Global Finance and Social Europe

Global Finance and Social Europe

New Directions in Modern Economics series

Edited by John Grahl

With global finance reshaping the world economy, this insightful new book provides a full account of the EU’s financial integration strategy, together with a critical assessment arguing the case for social control over global finance. Written by acknowledged experts in European finance, this book discusses key issues from finance to general social developments, encompassing social security systems, employment relations, household saving and borrowing, and the question of economic stability. Thus far, America has been pre-eminent both in global financial markets and international banking – so how should the European Union meet this challenge? Global Finance and Social Europe constructively argues that an active response is required and highlights the importance of an integrated European financial system.

Chapter 3: Europe’s Financial Systems Under Pressure

Marica Frangakis

Subjects: economics and finance, financial economics and regulation, post-keynesian economics, social policy and sociology, economics of social policy

Extract

Marica Frangakis INTRODUCTION 3.1 Since the 1980s, the financial systems of the member states of the EU have come under increasing competitive pressure, as a result of developments both on the global and on the European level. On the global level, the collapse of the Bretton Woods agreement and of the system of fixed exchange rates, followed by the two oil crises in the 1970s, marks the end of the era during which governments stabilized their economies by fiscal and monetary policies and public sector activity, with limited or occasional interference from the financial markets.1 This period is also known as the era of ‘financial repression’, denoting the fact that restrictions on international capital movement permitted many governments to maintain very low rates of interest, sometimes even negative in real terms (Toporowski, 2005). Thus, the post-World War II dollar standard system of fixed exchange rates gave way to a liberalization and privatization thrust in economic policy both in the advanced and in the less developed countries in the late 1970s, introducing greater reliance on markets domestically and internationally.2 On the European level, developments were equally dramatic. As early as 1983, a White Paper on financial integration by the European Commission called for greater liberalization in the area of European finance.3 Following the 1986 Single European Act, the 1988 Council directive on the liberalization of capital controls, the 1992 Treaty on the European Union, the introduction of the single currency in 1999 and the Financial Services Action Plan (1999–2005), various...

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