the worst affected early in the international financial crisis yet the impact on total bank lending was limited. [less ▲]

The Ongoing Struggle to 'Protect' Europe from its Money Men

in Journal of Common Market Studies (2012), 50(s1), 99-115

This analysis of two of the main pieces of EU financial legislation developed in 2011 demonstrates the extent to which they were designed and subsequently shaped to respond to the preoccupations of ... [more ▼]

This analysis of two of the main pieces of EU financial legislation developed in 2011 demonstrates the extent to which they were designed and subsequently shaped to respond to the preoccupations of powerful EU member states linked to domestic institutional frameworks and national financial systems. On OTC derivatives, EMIR was modified to accommodate German concerns about the incompatibility of the national stock exchange, a major European player in trading and clearing derivatives, with the legislation as initially drafted by the Commission. The CRDIV-CRR was drafted by the Commission to take into consideration European specificities in the implementation of international guidelines on capital requirements and, in particular, French and German concerns on, respectively, the double counting of insurance subsidiary capital and the use of hybrid capital to meet minimum capital thresholds and the definition of liquidity ratios. The Commission’s draft and subsequent positioning directly challenged British and other member state government preference to push for higher requirements in order to reinforce the stability of nationally-based banks and avoid a repeat of 2007-09 when huge amounts of public money were spent to avoid bank collapse. [less ▲]

In the Vanguard of Globalisation: the OECD and Capital Liberalisation

in Review of International Political Economy (2011), 18(5), 622-645

A survey of the literature on the political economy of global financial liberalisation shows how little has been written on the role of the OECD, and how the Principal-Agent (PA) theory, complemented by ... [more ▼]

A survey of the literature on the political economy of global financial liberalisation shows how little has been written on the role of the OECD, and how the Principal-Agent (PA) theory, complemented by Constructivist tools, can be applied helpfully to analyse this process.We show that the OECD’s Committee on Capital Movements and Invisible Transactions (CMIT) played an entrepreneurial role in encouraging the liberalization of capital flows. In particular, we argue that the CMIT slipped by acting beyond its core delegation roles and against the preferences of the OECD member states’ governments. This was done by discussing and seeking to expand the list of issue areas on which controls should be lifted to include short-term capital movements and the right of establishment, to adopt an extended understanding of reciprocity, and to eliminate a range of additional discriminatory measures on capital flows. Acting as institutional entrepreneurs, the CMIT members took advantage of the overlap among the networks in which they were engaged to spread their ideas to the member states. The CMIT’s work affected the member states’ willingness to make irrevocable, multilateral commitments through a combination of peer pressure and vertical institutional interconnectedness. Through the work of the CMIT, the OECD was an important actor in capital liberalization, in addition to the role played by other international organizations. [less ▲]

The Political Economy of Europe’s Incomplete Single Market

Book published by Routledge (2011)

Progress in European market integration over the past two decades has come at the expense of growing flexibility, or differentiation, in the laws that govern the Single Market (SM) as well as the way that ... [more ▼]

Progress in European market integration over the past two decades has come at the expense of growing flexibility, or differentiation, in the laws that govern the Single Market (SM) as well as the way that these laws are implemented. This volume examines how the completion of the SM has been held back in the varied implementation of European Union competition policy, variation in national policies on services, corporate law, telecommunications, energy, taxation, and gambling, and the EU’s uneven transportation network. These sectors and issue-areas form the frontier at which the main political struggles over the future shape of the SM have taken place in the past decade. Broadly, progress in economic integration in the EU has been complicated by the need to reconcile perfections to the SM with the global competitiveness of European producers, and efficiency gains with ideational and normative concerns. In services, there is a clash between deregulation and social policy. Financial integration has had to reconcile different institutionalized views among the member states about the place of finance in the economy and society. The SM notion supposedly entails a concrete set of substantive policy commitments that form the basis of the ‘ever closer union’. However, increasing differentiation in the SM undermines the identification of the EU’s core constitutional commitments. [less ▲]

Industrial Policy: The Softer Side of Differentiated Integration

in Dyson, Kenneth; Sepos, Angelos (Eds.) Which Europe: The Politics of Differentiated Integration (2010)

Differentiated integration in the area of EU industrial policy is the result of one or more of five factors: differences in ideology among Member States, domestic political circumstances, capacity (level ... [more ▼]

Differentiated integration in the area of EU industrial policy is the result of one or more of five factors: differences in ideology among Member States, domestic political circumstances, capacity (level of economic development), national economic structures, and technical preferences. There is a considerable degree of ‘capitalist diversity’ in the EU (Wilks, 1996). Even among the ‘Original Six’ Member States there are important differences in approach to economic regulation, even if they all embrace the EU system (Gerber, 2000). Ideological difference may contribute to differentiation in that Member States where economic liberalism holds more sway in government circles will pursue different policies than those pursued by Member States where interventionist solutions to industrial problems are more acceptable. Different levels of economic development have repeatedly been used as a justification for temporary derogations for poorer Member States in the implementation of EU legislation. Justifications stemming from ideology, economic development and structures can result in differentiated participation in EU-led or other European R&D projects. Technical preference has been a cited reason for delays in certain national programmes of sector-based market liberalisation. In several areas these five factors overlap, and assessing their relative importance is difficult. Differentiated integration in industrial policy areas is largely ‘soft’ and unofficial and comes in three forms: varying national participation in EU and other European projects; the discretion permitted in the implementation of EU legislation; and varying levels of compliance with EU legislation. Legally entrenched, multi-speed differentiation is present principally in terms of temporary derogation on a limited range of EU legislation. The explicit legal sanction of more permanent differentiation in industrial policy areas is rare. This chapter presents one recent legislative development that effectively entrenches differentiation in energy markets and potentially undermines market integration in this sector. [less ▲]