After the Euro: Shaping Institutions for Governance in the Wake of European Monetary Union

After the Euro: Shaping Institutions for Governance in the Wake of European Monetary Union

After the Euro: Shaping Institutions for Governance in the Wake of European Monetary Union

After the Euro: Shaping Institutions for Governance in the Wake of European Monetary Union

Synopsis

Now that the process of full implementation of European Monetary Union has begun, it is time to shift attention away from the process of introduction to the implications that the common currency will have for a wide range of institutions and policy areas. The wider political and socialinstitutions of the European Union are not well developed there is an institutional deficit which parallels the more widely know democratic deficit. Monetary arrangements of nation states are imbedded in a range of political, cultural, economic and historical factors. Will mechanisms of these kindseventually develop at the European level? Can national structures adapt to meet the challenge? The contributors to After the Euro tackle these questions and in doing so, take the debate beyond the economic and sovereignty questions which have so far dominated the debate.

Excerpt

Jonathan Story

The subtitle 'battle of the systems' refers to competition in market and political arenas between national financial institutions which are embedded in very different national contexts. This chapter presents, in schematic form, key elements of national financial systems from France, Germany, and the UK/USA. I argue that the German and French financial systems are key components in national embedded mercantilisms: their different institutional configurations have evolved with a purpose of fostering national, social cohesion, while reducing national vulnerability to world politics and markets through running trade surpluses and accumulating corporate and central bank reserves. in particular, a central feature of their financial systems has been to protect national corporate property as far as possible from bankruptcies and from foreign takeover. the UK/USA, by contrast, have pursued internationalist policies, predicated on flexible labour markets, open markets for products and corporate assets, and liberal trade policies where, as John Stuart Mill argued, the objective of international trade is imports, not exports, as countries trade because they are different. in the first, corporate financing derives from retained earnings and bank borrowing, supplemented by share issues with restricted circulation; in the second, corporate financing is notoriously more dependent on share issues and on secondary market trades. the paradox of European Monetary Union (EMU) is that France and Germany, two countries with embedded mercantilisms, are the principal protagonists of a measure that can only accelerate the victory of shareholder capitalism on the European continent.

Different Types of Financial System

How a financial system has come to be designed influences the character of the capital allocation process, national economic performance, and

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