Zusammenfassung
Crises bring about changes not only in the institutional architecture of economic policy-making but also in the prevalent paradigms and ideas that drive policy-making to a substantial degree. For the Euro Zone countries the financial crisis of 2007/8 has obviated not only technical shortcomings in banking regulation, such as the neglect of the macro-prudential dimension of banking, but also the flaws of certain ideas behind the monetary union’s financial stability architecture at large.
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Notes
- 1.
For a study of the patterns of change in coordinated market economies and the variation in institutional change see Culpepper (2005, 2011). For a more holistic view on the change in varieties of capitalism see V. A. Schmidt (2000).
- 2.
This finding is shared for instance by economic analysis by for instance Brewer III, Kaufman, and Wall (2008) but has largely gone unnoticed in the political economy literature to date.
- 3.
For an overview and a survey of the current practice amongst central banks see Bank for International Settlements (2010).
- 4.
In this sense, national financial stability policy in an integrating market is another case of what Dani Rodrik has coined the “fundamental political trilemma of the world economy”. Rodrik makes the argument that “We want economic integration to help boost living standards. We want democratic politics so that public policy decisions are made by those that are directly affected by them (or their representatives). And we want self-determination, which comes with the nation-state. […] we cannot have all three things simultaneously. The political trilemma of the global economy is that the nation-state system, democratic politics, and full economic integration are mutually incompatible. We can have at most two out of the three” (Rodrik, 2002).
- 5.
The model of regulatory union that I have in mind is a consciously stylized one, which essentially reflects the institutional equivalent of the European Central Bank on a regulatory level. Such a regulatory body would, analogous to setting uniform interest rates, determine a uniform regulatory stringency standard across the entire Euro Zone with no national regulatory discretion. I employ such a rigid definition of a regulatory union, since integration of the regulatory function at the European level ultimately boils down to unifying regulatory standards and ‘leveling the playing field’. This is not to say that there aren’t regulatory union concepts that are more flexible than the one assumed here – but for the purpose of the analysis of this concept it is worth examining the stylized solution rather than a hybrid form.
- 6.
Here I build on the most comprehensive and suitable model in relation to a regulatory context, which has been developed by Dell’ Ariccia and Marquez (2003). Their model suggests that the degree of symmetry in preferences determines the cost-benefit calculation of countries deciding to form a centralized regime or to stick to an independent regime. For a summary of its findings see the discussion in section 4.1.
- 7.
For a similar point of the continued link between national regulation and banking but a slightly different policy recommendation with a view to more integration see Veron (2011). Veron finds that a common banking regulatory policy is a “a necessary condition for the survival of the monetary union”.
- 8.
With Basel III being negotiated against the background of a sovereign debt crisis, there is a real chance that the anxiety over yet another credit crunch will lead regulators to phase higher capital requirements over too long of a time period and will limit leverage ratios at too low levels, thus sowing the seeds of the next phase of financial instability.
- 9.
In this realm the EU has already made some progress as it has put in place European-level institutions in all three financial sectors (in the case of banking the European Banking Authority), which focus on the implementation of rules into national law and practice and are thus limiting the discretion national supervisors.
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Scherf, G. (2014). Conclusion. In: Financial Stability Policy in the Euro Zone. Springer Gabler, Wiesbaden. https://doi.org/10.1007/978-3-658-00983-0_7
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