22nd Oct 2016


Stabilising global finance: are EU states doing enough?

  • (Photo: stumayhew)

The global economic crisis, from which the world is still struggling to escape, began as a banking crisis in the United States.

It spread to Europe through the European banks that were heavily invested in the US financial sector. And when it did, the shortcomings of European Union member states’ financial management were soon exposed.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

As governments rushed to prop up failing banks, what began as a financial sector problem turned into a sovereign debt crisis. In response, after all the bailouts and the oversight programmes, the EU has worked to introduce new rules for fiscal policy and new financing facilities to help out member states in need.

The EU, as the world’s largest economy, has a great deal of power to drive regulation and to stabilise global markets. But the EU is the sum of its constituent parts, and without strong will from its member states, the progress that can be made at a supranational level is limited.

So, which member states are working to help solve the problem, and which are not pulling their weight?

Finland, Germany and Sweden top

In the latest edition of the Bertelsmann Stiftung’s Sustainable Governance Indicators (SGI), Finland, Germany and Sweden top the rankings of 41 OECD and EU countries on the indicator “Stabilising global financial markets."

Perhaps unsurprisingly, each of these countries also performs well on the SGI rankings for domestic budgetary policy, with Sweden and Finland coming top out of the 41 countries surveyed and Germany 13th.

Finland has worked hard to increase its own domestic regulation and to create sustainable fiscal policy. In 2013, the government approved a Stability Programme setting out fiscal policy for governing Finnish economic development, as well as a Europe 2020 National Programme laying out measures to meet national targets based on the EU’s Europe 2020 growth strategy.

Finland has strongly backed EU efforts to combat banking risk and to increase regulation and Finnish policymakers are closely involved in EU efforts to reform financial oversight systems.

Germany is often seen as the driver of EU fiscal policy. And indeed, Germany’s post-crisis regulatory framework, the “Restructuring Act” introduced in 2010, is providing a model for EU regulation on issues such as how to deal with insolvent banks.

Germany supplied a financial guarantee of €190 billion to the European Stability Mechanism, set up as a permanent crisis resolution mechanism to give financial assistance to troubled EU member states in the case of future crises.

Some fear that this guarantee exposes the German economy to risk, but policymakers believe that it is in Germany’s interests to promote the success of the EU economy as a whole.

Germany has also pushed to transform the G20 into a serious forum for international co-operation, hoping to use this grouping as a means to put pressure on developed economies to reform the global financial system.

Sweden’s economy emerged largely unscathed from the global economic crisis. The country experienced its own serious financial crisis in the early 1990s, and afterwards, the Swedish government carried out reforms aimed at instating fiscal sustainability.

These reforms largely insulated the country from the worst effects of the global downturn. Sweden’s banks did suffer due to their deep investment in the hard-hit Baltic States, but government acted swiftly in 2008 to prop up troubled lenders, and the banking industry has emerged strong.

Even so, perhaps because of its own experience, Sweden has been extremely supportive of efforts to enforce regulations in international finance by the EU and by other international bodies.

The UK could do more

The City of London plays a central role in the global financial system, and so it could be expected that the UK takes a leading role in helping to solve a problem that it had a hand in creating.

However, in the SGI rankings, the UK comes only 14th on the indicator on a par with crisis-stricken Spain. The City’s light-touch regulation contributed to the underlying problems in global finance that caused the economic crisis. And Britain has faced its own financial sector shocks, with the collapse of the Northern Rock bank in 2007 as one of the earliest indications of the emerging international crisis.

Calls for regulation have grown, especially after the Libor rate-fixing scandal of 2012. To address public sentiment, the UK government revisited the country’s financial regulation system in the Financial Service Act of 2012.

This began the work of increasing oversight on the financial sector, with the establishment of the Prudential Regulation Authority and the Financial Conduct Authority, both monitored by the Financial Policy Committee, a subsection of the Bank of England.

However, although it has taken steps to increase domestic regulation, Britain has not done much to increase supranational regulation, preferring instead to protect the City’s interests in the face of increasing competition from abroad.

Britain is especially eager to protect the power of the City of London in light of other EU member states’ desire to wrest some control of trade in the Eurozone from the non-Eurozone markets of the UK.

France in particular hopes to create a place for itself at the heart of a Eurozone banking system. And as Britain’s future within the EU looks less and less secure, its government prefers to take whatever steps are necessary to shore up the country’s financial sector, which employs more than 2 million people in the UK and accounts for around 10 percent of GDP.

Justine Doody writes for the Bertelsmann Stiftung’s BTI Blog and SGI News


Europe ready to tackle Greek debt relief

The Greek government has built and broadened alliances in EU institutions and member-states that acknowledge the need to restructure the debt and deliver another economic model for the eurozone.

News in Brief

  1. Canada and Wallonia end talks without Ceta deal
  2. Juncker hopes for Canada accord in 'next few days'
  3. Romania drops opposition to Ceta
  4. Difficulties remain on Ceta deal, says Walloon leader
  5. Brexit could lead to 'some civil unrest' in Northern Ireland
  6. ECB holds rates and continues quantitive easing programme
  7. Support for Danish People's Party drops, poll
  8. Spain's highest court overturns Catalan ban on bullfighting

Stakeholders' Highlights

  1. EFADraft Bill for a 2nd Scottish Independence Referendum
  2. UNICEFCalls on European Council to Address Plight of Refugee and Migrant Children
  3. ECTAJoin us on 9-10 November in Brussels and Discover the new EU Digital Landscape
  4. Access NowCan you Hear me now? Verizon’s Opportunity to Stand for Global Users
  5. Belgrade Security ForumMeaningful Dialogue Missing Not Only in the Balkans, but Throughout Europe
  6. EASPDJoin the Trip! 20 Years on the Road. Conference & Photo Exhibition on 19-21 October
  7. EuropecheEU Fishing Sector Celebrates Sustainably Sourced Seafood in EU Parliament
  8. World VisionWomen and Girls Urge EU Leadership to Help end Gender-based Violence
  9. Dialogue PlatformIs Jihadism Blind Spot of Western Intellectuals ? Wednesday 26 October
  10. Belgrade Security ForumGet the Latest News and Updates on the Belgrade Security Forum @BelSecForum
  11. Crowdsourcing Week EuropeMaster Crowdsourcing, Crowdfunding and Innovation! Conference 21 November - 10% Discount Code CSWEU16
  12. EJCEU Parliament's Roadmap for Relations with Iran a Massive Missed Opportunity

Stakeholders' Highlights

  1. Nordic Council of MinistersFish Skin on Bare Skin: Turning Fish Waste into Sustainable Fashion
  2. CEDECOpportunities From the Creation of Synergies at Local Level in the Energy Transition
  3. ACCAFinTech Boom Needs Strong Guidance to Navigate Regulatory Hurdles
  4. Counter BalanceWhy the Investment Plan for Europe Does not Drive the Sustainable Energy Transition
  5. Nordic Council of MinistersThe Nordic Region Seeks to Make Its Voice Heard in the World
  6. Taipei EU OfficeCountries Voice Support for Taiwan's Participation in ICAO
  7. GoogleDid You Know Europe's Largest Dinosaur Gallery Is in Brussels? Check It Out Now
  8. IPHRHuman Rights in Uzbekistan After Karimov - Joint Statement
  9. CISPECloud Infrastructure Providers Unveil Data Protection Code of Conduct
  10. EFAMessages of Hope From the Basque Country and Galicia
  11. Access NowDigital Rights Heroes & Villains. Who Protects Your Rights, Who Wants to Take Them Away