Edited by John Grahl
Chapter 3: Europe’s Financial Systems Under Pressure
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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