As the EU tries to create a single financial market, engaging in a global financial governance which is no longer preoccupied with the development of new standards and institutions but rather concentrates on the implementation of existing rules, can the EU still play a major role in this particular scene?
Today, financial issues seem to have taken a backseat to political problems. Yet only a handful of years ago the international scene gave its undivided attention to world leaders who were trying to resolve the financial crisis. The results of the G20 London summit, though sometimes criticized, proved that global financial government does exist and can be effective. The global financial crisis gave impetus to the revision of the rules and institutions, governing the sphere.
Although the institutional development has slowed down it does not mean that the global financial governance has fallen into decay. On the contrary, now it is depoliticized, and all the newly introduced practices and institution are being adopted to the reality. But what does it mean for the EU? What will be its role in the global financial governance?
Before one evaluates the EU position in global financial governance, it should be mentioned that there is no single financial market in Europe. Nevertheless, European countries are trying to harmonize their practices and develop institutional infrastructure. The first step was taken in 2007, when MiFID (the markets in financial instruments directive) came into force. The directive aimed to protect investors, regulate the activity of authorized intermediates and to render financial markets more transparent. But in 2014 it was revised and MiFID 2 and MiFIR were adopted. The new documents are to be transported into national law of member states on July 2017 and they will fully come into force in 2018. Those documents not only try to resolve the loopholes but also advance the idea of a single financial market. For instance, they deprive member states of the opportunity to exercise discretion in applying some rules. After all, however excellent the rules could be, it is absolutely necessary that someone check they are implemented.
To that effect, the EU introduced after the crisis the European system of financial supervision, which includes the European Systemic Risk Board and 3 European supervisory authorities (ESAs). But the role of ESA can hardly be considered as active; the primary goal of these institutions being drafting standards on the basis of accumulated data.
Thus, though the EU has given a good start for the development of a single financial market, still it is far from its aim. The institutions are not mature enough and member states are not ready to transfer the control over financial markets to the supranational bodies. Besides, the position of financial powers in the EU (the UK, France and Germany) is at variance with the stance of other members. In such a state it may seem that the EU is highly unlikely to enjoy a decisive role in global financial governance. Though it could have with its share in the global financial industry (Europe is responsible for about 45 % of the global derivatives market).
Some would argue that the EU is engaged in key international institutions and supervising financial markets. Also, that the EU participates in G20, the Financial Stability Board, the Basel Committee On Banking Supervision, the International Organisation of Securities Commissions and some others. Only, the EU only enjoys the status an observer or is accorded associate membership, as it is either the European Commission or the ECB that represents it. It is also a missed opportunity for bodies such ESAs, which, if put to good use, could become a more effective “channel for engagement with international financial governance” and strengthen to EU influence.
So, how can the EU improve its position in global financial governance given the absence of a single European financial market at the moment and its weak position in international institutions? First of all, having the right to vote in this or that international organization is not an indispensable condition to gain influence in the financial sphere, which is governed by ‘soft law’. Today, what is of vital importance is not the creation of new regulations, but the application of the previous ones and the coordination of “supervisory approaches”. Thus, now in order to win one does not have to impose on his agenda, but has to analyze the way the existing rules are implemented and to propose necessary adjustments. Secondly, by continuing to develop a single European financial market the EU is sure to have an impact on other players. In fact, to set third-country access rules is another way of shaping the global financial governance. Finally, the EU may influence the “the culture” of global financial governance. The case is that global finance industry has adopted practices inherent in ‘Anglo-Saxon’ market model. This implies that the global system is more risk-prone, which was revealed during the 2008 financial crisis. This very aspect is often criticized by non-western countries, which advocate the reform of international financial institutions. But the EU model, which entails less entrepreneurialism, may seem more appealing for other countries. All in all, as far as global financial governance is concerned, the EU has every opportunity to be the head, and not the tail.