Wednesday

13th Dec 2017

Analysis

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.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

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

Facebook to shift ad revenue away from Ireland

Public pressure about low corporate taxes appear to have pressured Facebook to launch plans to stop routing international ad sales through its Dublin-based headquarters in Ireland.

Commission wants more centralised eurozone by 2019

EU leaders will discuss at their summit next week the commission's proposals, which include a European Monetary Fund and an EU finance minister - but no eurozone budget, as proposed by French president Emmanuel Macron.

Facebook to shift ad revenue away from Ireland

Public pressure about low corporate taxes appear to have pressured Facebook to launch plans to stop routing international ad sales through its Dublin-based headquarters in Ireland.

News in Brief

  1. Report: Pro-Kremlin trolls targeted Scottish referendum
  2. MEPs vote to allow phosphate additives in kebabs
  3. Babis government sworn in in Czech Republic
  4. Russia looks to crypto-currencies to evade EU sanctions
  5. Juncker embroiled in Luxembourg wire-tapping trial
  6. Kurz close to forming new Austrian right-wing government
  7. Ministers reach deal on fish quotas but overfishing continues
  8. UK parliament to vote on right to veto final Brexit deal

Stakeholders' Highlights

  1. European Heart NetworkCommissioner Andriukaitis' Address to EHN on the Occasion of Its 25th Anniversary
  2. ACCACFOs Risk Losing Relevance If They Do Not Embrace Technology
  3. UNICEFMake the Digital World Safer for Children & Increase Access for the Most Disadvantaged
  4. European Jewish CongressWelcomes Recognition of Jerusalem as the Capital of Israel and Calls on EU States to Follow Suit
  5. Mission of China to the EUChina and EU Boost Innovation Cooperation Under Horizon 2020
  6. European Gaming & Betting AssociationJuncker’s "Political" Commission Leaves Gambling Reforms to the Court
  7. AJC Transatlantic InstituteAJC Applauds U.S. Recognition of Jerusalem as Israel’s Capital City
  8. EU2017EEEU Telecom Ministers Reached an Agreement on the 5G Roadmap
  9. European Friends of ArmeniaEU-Armenia Relations in the CEPA Era: What's Next?
  10. Mission of China to the EU16+1 Cooperation Injects New Vigour Into China-EU Ties
  11. EPSUEU Blacklist of Tax Havens Is a Sham
  12. EU2017EERole of Culture in Building Cohesive Societies in Europe

Latest News

  1. Tusk migration note prompts institutional 'hysteria'
  2. Migration looms over summit, as Africa pledges fall short
  3. Brits in EU-27 are uncertain, alone and far from protected
  4. 2018 fishing quotas agreed - but Brexit muddies waters
  5. Medical HQ to spearhead EU military push
  6. Facebook to shift ad revenue away from Ireland
  7. EU renews glyphosate approval, pledges transparency
  8. Romania searching for EU respectability

Stakeholders' Highlights

  1. ILGA EuropeCongratulations to Austria - Court Overturns Barriers to Equal Marriage
  2. Centre Maurits CoppietersCelebrating Diversity, Citizenship and the European Project With Fundació Josep Irla
  3. European Healthy Lifestyle AllianceUnderstanding the Social Consequences of Obesity
  4. Union for the MediterraneanMediterranean Countries Commit to Strengthening Women's Role in Region
  5. Bio-Based IndustriesRegistration for BBI JU Stakeholder Forum about to close. Last chance to register!
  6. European Heart NetworkThe Time Is Ripe for Simplified Front-Of-Pack Nutrition Labelling
  7. Counter BalanceNew EU External Investment Plan Risks Sidelining Development Objectives
  8. EU2017EEEAS Calls for Eastern Partnership Countries to Enter EU Market Through Estonia
  9. Dialogue PlatformThe Turkey I No Longer Know
  10. World Vision7 Million Children at Risk in the DRC: Donor Meeting to Focus on Saving More Lives
  11. EPSU-Eurelectric-IndustriAllElectricity European Social Partners Stand up for Just Energy Transition
  12. European Friends of ArmeniaSignature of CEPA Marks a Fresh Start for EU-Armenia Relations