Financial Markets (Dis)Integration in a Post-Brexit EU

The chapter introduces European financial markets integration as comparatively successful regional project of economic integration that has been widely acknowledged for its unique achievements but also criticized for its failures to overcome financial fragmentation and—from a more radical perspective—as a European version of neoliberal globalization that has led to increased financial instability culminating in the Global Financial Crisis and the European Sovereign Debt Crisis. The key challenges for transforming the EU’s financial markets into a more resilient and sustainable system are outlined and the theories of financial markets integration and financial globalization and their critiques are introduced. The chapter concludes with an overview of the aims and contents of the book.

The chapter provides the background to the study and explores the lessons from two waves of financial globalization, the transition from the gold standard to the Bretton Woods System to the liberalization and deregulation of finance and the emergence of finance-dominated capitalism. It then discusses the major transformations in capitalism and the rise of finance-led capitalism leading to increased financial instability and the Global Financial Crisis. The chapter continues with an overview and critical evaluation of regulating finance after the crisis before exploring the challenges for Inclusive Capitalism and Sustainable Finance.

The chapter starts with an introduction to the history of European financial integration and disintegration. It continues with an overview of financialization in Europe before discussing the rise of finance-driven capitalism in Europe, linking the relative success in financial integration with the critique of neoliberal globalization and finance capitalism in Europe. The chapter then explores the European experience with financial fragmentation and disintegration and discusses the ongoing reforms of the Economic and Monetary Union. The chapter concludes with a discussion of the challenges for deeper integration and a more resilient and sustainable finance.

The chapter starts with an introduction to the Brexit challenge for European financial integration, before exploring as a background the evolution of European financial centers and the rise of the City of London as leading global and European financial center. The chapter then discusses the British financial industry’s response to the increasing European regulation after the Global Financial Crisis and how the City used its power with fluctuating fortunes during this period of rapid regulatory change. The chapter then explores the Brexiteers’ plan for British finance after Brexit, before discussing the UK government’s difficulties to negotiate a Brexit deal that protects the interests of the City. The chapter continues with looking at what London has to lose as a Third Country outside the EU and Single Market and in particular to equivalence, mutual recognition, and euro-denominated clearing. The chapter then discusses the possible costs and relocations of financial services from the UK into the EU-27, before concluding what might be the future for European financial centers.

The chapter starts with a general introduction to the EU’s Capital Markets Union project, before exploring the background and evolution of capital markets integration in Europe. It continues with analyzing the deeply flawed rational behind the Capital Markets Union and then explores the progress and obstacles in implementing this new and ambitious agenda. The chapter then explores the EU’s new approach towards securitization and shadow banking, criticizing this as a particular concerning aspect of Capital Markets Union. Another key aspect is the EU’s identification of short-termism in contemporary capital and financial markets, the corresponding agenda however is only a flawed and reformist approach with a limited incorporation of sustainable finance. The chapter then explores how the CMU agenda has already been affected by Brexit and what the longer-term impact of losing the EU’s largest capital market might be. The chapter concludes with a section exploring what a more resilient and sustainable Capital Markets Union would look like.

The European Banking Union as the second key part in creating a Financial Union is a centerpiece for the Economic and Monetary Union. Following a general introduction, the Chapter explains the need for a banking union and orderly resolution for failing banks, before discussing the European Banking Union’s design, the progress in its creation and obstacles to its finalization. The Chapter concludes with a critique of Banking Union, what it fails to address, how it is linked to Capital Markets Union, shadow banking, and securitization, and how its flaws strengthen finance-led capitalism.

The final chapter draws the conclusions from European financial integration and puts the major achievements and failures into the context of the evolution of finance-led capitalism and financial globalization. Summarizing the main arguments of the book and reflecting on the major challenges the chapter calls for a more interventionist financial integration policy and an alternative financial integration based on the lessons from financial regulation and financial crises.