10 years after the Great Financial Crisis, and years after the onset of the Eurozone Crisis, questions over the dominant strategy for dealing with banking fragility in Europe have been sorted, but not in the way that global bodies and networks suggested. Rather than institute automatic stabilisers throughout the Eurozone, financial stability remains ultimately linked to the financial health or fragility of national governments. European rules and institutions have been created with the intent to compel banks to reduce risk in a variety of areas that bears resemblance to neofunctional spillover. This paper contends that the achievements and limits of institutional development, regulations and their implementation is in fact driven by intergovernmental politics, with outcomes different than neofunctionalist accounts expect.
Specifically, this paper examines the roles of various countries as pace-setters, foot-draggers and fence-sitters on the further development of banking union in Europe. Intergovernmental fights over hard rules and financial arrangements lead to stability orientation (rather than a focus on growth to solve the problems) intensify the conflict. In the process of negotiation, EU efforts have moved from public backstop to supervision, to resolution, to capital standards, to state aid issues (again), and now national insolvency law. Each of these areas comes with alternatives that reinforce national or collective responsibility for financial stability, with the chosen path focusing on national responsibility. In this context, the paper looks at German pace-setting, Italian foot-dragging, French fence-sitting in EU talks, the use of supranational bodies and procedures (in the Basel Committee in particular) as ways of piloting a face-saving path out of the conflict between pace-setters and foot draggers.
The paper contends that a significant part of the spillover and resistance is generated by national governments trying to protect and promote their own models of financial stability.
