The EU Financial Union – some lateral thinking on a framing that didn’t stick

Power, in European politics, is often exercised through framing. One could define framing as the construction of a narrative, or indeed a series of single but very synthetic concepts that have the capacity to tilt entire policy agendas. Successful framing usually sticks for years, if not decades.

Framing right and framing at the right time are therefore key to successful political negotiations in Brussels. Two specific examples from my Brussels years come to mind to illustrate this: first, ‘carbon leakage,’ the notion that if carbon legislation becomes too demanding in Europe, industry might leave the continent, and second, in banking and finance, ‘bail in,’ a sort of private version of public bail out, to put it simply.

Closer to us, the invention of the ‘Banking Union’ is a third case of successful framing. At the peak of the euro crisis, euro bonds were considered the silver bullet to end the crisis. However, the European Council reached a deadlock because of the huge fiscal and hence distributional implications of euro bonds. The technical re-framing of Europe’s fragilities as a bank-sovereign doom loop and the invention of the European Banking Union as a policy solution de-politicised a highly salient policy discussion and at the same time reframed policy solutions as lower key, technical, single market measures.

By contrast, the invention of a ‘Financial Union’ had a very different fate. The term, first used in the Four Presidents Report in 2012, aimed to encompass the European Banking Union and the European Capital Markets Union. This framing attempt was meant to help embed the Banking Union in a broader policy reality, probably to ensure that European policymaking could dwell on the positive momentum of the EBU. Despite some further references in both academia, policymaking and the private sector (see references below), the concept was vastly sidelined and now remains unused in official EU documentation.

But why should we care now? Because a too strict separation between the Banking Union and the CMU and a policy discussion that is too siloed by market segmenting on how to ensure European financial governance that is delivering both stability and growth is suboptimal. It is likely to lead to connections, i.e. both substitution and complementarities between the various unions, being overlooked. For example, do we badly need steel-framed banking to have an effective Capital Markets Union? Couldn’t existing institutions of the Banking Union perform tasks that would help to deliver on the Capital Markets Union? Such reframing would also be important to restate some existing achievements of the Banking Union that are not about banks. Two are worth mentioning: although often forgotten, the SSM supervises the largest and most systemic investment firms,[1] not just banks. And it is obvious that the attribution of CCP supervision to ESMA could only be agreed on because of the momentum reached with the Banking Union. And yet one tends to think of CCPs (and of financial market infrastructure actors generally) and of funds as fully disconnected from the Banking Union.

At FBF we are doing our homework to ensure more connectivity between the Monetary, Fiscal, Banking and Capital Markets Unions. We taught a course earlier this year on European Financial Union. If you’re interested in developing this research agenda further and have ideas that you would like to share, do not hesitate to reach out to us. You know where to find us.

References

• Erik Jones, ‘The Forgotten Financial Union’ in The Future of the Euro, Blyth and Matthijs, (2015)
• Margherita Delgado (2020), SUERF note
• IMF, A Financial Union for the Euro Area, Speech at Suerf by Poul Thomsen, 14 September 2018
• Christy Ann Petit (2024), Financial Union, Re-Build Working Paper, Brexit institute, Dublin City University.

[1] https://www.bankingsupervision.europa.eu/press/pr/date/2021/html/ssm.pr210625~0928eda266.en.html