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Conclusion

Liberalization, Integration, and Asymmetric State Power

Nina Eichacker

This chapter concludes the book. It summarizes the major findings, and emphasizes the current relevance of the issues at hand. It points toward new policies that European governments might consider when determining the ideal financial architectures to consider.

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Empirical trends in European finance

Liberalization, Integration, and Asymmetric State Power

Nina Eichacker

This chapter surveys different measures of European financial stability, capital flows, and macroeconomic fundamentals from the 1980s through 2008 or later. It shows how the incidence of financial crises increased in Europe at the moment many European countries began to liberalize, and shows that the volume of cross-border capital flows increased at a growing pace as liberalization policies took effect, and particularly after the introduction of the euro in 2003. It contrasts trends in financial liberalization and other economic fundamentals in core European countries, and peripheral ones, and shows how housing prices behaved across the European market. It presents a story of increasing financial competition, dramatically increased capital flows, and increased reliance on securities and other financial assets at the state level, which supports a notion of decreasing financial stability over time following these processes of liberalization.

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European financial liberalization since World War II

Liberalization, Integration, and Asymmetric State Power

Nina Eichacker

This chapter provides a brief synopsis of European financial liberalization since World War II. It shows the staggered process of liberalization, in which certain countries retained highly regulated and largely public financial sectors well into the late twentieth century, while others quickly liberalized financial markets in one or more arenas from the 1950s onward. It shows that the EMU’s peripheral economies – Spain, Greece, Portugal, Italy, and Ireland – were later to liberalize financial sectors in many respects, while most of Europe’s core economies – Germany, the Netherlands, Austria – were much quicker to liberalize. It argues that the relative experience the core states had with liberalized financial systems better prepared them to weather financial crises like what would come in 2008, while leaving historically more regulated economies more vulnerable to financial shocks.

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Nina Eichacker

This chapter argues that financial liberalization played a significant role in destabilizing Western European economies since the financial crisis of 2008. This process owes much to changes in the financial governance of Western Europe in the late twentieth century. This contrasts with the conventional story that the eurozone crisis is primarily due to peripheral countries’ excessive government spending or the German government’s neomercantilist policies. The chapter shows a robust and statistically significant positive correlation between gross locational capital flows over GDP and the onset of financial crisis, using linear probability models and logit regressions, providing evidence for the hypotheses.

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German financialization, the global financial crisis, and the eurozone crisis

Liberalization, Integration, and Asymmetric State Power

Nina Eichacker

This chapter examines how German financialization and input on the eurozone’s financial architecture promoted those imbalances, increased European systemic risk, and facilitated the onset of Europe’s subsequent crises. It argues that the increase in German financial sector competition encouraged those banks’ increase in securitization and participation in global capital markets, as well as German policy-makers’ support for financial liberalization embedded in the Maastricht Treaty. Financial liberalization of the eurozone created a new marketplace for German financial institutions, which increased the risk of crisis as current accounts diverged between core states like Germany and peripheral states like Greece. Once global financial crisis ensued in 2008, German losses on international securitized assets prompted a retrenchment of domestic and international lending, paving the way for the eurozone’s sovereign debt crisis. Re-examining the role of financial liberalization in facilitating German and European financial crises may prevent the eurozone from repeating these experiences in the future, at significant domestic, European, and global cost.

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Icelandic and Irish financial liberalization, crisis, and aftermath

Liberalization, Integration, and Asymmetric State Power

Nina Eichacker

This chapter discusses the similarities and differences in the process and consequences of Icelandic and Irish financial liberalization and the ensuing financial crises of 2008 and beyond. It argues that rapid financial liberalization and booms in lending, investment banking activity, and other forms of financial intermediation in Iceland and Ireland destabilized those countries financial systems and economies, despite apparently encouraging growth trends in both countries between 2000 and the crisis in 2008. The aftermaths of the financial crises – both the global financial crisis and the eurozone crisis – have demonstrated the importance of more comprehensive growth policies, as well as the importance of national allies when responding to a crisis with international dimensions. It also identifies finance-led growth as a destabilizing force on the European stage, with disparate winners and losers, the EMU’s inadequate commitment to regional growth and recovery, and future risks from under-regulated finance.

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A political economy of European financial integration

Liberalization, Integration, and Asymmetric State Power

Nina Eichacker

This chapter investigates the different inter-country, inter-industry, and inter-class dynamics that helped explain the European push for financial liberalization and integration under the framework of the EMU. It starts with an examination of core–periphery dynamics within Europe, and how certain countries retained economic power and acquired political sway as a consequence, and also examines how alliances between countries in favor of creating a union privileged German ideas about how European banking and monetary policy should operate. It also discusses how financial actors were able to lobby on behalf of financial liberalization, while workers’ groups may have focused lobbying efforts elsewhere, creating a relatively unopposed policy mandate for those in support of financial liberalization. Finally, it examines how simultaneous changes in academic perceptions of the relative efficiency and stability of liberalized financial systems supported the pro-liberalization and financial integration camp, to the possible detriment of European financial stability as a whole.