Is European financial integration best achieved through supranational centralization? : an Experimentalist and Eurolegalist analysis of ESMA's role in the Capital Market Union

(1)

Master Thesis Political Science (Political Economy)

Is European financial integration best achieved through supranational centralization? An

Experimentalist and Eurolegalist analysis of ESMA’s role in the Capital Market Union.

SOUWIE BUIS

11239387

New Forms of Governance: From the EU to the World?

Amsterdam, July 2017

First reader: prof. dr. Jonathan Zeitlin

Second reader: prof. dr. Daniel Mügge

(2)

Abstract

Integration of the European Union’s (E.U.) securities markets is central to further economic growth and prosperity and yet has proved more problematic than monetary union. In the move towards Capital Markets Union (CMU), the focus on financial integration takes on even greater significance. The creation of the European Securities and Markets Authority (ESMA) took place in a post-crisis context that prioritises stability and investor protection. It may be viewed as part of a wider EU response to the crisis which took the form of a new set of rules enhancing EU centralized economic governance. As the EU’s most powerful agency to date, it has proved instrumental in the creation of the Single Rule Book for financial market regulation and is now turning its focus to the more difficult issue of supervisory convergence. ESMA’s role in the aforementioned CMU is pivotal, however, the manner in which convergence is best achieved, continues to be of central importance. Through the use of case studies, practise-tracing and empirical research, this study aims to investigate the role of ESMA and the AFM (Netherlands’ National

Competent Authority) in the supervisory convergence of securities markets at national and supranational level. The study employs two theoretical frameworks: Experimentalism and Eurolegalism in order to better understand the forces at work for centralization and decentralization in the financial integration process.

(3)

Acknowledgements

I would like to express my gratitude to all who helped me to complete this thesis.

First and foremost I want to thank my supervisor Prof. dr. Jonathan Zeitlin. Without his guidance,

efficiency and patience this thesis would not have been possible.

Second, I would like to thank my second reader, Prof. dr. Daniel Mügge, who has been kind enough to find

the time to review my thesis.

Third, I would like to thank all of those interviewees who took the time to talk with me and provided much

valuable academic and professional information for this thesis.

I would also like to thank the Department of Political Science at the University of Amsterdam, particularly

the administrative staff, for their understanding and efficiency.

Last but not least, I would like to thank my parents for their unstinting support under difficult

circumstances.

Souwie Buis

July 2017

(4)

List of abbreviations:

ADR – Alternative Dispute Resolution

ECB - European Central Bank

ECJ - European Court of Justice

EG – Experimentalist Governance

ESA – European Securities Authorities

ECOFIN - Economic and Financial Affairs Council

EMIR - The European Markets and Infrastructure Regulation

ESMA – European Securities and Markets Authority

EU European Union

MiFID – The Markets in Financial Instruments Directive

CCP – Central Counterparty Clearing

CDS – Credit Default Swaps

OCD – Over the counter derivative

OCT – Over the counter trading

WCAM - Wet Collectieve Afwikkeling van Massaschades (Dutch Act on Collective

Settlements)

(5)

INTRODUCTION:

Economic integration has long been a key feature of the European Union project as evidenced by the initial creation of the European Economic Community (EEC) via the Treaty of Rome in 1957. The common market was characterized by liberal economic and free market approaches to integration. This ideal was extended by the more recent drive toward financial integration of the securities field as evidenced by the Financial Services Action Plan (1999). The 2008 financial crisis extended integration to include the banking sector and stimulated renewed focus on a capital market union for Europe. The unique political and legal challenges raised by the nature of the European Union (EU) have resulted in the emergence of what Majone (in Moran, 2002: 392) terms, the regulatory state. The regulatory state is a result of the fragmentary political nature of the EU and purposely separates expert regulation from majoritarian democracy. Thus it provides a level of integration and opportunity for cooperation, without too much loss of autonomy on the part of the member states. The road to integration sustains a constant tension between the power enjoyed by the Member States and that of the EU. This is the tension that lies between arguments for

centralization and decentralization. It is all pervasive and is evident in institutions and agencies throughout the EU, including the European Securities and Markets Authority (ESMA).

The notion of the EU as a regulatory state helps explain the central place of the law in the process of integration. As Saurugger (2016) points out, the EU is considered one of the most densely regulated and judicialized supranational political systems in the world. European integration has taken place through law establishing common policies and competences shared between Member States and the EU institutions. Further, scholars point to integration through law as a form of the constitutionalization of the EU. Delegated legislation empowers supranational agencies such as the Commission to issue executive decisions that are less directly susceptible to parliamentary procedures. The weight of argument would thus see the law as a force for centralization. The European Court of Justice (ECJ) is often cited as a prime example of this.

Eurolegalism argues that the law is central to EU integration and provides both theoretical and empirical arguments to that effect. However, its emphasis on what it terms adversarial legalism, reflects an increase in the rights of individuals and groups to defend and extend their rights, sometimes at the expense of national laws. From this perspective, judicialization may be viewed as a force for decentralization (Prof. Kelemen 2017, pers.comm., 9 June). Experimentalism provides a functional solution for promoting the advantages associated with decentralization while speaking to the process/ manner in which integration is best achieved. Namely through an emphasis on the

agreement by a wide variety of multi-level actors, who are operating under similar conditions of strategic uncertainty and power-sharing, on sets of flexible, revisable goals.

Agencification is a product of the regulatory state. There is evidence to suggest that the number of EU agencies has multiplied with the expansion of the regulatory state. In the Commission’s White Paper on EU Governance, it is implicitly acknowledged that ‘EU agencies are a policy response to the insufficient application of EU law’ (in Chamon,

(9)

2016: 5). Agencification may be seen as an atypical form of administrative integration and capacity building.

Furthermore, it has intensified with regard to the regulation of both banking and financial sectors in the wake of the 2008 crisis and with increased political support from the European Parliament (EP) and Member States more generally. A common concern for stable, trust-worthy markets resulted in the creation of the EU’s most powerful suite of agencies to date, the ESAs, including ESMA. The so-called ‘hub and spokes’ model of many EU agencies provides a political and functional compromise with regards to issues of centralization. This approach allows for some centralized oversight at EU level while leaving implementation in the hands of the Member States. New governance approaches have grown up with the rise of agencification as they provide a complementary mode of policy-making.

In the chapters that follow, I will address my central research question through recourse to theory and empirical research. Chapter One will provide a brief literature review of the regulatory state and the role of law in European integration, along with related debates surrounding centralization and decentralization. A review of the literature about the nature and development of theories of governance will follow along with a brief discussion on the issue of agencification and its implication for the creation of European regulatory agencies including ESMA. Chapter Two will provide a detailed theoretical framework – focusing on Experimentalism and Eurolegalism. A closer focus on the operationalization of key aspects of each of these theories will be included for use in later empirical analysis. Chapter Three will provide an overview of my methodological approach. It will include discussion of the problem-solving approach used including the case-study method and the use of practise-tracing. Operationalization of my two key theories is also included. Chapter Four will focus on the institutional design of ESMA and how this affects its ability to be a force for EU financial market integration. Chapter Five explores the nature and implications of ESMA’s regulatory and supervisory capacity with particular reference to the Capital Market Union project (CMU). It includes discussion and analysis of the supervisory tools used by the Authority as applied to three specific market sectors. The chapter addresses the significance of ESMA’s powers and possible extension thereof in light of arguments about centralization and its relationship to the CMU project. Chapter Six focuses on the Netherlands’ financial markets – this case study attempts to reflect the forces, both centrifugal and centripetal, that operate at national level. Analysis of the supervisory tools utilised by Netherlands’ NCA, AFM, along with an exploration of the changing nature of the country’s legal landscape, suggests that a compromise between centralization and decentralization is often optimal for the regulation and functioning of EU securities markets. We conclude that both Experimentalism and Eurolegalism have valuable contributions to make in their role as theoretical lenses for the various challenges presented by EU security market governance. Particularly in light of the large disparities in development of the capital markets of different Member States and the challenges that this presents to ESMA and the NCAs on which it depends.

(10)

CHAPTER ONE: Literature Review

This review will provide a brief overview of selected aspects of the literature on debates regarding the role of the regulatory state in EU integration and the resulting issue of centralization versus decentralization. This will be

followed by a discussion of the two key aspects of my research question – a) the nature and development of theories of governance and, b) a brief focus on the process of agencification and its implications for the creation and

development of European regulatory agencies such as ESMA. 1.0 The Regulatory State:

The concept of the regulatory state has been credited to Majone, who defined it as ‘the rise of the regulatory aspect of the modern state, at the expense of its other two major functions - redistribution and stabilization’ (in Moran, 2002: 402). At the EU level, the rise of the regulatory state is a result of a generalized weakness of command. That is, Brussels has neither political power nor the administrative capacity to impose policies on 27 nation states nor on private entities. Thus Majone wrote, more than two decades ago, that ‘The Union, … may never become a state in the modern sense of the concept’ and that ‘it exhibits some of the features of statehood only in the important but limited areas of economic and social regulation’ (in Moran, 2002: 403). Moran (2002) suggests that the regulatory state is understood by Majone to be largely functional as ‘the world of expert regulation is necessarily separate from the world of majoritarian democracy’ (ibid). Such an observation is part of an on-going tension that exists in much of the political science literature on the EU – those who prioritise political explanations and those who emphasise functional necessities.

1.1 The politics of regulation:

Keleman makes a similar argument in his discussion of the political foundations of what he terms, ‘the Eurocracy’ (2011). Regulatory policy-making allows EU institutions, such as the Commission, a good deal of power while shifting responsibility for implementation and costs to the national level. Thus, ‘the characteristic EU institution is the EU agency’ (12) and the central concern becomes how to legitimise these institutions and the regulatory policies that they pursue.

Kelemen and Tarrant (2011) argue that the design of the EU regulatory institutions is driven by political rather than functional imperatives which are motivated by distributional conflicts and the influence of supranational actors. They claim that much of the literature on EU regulatory agencies has provided functional explanations for their creation e.g. Majone, Everson, Kreher. Kelemen and Tarrant (2011) use a rationalist, institutionalist framework to argue that neither functional necessity nor convictions about the efficacy of ‘network governance’ explain decisions regarding the design of EU regulatory structures. Rather, they argue that the degree of distributional conflict in the policy area in question explains design choice.

(11)

With regards to the regulatory design of EU financial markets, Quaglia (2013) takes a political perspective in her categorization of EU regulatory actors in terms of two competing advocacy coalitions - ‘market making’ and ‘market shaping’ (519). Building on Sabatier’s advocacy coalition framework, Quaglia divides the UK, Ireland and the Benalux and Nordic countries (market-making) from France, Italy, other Mediterranean countries and often times Germany too (market-shaping) based on ‘competing policy paradigms’ (Hall in Quaglia, 2013: 520). These policy paradigms concern financial services regulation, in particular its objectives and instruments. Broadly speaking, the market-making approach emphasises the objectives of competition and market efficiency and instruments that privilege private-sector governance and ‘light touch, principal-based regulation’ (ibid). While the market-shaping approach favours consumer protection and market stability using prescriptive, rule-based regulation and strong guidance from pubic authorities. Quaglia (ibid) uses this distinction to assess the impact of the financial crisis on changes in the EU response to financial regulation. She concludes that a concern for stability and security precipitated by the crisis, allowed members of the market-shaping coalition to gain influence resulting in a shift in the balance of regulatory power in the EU embodied in a broadening of the scope and intensity of regulation of the financial markets (Quaglia, 2013: 530). The creation of ESMA may be viewed as very much in keeping with a market-shaping perspective. 1.2 The ECJ and the role of law as a force for integration in the Regulatory State:

The notion of a regulatory state clearly implies a central role for rule-making as a mode of governance. The law has played a key role in the development, governance and integration of the EU. This privileging of regulation as a mode of governance has advantages and disadvantages: it provides a degree of legitimacy through the promotion of rights. It provides a reasonably efficient method of integration in a fragmented political landscape. It also provides clarity and justice with regards to the Member States’ relationships with one another and the EU. Finally, it provides a partial solution with regards to the sovereignty enjoyed by the Member States and that claimed by the EU. On the other hand, distant rule-making by groups of elites has been viewed as lacking genuine political legitimacy. Further, the enforcement of the theoretical rights enjoyed by citizens is slow and costly and thus in practice is only available to a small proportion of the population (Alter, 2000: 494). Finally, the law is less able to take into account regional and national differences in economic development, norms and values in general.

Nowhere is the power of the law in the EU more pronounced than in the development and role played by the ECJ. As Alter notes, ‘The ECJ is perhaps the most active and influential international legal body in existence, operating as a constitutional court of Europe’ (2000: 491). Described as ‘a motor of European integration’ (Kelemen and

Schmidt,2012: 1), the ECJ has repeatedly demonstrated its independence and authority with regards to both the depth and breadth of integration. Kelemen and Schmidt list a number of reasons for this clear bias toward supranationality which have sparked what they term ‘a self-reinforcing process of judicialization’ that has

simultaneously expanded ECJ power (ibid). National courts, citizens and states themselves ‘refer thousands of cases to the ECJ for preliminary rulings each year.’ (Davies and Rasmussen, 2012: 305) Further, with the 1963 Van Gend and Loos decision and the Costa v. Enel decision of 1964, the ECJ transformed the preliminary ruling mechanism

(12)

from a conduit for national court questions and challenges to EU law into a mechanism that allows individuals to invoke European law in national courts to challenge national law (Alter 2000: 491). Thus EU law creates significant legal rights for citizens but these rights are primarily economic, directed at obtaining the four freedoms – free movement of goods, people, capital and services (ibid). However, it is important to note that citizen groups are less likely to choose litigation when they have influence in and access to policymaking. As Alter (2000: 498) points out, the risk and relative crudeness of litigation as a means of influencing policy means that organised interests generally prefer to work through networked systems that allow for greater flexibility and nuance.

2.0 Governance theory:

Bartolini (in Heritier & Rhodes, 2011) suggests that competing ideologies have placed too much confidence in the problem- solving abilities of governments. Further, governance theories and practice reflect the reduced role of central government institutions e.g. parliament, political parties etc. and the accompanying decline of public

confidence in these institutions. The nation state was the traditional jurisdiction for the creation of a set of rules and laws. This process has been challenged by globalization and the accompanying rise of global technology, which have challenged traditional rationales for law- making (3). As a result of the above, Bartolini suggests that the EU has emerged as the ‘most innovative producer of new types of decision-making arrangements’ which in turn has resulted in less formal modes of policy-making e.g. naming-and-shaming, learning and persuasion (2011: 5). Thus, the author claims that governance has the potential to enhance the effectiveness of policy implementation by improving implementation,reducing policy fragmentation, fostering policy learning and output legitimacy through involvement of a broader range of actors. The core of governance is thus characterized by a shift towards more ‘consensual’ decisions (6).

2.1 Governance as a concept:

Governance differs from government, which is associated with forms of ‘command and control’, hierarchical

relationships, electoral responsibility, hard legal instruments and all-embracing binding decisions (ibid). Governance, may be defined as ‘a system of co-production of norms and public goods where the co-producers are different kinds of actors.’ (Bartolini, 2011: 8) Essentially, Bartolini envisages governance as straddling the policy-making divide between public (government) and private actors. Further, he conceives of governance as a dynamic process that will involve varying levels of participation from private partners and public authorities. Methods of co-production may vary and the nature and role of sanctions may range from precisely defined to voluntary adhesion e.g. reputational costs (ibid). [ See Appendix: Property Spaces of Governance co-production diagram]. I will turn now to focus on what has been termed ‘new governance’. Although the distinction is blurred at times, Bartolini and others point out that governance in its older form did not fully incorporate the following aspects; the growing importance of multi-level, private-public decisional networks, the dependence of decision-making on non-hierarchical, mutually

(13)

interdependent relationships, problem-solving approaches and key characteristics of consensus-building, efficiency and transparency (2011:14).

2.2 New governance:

Craig and De Burca (2011) view the shift toward new forms of governance as ‘a move away from reliance on hierarchical modes towards more flexible modes as the preferred method of governing’ as witnessed over the last couple of decades in the EU (158). Further, they point out that there has been some debate over potential overlap with other terms such as ‘networked governance’, ‘reflexive governance’ and ‘experimentalist governance’ (ibid). Of particular relevance to this study, is the authors’ highlighting of the co-existence of new forms of governance and hierarchical modes of government in the EU and, secondly, their suggestion that there are at least three areas of overlap between the two; a) the role of central governmental actors; b) the prescriptive nature of instruments; and c) reliance on legal enforceability (160). In addition, the use of the Classic Community Method (CCM) of law-making that, even after the Lisbon Treaty, continues to reflect most of the ordinary legislative procedures in the EU, has been used as a notional ideal-type of the kind of classical centralized law-making against which new governance modes are compared (ibid). The above points invite a more nuanced understanding of the relationship between new governance modes and hierarchical ones. This has important implications for the proposed relationship between Experimentalism and Eurolegalism.

Nevertheless, Craig and De Burca (2011) point out that the move towards more flexible forms of governance does not necessarily mean that there is no legal commitment to policies agreed within such forms. Rather there is likely to be greater opportunity for input, revision and adaptation both on the parts of those administering the policies and those to whom they are applied. Thus policy-making is easier to revise and less prescriptive within a new governance framework (160).

Craig and De Burca (2011) highlight four key examples of the emergence of new forms of governance beginning in the 1980’s with the ‘new approach to harmonization’ which came to prominence as part of the EU’s single market programme and is a forerunner of the Capital Markets Union project. Secondly, they note the EU’s adoption of the Lisbon Agenda in 2000. Finally, the authors discuss the change in approach to EU policy-making and regulation more recently. Specifically, this change of emphasis included the formal introduction of the principles of subsidiarity and proportionality into policy making by the Maastricht and Amsterdam treaties and the Commission’s ‘better regulation’ initiative embodied in its 2001 White Paper on Governance (161).

2.3 Subsidiarity and Proportionality:

A desire to curb unnecessary regulation within the EU lay behind the above mentioned principles. Specifically, in Article 5 TEU, it is stated that ‘directives should be preferred to regulations and framework directives to detailed measures’ (in Craig and de Burca, 2011: 168). Further, it is stated that ‘EU measures should leave as much scope for

(14)

national decision as possible’ and that the EU should ‘….consult widely before proposing legislation and wherever appropriate publish consultation documents’ (ibid). These last two requirements are evident in the approach adopted by ESMA, particularly with regards to its working relationship with NCAs.

As the authors point out, restraint lies at the heart of the subsidiarity and proportionality principles with regards to both the form and content of regulation, specifically the degree of detail and prescriptiveness thereof (167). The scope of lower levels of governing are extended (e.g. an emphasis on Level 2 legislation) and provision for extensive Commission consultation encourages the involvement of other actors in law-making. In addition, it is suggested that political and administrative enforcement mechanisms rather than judicial ones predominate (ibid). Once again, governance approaches adopted by ESMA display many of these characteristics while the restraint in regulation consistent with these two principals, contrasts with Eurolegalist claims.

2.4 Reasons for the rise of New Governance:

Scott and Trubeck (in Craig and De Burca, 2011: 175) list six reasons for the move towards new governance approaches:

a) Increasing complexity and uncertainty emerging in EU governance.

b) Irreducible diversity resulting from a wide variety of problems not amenable to a single solution. c) New approaches to public administration and law in Europe and the U.S.

d) Competence creep – to deal with areas where legal authority for EU action is limited or non-existent. e) Legitimacy – new governance often reflects an effort to secure legitimacy for EU policy-making through

social dialogue.

f) Subsidiarity – provides added impetus for new governance approaches. (See previous section.)

Sabel and Zeitlin (in Craig and de Burca, 2011) argue that since the turn of the millennium, new architecture of governance has emerged in response to: ‘catastrophic breakdowns in regulatory capacity’ (176) or the threat thereof, and a means of unblocking domains of rule-making that have become dead-locked. I will return to these points in greater detail in the next section.

2.5 Critical Evaluation of New Governance:

Diedrichs, Reiner and Wessels (2011) and Craig and De Burca (2011) all point out that the performance and impact of new modes of governance is mixed with regards to effectiveness. However, Craig and De Burca note that measuring effectiveness is complicated and does not necessarily obviate their importance as similar difficulties apply to so-called ‘command-and-control-type’ regulation (177). A related observation, is that some of the virtues of new

(15)

governance methods are to be found in the processes involved rather than their policy outcomes, e.g. greater participation, less conflict, enhanced opportunities for learning and knowledge-creation and experimentation (ibid). Thus they may provide member states with the opportunity to engage in limited co-operation or coordination at EU level in a positive, non-threatening manner that paves the way for future engagement at a deeper level (Diedrichs, Reiner and Wessels, 2011: 44). They also provide member states with flexible and adaptable tools with which to find optimal solutions to political problems in situations where formalized classical legal acts may prove less suited to the task (42). Both sets of authors discuss the question of legitimacy and how new modes of governance might effect it. Further, although it is acknowledged that such approaches are not prima faci supportive of representative

democracy and accountability, Diedrichs et al note that new modes of governance legitimate the retention of

national control in sensitive policy areas as they ‘respect and rescue their sovereignty and room for manoeuvre’ (44). More broadly, other authors (Sabel and Zeitlin in Craig and De Burca, 2011) have provided convincing arguments for the role of new forms of governance in encouraging a ‘productive re-conceptualization of settled understandings … of democracy, in particular in the non-state context of the EU.’ (178).

Diedrichs et al suggest that although the impact of new modes of governance may be weak in policy terms, they have been successful in preserving Member States’ autonomy and room for manoeuvre and thus may be viewed as an innovative answer by Member States for achieving institutional solutions in situations where consensus is weak and political will for further integration is uneven (46). Finally, various authors (Bartolini, 2011, Heritier &

Rhodes,2011, Diedrichs et al,2011 and Craig and De Burca,2011 ) agree that new modes of governance are perhaps best understood as co-existing with older modes and frequently involve trends towards hybridization rather than replacement of one by the other. Policy area is also an important determining factor with regards to the

predominance of new or other modes of governance (Diedrichs et al, 45). 3.0 Agencification in the EU:

Agencification refers to ‘the process whereby the EU agencies take up an increasingly important role in the EU administration, both in a quantitative as well as a qualitative sense’ (Chamon, 2016: 45). The former, refers to the growing number of agencies, their budgets and employees. While the latter, to the increasingly significant role played by these agencies both with regards to the power they enjoy and their part in delivering EU policies (ibid). [See Appendix 2 – Chamon, p. 46]. Agencification is thus a product of the Regulatory state and both new governance and agencification may be viewed as complementary solutions to the unique political and legal challenges faced by the EU. It is perhaps no co-incidence then that the rise of regulatory agencies and new governance modes grew together in prominence from the 1990’s onwards (Wallace & Reh in Wallace, Pollack and Young, 2015: 104).

Kelemen (2011) notes this trend in his observation that over 30 European agencies have been established outside of the Commission hierarchy. Further, that collectively, the number of officials, at both European and national levels, engaged in policy-making in these agencies far surpasses the number of employees of the European Commission (923). As Majone (in Wallace, Pollack and Young, 2015:103) points out, the EU arena lends itself to the development

(16)

of ‘a regulatory mode of policy-making’ which combines transnational standards while accommodating national differences.

3.1 The scope and growth of EU agencification:

Chamon (2016) suggests that agencification may be seen as an atypical form of administrative integration that is part of a wider trend toward a more unified European Administrative Space (EAS). However the author notes that the position of EU agencies under EU procedural law remains unclear (45). Since the sanctioning of agencifiction by the ECJ in the Short-selling case (2012), the onus rests squarely on the political institutions to secure the legitimacy of these agencies. The 2012 case tested the limits of both the Meroni doctrine (1958) and Romano (1981)

(17)

CHAPTER TWO: Theoretical framework

The two theoretical frameworks used in this study – namely, Experimentalism and Eurolegalism, arise from different approaches to European integration studies. Jachtenfuchs (in Jorgensen, Pollack & Rosamond 2006) suggests that, despite arising out of the comparative politics view, multi-level governance approaches have provided a way of transcending the division between these two approaches by considering Euro-Polity as part of a larger set of governance systems (161). New modes of governance, of which Experimentalism is one, have their roots in the multi-level perspective.

With the rise of globalization and neoliberalism in the 1980s, International Political Economy (IPE) scholars came to approach European integration as a response to the challenges posed by globalization and financial market

integration (Verdun, 2005:15). In its focus on the globalization of American law/ legal practises, the Political Economy of Eurolegalism is particularly evident (Kelemen, 2011:22). However, it also appears to have roots in the transatlantic ‘Integration Through Law’ project that focused on the comparison of the legal order of the US and that of Europe. A major theme in these studies was the structural tension between two levels of government in federal systems and the resulting need for adjudication and conflict resolution by judges and the legal order (Jachtenfuchs, 2006:161).

1.0 Experimentalist Governance:

1.1 Basic tenets:

Experimentalism is described as an iterative, multi-level governance architecture based on ‘framework rule making and revision through recursive review of implementation experience in diverse local contexts’ (Zeitlin, 2015: 1). Further, its proponents provide evidence to suggest that it has become increasingly prominent in the EU in the last fifteen years for a variety of reasons. Most significant among these are, the increasing levels of strategic uncertainty and the polyarchic nature of the EU.

Drawing on pragmatist notions of the mutability of problems and their dependence on context, experimentalism acknowledges the importance of revising goals and approaches through recurrent reappraisal and discussion of both goals and the approaches being used to attain them. Indeed, Dewey’s substantive notion of democracy and his emphasis on citizen participation and shared, co-operative self-governance, are reflected to some degree in experimentalist approaches to governance and have important implications for the types of decision-making processes that different governance models support (Vander Veen, 2011:164). Thus all solutions are treated as essentially incomplete and are described by Zeitlin (2015) as ‘machines for learning from diversity’ (3). It is therefore argued that given the highly diverse nature of EU Member States and their interdependency, the EU lends itself to such an approach. Indeed Zeitlin argues for the pervasive institutionalisation of experimentalist governance architectures and, together with a number of other academics in the field, provides examples of its functioning in

(18)

regulatory areas as diverse as energy, environmental protection, telecommunications, finance, food, drug and maritime safety (2015:3).

Further, it is argued that these architectures encompass a variety of organisational forms including networked agencies, regulatory networks and open-methods of co-ordination (ibid). It is important to note here that

experimentalist governance is also envisaged as working alongside other forms of governance including hierarchical enforcement of prescriptive rules. This is particularly important for the purposes of this study as one of its major hypotheses involves the recognition that consensual decision-making of the kind found in experimentalist governance approaches and the rule-based adversarial legalism of the Eurolegalist approach are not necessarily mutually exclusive. Indeed, Zeitlin (2015:3) points out that in fields such as financial regulation, concern for the integrity of the internal market has led to the establishment of a single set of putatively uniform rules which national authorities have limited power to alter. Further, it is acknowledged that a number of actors may well resist change at local level due to attachment to traditional ways of doing things, particularly in the European context where many nation states have long and rich cultural traditions and histories.

Experimentalism therefore acknowledges the role of so-called penalty default mechanism and other destabilizing devices imposed by courts and other administrative authorities. Such ‘destabilisation regimes’ are viewed as a ‘reversion to traditional forms of law or rule-making or some other condition equally beyond the actor’s control’ (Sabel and Zeitlin, 2008: 276). Significantly, the authors argue that the existence of sanction is an incidental consequence of various processes of framework making and revision, not an inherent characteristic of the

architecture of a whole (ibid). Thus, the role played by law and rule-making is acknowledged and provides a space for the existence of alternative, apparently contradictory approaches such as Keleman’s Eurolegalism. Critics such as Borzel highlight the interdependence of governance systems and, as such, point to the possible interaction of Experimentalist governance and ‘hierarchy’ thus questioning the relationship between a penalty default and the shadow of hierarchy (Eckert and Borzel, 2012: 378). They go on to question the extent to which both might provide an additional scope condition for EG (ibid). While others have suggested that in contexts where there are major power imbalances or vulnerable stakeholder groups, flexible policy-making combined with legally enforceable entitlement rules and procedural rights is preferable (De Burca, 2010:236).

Certainly in the case of ESMA, the organisation has been given significant power of intervention and sanction, at least in some areas such as Credit Rating Agencies, trade repositories and short-selling. However, a number of academics in the field including Moloney (2011a) have pointed out that ESMA’s powers do not go far enough in some cases and the organisation’s Chairman, Steven Maijoor, has called for increased powers in the light of CMU and BREXIT (2016). Nevertheless, the rules in these domains are explicitly conceived of as both provisional and contestable. They are subject to regular revision on the basis of new information and local implementation experience through review processes involving not only national and European regulators but also stakeholder groups and other industry representatives.

(19)

It is certainly true in the case of the securities markets that ESMA relies heavily on the competence and co-operation of the NCAs in each Member State in order to implement and supervise the EU regulations and directives designed to harmonize financial market regulation. Given the diverse nature of member state securities markets, their shared desire for stability of said markets and the organisational structure of ESMA itself, an experimentalist approach to both implementation and supervision of EU regulation, is evident.

1.2 Four- part stage architectural framework of experimentalism:

Sabel and Zeitlin (2011: 169) outline a four- stage, iterative process that is typical of experimentalist approaches to governance:

a) The agreement of broad framework goals and metrics established by a combination of both local and supranational groups and civil society stakeholders e.g. financial market stability.

b) Local units are given responsibility for their own implementation and monitoring of the above goals but must accept that they are answerable to higher authorities such as the EU.

c) Thus, the autonomy of local actors is dependent on their agreement to report regularly on their progress towards agreed general goals and participate in a peer review in which their results are compared to those of other groups using different methods. If progress is deemed insufficient, the group involved must be willing to adjust and learn from their peers in an effort to improve effectiveness.

d) Finally, the goals, metrics and decision-making procedures themselves are revised from time-to-time and a widening circle of actors are involved in the review process. This whole cycle is on-going.

1.3 Experimentalist Governance, constitutionalism and democracy:

Sabel and Zeitlin (2011:170) have framed the democratic merits of EG in terms of directly, deliberative polyarchy (DDP) and yet some critics such as Verdun have argued that EG does not allow capture of important processes of politicization and depolitisization (in Eckhert and Borzel,2012: 373). Similarly, Amy Cohen questions whether EG provides a distributive theory of justice or ‘merely brackets the question’ and remains ‘normatively empty’ (in de Burca, 2010: 237). It is important at this point, to bear in mind the pragmatist roots of EG and its emphasis on the exercise of public reason through recursive, deliberative and inclusive exploration of common problems. It is not inconceivable that such an approach will give rise to its own contextually appropriate theory of justice. Although the very nature of the process means that the exact characteristics of such a theory are difficult to predict in advance (Van Veen, 2011).

A variety of academics have argued that EG may be usefully transposed into the realm of constitutionalism and indeed the relationship between the ECJ and national courts has been explained in experimentalist terms. Sabel and Zeitlin (2012: 424) suggest that EG encourages the re-conception of representative democracy and that by

(20)

destabilizing entrenched forms of authority and providing dynamic accountability mechanisms, it generates new forms of democracy. Critics including Fossum, Verdun and Borzel have questioned these claims (in Eckhert and Borzel, 2012: 376). Fossum argues that the democratizing principles of transparency and participation are not fully addressed by EG while Borzel is concerned that its lack of representative provision will result in its perception as a form of technocratic governance (ibid) Sabel and Zeitlin respond that further parliamentarization at EU level would merely serve institutional self-interest. With regards to this study, it is important to note two points in relation to the above discussion. Firstly, both proponents and critics of EG acknowledge the importance of the role of some form of rule-based intervention in certain contexts. Second, EG, like Eurolegalism, envisages a new form of

democracy resulting from its employ (ibid). I will return to these two points in my discussion of the latter in the next section.

1.4 Scope conditions of Experimentalist Governance:

Sabel and Zeitlin (2012) address the pertinent issue of what circumstances further or impede the emergence of Experimentalist governance. The authors acknowledge that without strategic uncertainty and polyarchic distribution of power, EG is unlikely to emerge. Strategic uncertainty is important as it assumes that the actors involved are not in a position to know or be able to ascertain with any degree of certainty the outcome of a joint problem-solving endeavour. Strategic uncertainty is clearly a widespread phenomenon. Further, the condition of polyarchy

emphasises ‘the absence of a central final decider’ which facilitates the co-operation of the parties involved to ‘learn from, discipline and set goals for one another’ (170). However, even when these two essential requirements are in place, Experimentalist approaches may find it difficult to take root. Two such scenarios are explored: – situations of path-dependency, where actors are reluctant to relinquish their advantages despite the possible realisation that the situation is not optimal; or, in situations where there is an absence of shared beliefs and goals among the relevant actors (ibid).

1.5 The Shadow of Hierarchy & Penalty Defaults:

Sabel and Zeitlin (2012) agree that there are many scenarios where conflicts over distributional inequalities obstruct experimentalist cooperation and that the threat of imposing a far less desirable outcome than one that could be achieved through joint co-operation is useful for inducing cooperation. Thus they acknowledge that there is common ground between notions of the shadow of hierarchy and a penalty default - ‘Where Börzel invokes the idea of the shadow of hierarchy to describe this threat and its origin, we speak of the imposition of a penalty default.’ (413). Indeed, both concepts have their origins in legal parlance and, Sabel and Zeitlin (2012) agree that, ‘the idea that there are functional equivalents to threatening shadows and the creation of penalty defaults by traditional state authorities, is therefore, common ground’ (414).

Sabel and Zeitlin acknowledge that conditions under which penalty defaults are and are not available present an opportunity for further research particularly with reference to difference in institutional design. This study’s focus

(21)

on the institutional configuration of ESMA provides an opportunity to explore the possible functional equivalence between its use of penalty default and the legal shadows of hierarchy reflective of a Eurolegalist position. 1.6 Cultural prerequisites of Experimentalism:

In agreement with Kumm, Sabel and Zeitlin (2012) acknowledge the necessity for some shared values in order for experimentalist cooperation to take place. Nevertheless, the so-called ‘Weimar example’ (415) presents an

interesting case where refusal to cooperate, is not necessarily based on a lack of shared values. The successful use of the penalty default in a wide range of settings, does however indicate a possible solution to this difficult problem. The authors pose two key questions – how much agreement is required before cooperation can take place and how much can be generated through the process of joint exploration? It is clearly difficult to pre-determine exact levels of shared values/ agreement but perhaps it is in the process of, rather than the pre-requisites for, co-operation, that Experimentalism has much offer. It is worth noting, that the process of negotiation and comprise is psychologically far more rewarding than having a winner –takes-all solution imposed from above. As Sabel and Zeitlin agree, ‘the extent of circumstances favouring experimentalist outcomes is certainly not trivial, however far it may be from all-encompassing’ (2012: 415).

2.0 Eurolegalism:

Keleman (2011) proposes a mode of governance that he calls Eurolegalism – ‘A mode of governance based on coercive judicialised enforcement of detailed legal norms’ (30). He claims that it is becoming increasingly widespread across the European Union due largely to the forces of economic liberalization and political fragmentation. Drawing on Kagan’s definition of ‘adversarial legalism’, a distinctive American approach to governance, he defines

Eurolegalism as a ‘European variant of adversarial legalism’, a ‘more restrained and sedate *form+ than that found in America’ (8). Adversarial legalism as a mode of governance displays the following characteristics:

• a reliance on detailed rules containing strict transparency and disclosure requirements; • use of legalistic and adversarial approaches to regulatory enforcement and dispute resolution; • slow, costly legal contestation;

• active judicial review of administrative action;

• the empowerment of private actors to enforce legal norms ( 2011: 6).

The two related mechanisms of increased economic liberalization associated with the European Single Market and the nature of the EU as a highly fragmented regulatory state with a powerful judiciary are key to the spread of Eurolegalism in Europe (2006). Kelemen and Sibbitt (2004) define American-style law through reference to two distinguishing characteristics – transparency and the broad empowerment of private actors to assert their legal

(22)

rights. In order to achieve their regulatory aims in an increasingly open, liberalized environment, national policy makers are encouraged to choose formal, transparent regulation rather than more informal, co-operative systems that were more opaque. Further, it is argued that liberalization leads to more than mere deregulation, it creates pressure for re-regulation to enable governments to enforce norms in a liberalized environment (106). Certainly post-crisis Europe has seen an increase in re-regulation and ESMA is a clear example thereof.

Kelemen and Sibbitt (2004) point to the fact that authority in the EU is divided vertically between the EU and member states and horizontally between the Commission, the Council and the Parliament. As political authority becomes more fragmented, so judicialization becomes a more attractive means of controlling bureaucratic agents. This in turn promotes the development of an ‘inflexible, adversarial and litigious approach to the implementation and enforcement of regulatory policy’ (110). Such claims are particularly interesting in light of the fact that they argue for an almost entirely diametrically opposed explanation to that of EG for the same phenomenon. Political fragmentation or, in Experimentalist terms, polyarchic distributions of power, call for increased formal, regulatory judicialization from a Eurolegal perspective and a directly deliberative, multi-level approach to governance from an experimentalist point of view. One of the aims of this study is to shed further light on such an apparent contradiction through recourse to empirical data from case studies of the Capital Markets Union and the functioning of the

Netherlands’ NCA – AFM.

In addition, Keleman and Schmidt (2012) argue that concern about the so-called democratic -deficit of the EU and increasing mistrust of distant technocrats along with mistrust between member states, has generated public demands for transparency and resulted in the further formalization of regulation and administrative procedures. Finally, they note the increasing power of the European Court of Justice (ECJ) as the result of division between the above mentioned EU institutions who find it difficult to work in concert to rein in the Court (2). Certainly the 2012 ruling by the ECJ in Case C-270/12 UK V Parliament and Council in favour of the latter, provide evidence of this (Schloten and van Rijsbergen, 2014: 390). In this case, the UK questioned the extent of the powers of ESMA. The limits of both the Meroni doctrine (1958) and Romano (1981) judgements were tested, and those of EU agencies such as ESMA were clarified and upheld (ibid).

2.1 Trends associated with Eurolegalism:

Kelemen (2011: 6) identifies four major trends which he associates with the spread of adversarial legalism: a) The continued expansion of a variety of EU rights and the persistent tendency of EU lawmakers to draft

action-forcing laws replete with justifiable provisions thus expanding the bases for legal action. b) The adversarial, legalistic approach taken by the European Commission to enforcement. Importantly,

Kelemen notes that adversarial legalism does not necessarily mean high volumes of litigation but also refers to the threat of legal action which may impact on levels of compliance.

(23)

c) The active steps taken by the EU to expand access to justice and encourage private parties to enforce community law through national courts.

d) The transformation of the legal services industry across the EU, which entails a strengthening of the legal infrastructure for adversarial legalism.

2.2 Eurolegalism and security market regulation:

Kelemen explores the history of and more recent developments in the European securities markets from a Eurolegalist perspective and argues that the EU has played a central and indispensable part in establishing a new regulatory regime based largely on a model of adversarial legalism (2011: 97).

Before the mid- 1980’s, Kelemen characterises regulation of the EU securities markets as something akin to an old boys club that was dominated largely by self-regulation and a corresponding laxity of supervision by public

authorities, restricted market entry, a paucity of rules on insider trading and minimal disclosure requirements (138). Today, this situation has been considerably transformed and involves the replacement of national regulation by a large body of detailed EU securities regulation. Indeed Moloney (2008) describes it as ‘a veritable juggernaut of securities regulation’ (4). Thus informal self-regulation was replaced by strict legal requirements enforced by significantly strengthened national securities regulators. This trend toward greater EU security regulation was further accelerated by the 2008 financial crisis.

2.3 Factors affecting increased regulation of EU securities markets:

Kelemen identifies a numbers of reasons for this transformation but agrees that without the influence of the process of European integration, it would be ‘unimaginable’ (2011: 139). He also cites international forces and developments in domestic politics within member states as influential. Further, American law, American law firms and American institutional investors are also cited as playing an important role in this trend. For example, large-scale American investors such as Goldman Sachs have played a central role in spreading shareholder activism to Europe and American courts have become directly involved in European securities enforcement generating pressure on European lawmakers and judges (ibid).

2.4 Securities regulation in the Netherlands:

Some interesting data is provided by Kelemen (2011) regarding the fairly dramatic transformation of the regulation of the Netherlands’ securities market. Categorized by the author, along with Germany, as one of the member states with ‘the weakest , most informal and insular regimes’ (141) , the Netherlands not only significantly strengthened the powers of the public authorities charged with securities regulation but has also emerged as ‘a sort of hub for securities class actions in Europe’ (128). Kelemen goes on to argue that in spite of a legal culture that traditionally discouraged litigation in favour of pragmatic, consensus-based conflict resolution, shareholder groups such as the

(24)

Stockholders Association have mobilized and taken advantage of new legal opportunities to bring securities litigation against listed companies.

2.5 Criticisms of Eurolegalism:

Three major criticisms of Eurolegalism are identified by Kelemen (2011). Perhaps most significantly for the purposes of this study are the arguments of the new governmentalists.

a) New Governance: Kelemen points to the apparent lack of solid empirical evidence for the effectiveness of more flexible, voluntary, cooperative and informal modes of new governance (2011:28). He includes in this ‘network governance’, ‘new governance architecture’ and ‘experimentalist governance’ (29). Further, he questions the prevalence of the widespread use of these new modes of governance in the EU. However, he does not address the issue of the difficulty of empirical measure of the prevalence and effectiveness of new modes of governance. Finally, Kelemen argues that these new modes of governance have gained much popularity among policy-makers for largely political reasons. Specifically, the Commission’s attempts to revitalise their policy-making image and dispel widespread disillusionment with unnecessary, burdensome legislation (ibid).

b) Historical Institutionalist arguments: According to Kelemen these scholars argue that entrenched legal institutions and legal cultures will forestall the development of adversarial legalism in Europe. This literature identifies a variety of institutional impediments to litigation such as inadequate financial support and incentives, restrictive rules of standing, absence of class action together with deeply embedded beliefs concerning the role of law and lawyers. In response, Kelemen argues that these authors have overestimated the strength and resilience of such barriers. As he puts it, ‘path dependency is not destiny’ (2011: 33). However, he does acknowledge that the process is a gradual one and will occur unevenly across member states due to their differing legal systems and cultures. Indeed he agrees that the European variant of Eurolegalism will never match that of the US (ibid).

c) Diffusion and policy convergence arguments: Authors working in this field, unlike the New Governmentalists, acknowledge the spread of Eurolegalism but attribute different causes to the phenomenon. Kelemen

acknowledges the importance of the role played by diffusion in the spread of Eurolegalism but argues that neither regulatory competition between governments nor policy emulation provide an adequate explanation of it. EU policy-makers are moving toward adversarial legalism as a result of functional pressures and

political incentives generated by a liberalized economy and fragmented political institutions rather than a desire to emulate the US system or better compete with it (2011:33)

(25)

Additional criticisms of Eurolegalism:

Further, Matczak (2012) argues that Kelemen’s explanation for the spread of the changes in the EU legal market is unconvincing in that the increase in the number of attorneys and in the turn-over of law firms could be explained by economic factors rather than those of Eurolegalism. It is perhaps worth recognising, however, that one of Kelemen’s key scope conditions for EL is the strengthening forces of economic liberalization. Thus, a partial acknowledgement of the role of economic factors in the increase in adversarial legalism in Europe is provided.

Orford (2012) highlights the apparent lack of serious attention to the role of political and economic factors in the European integration process with regards to Eurolegalism. As she puts it, ‘there are no political parties in his account of the shift in regulatory style that emerged throughout Europe in the drive to complete the single market – and, no ideologies, no organised political forces, no values, no distributional consequences, not even any obvious economic interests at stake’ (279). Although such criticism is not without merit, Orford acknowledges that Kelemen does pay some attention to such factors through frequent mention of the forces of political fragmentation and economic liberalization at work in Europe.

2.6 Eurolegalism and democracy:

Keleman discusses both advantages and disadvantages of the spread of Eurolegalism for democracy in the EU. He acknowledges that such a trend may well lead to increased legal expenses, slower regulatory processes , increasingly adversarial relations between stakeholders in the policy process and to forms of judicial activism that erode

democracy (2011: 251). The limited ability of EU legislative actors to adopt new social policies at the EU level is a further disadvantage. This asymmetry undermines the social force of social democratic majorities (ibid).

However, Kelemen argues that although the growth of the EU’s authority has shifted the locus of decision making in many areas further from the citizen, this is being compensated for in crucial respects by the enhancement of

transparency and accountability in policy making at the national level and by the proliferation of rights for individuals at the EU level. He claims that Eurolegalism may provide increased legal certainty, access to justice for previously marginalised groups and improved transparency and accountability of government. It would also enhance the establishment of enforceable individual rights and the creation of new opportunities for participation in policymaking through the courts. From such a perspective, adversarial legalism could ultimately strengthen democracy in Europe in so far as it promotes a form of transnational constitutional patriotism based on a commitment to a common set of European rights (2011:250).

From a Eurolegalist perspective, the fragmented political structure of the EU, its limited administrative capacity and the nature of the single market it seeks to regulate make such a mode of governance inevitable. Such an analysis stands in stark contrast to the claims made by the experimentalist literature. One of the central aims of this study is

(26)

to investigate just this issue with regards to the functioning of ESMA and its role in the harmonization of capital markets regulation across the EU.

3.0 Experimentalism & Eurolegalism: Areas of convergence?

Are Experimentalist and Eurolegalist approaches to centralization and EU financial integration, necessarily mutually exclusive?

The regulation and supervision of the EU capital markets is a truly intricate task. Not only are securities markets complex by nature, but their diversity in number, size, sophistication and governance make ESMA’s task a genuine challenge. Although legal harmonisation is clearly a prerequisite for Capital Market’s Union, the process of achieving consensus is also key to its success. An experimentalist approach would appear to have much to offer in this regard. Similarly, in the area of supervisory convergence, daily interactions between ESMA and the NCAs would seem to necessitate the flexible formalization of Experimentalism. That is, the use of broad framework goals specified by rules and regulations that, nevertheless allow room for flexible re-calibration as the situation demands. Such an approach clearly performs an important function but ESMA’s recent request for increased legal powers of

enforcement, including fines and other such penalties, highlights the necessity of some form of penalty default or, from a Eurolegalist perspective, ‘coercive judicialised enforcement’ (Kelemen, 30). Perhaps the relationship between these two perspectives is best understood within a framework of hybridization and differentiation. As Diedrichs, Reiners and Wessels (in Heritier & Rhodes, 2011) argue, ‘in most cases, innovative modes have been introduced alongside established modes of governance’ (33).

In a comprehensive study on the impact of Market Abuse (MAD) and Transparency (TPD) regulation on all the major EU capital market firms, Christensen, Hail and Leuz (2016) share some highly interesting and relevant findings. Using market liquidity as their criteria of a successful market, the authors find support for a causal link between stricter securities regulation and market liquidity. Such a finding may be viewed as supportive of the Eurolegalist tenet of ‘reliance on detailed rules containing strict transparency and disclosure requirements’ (Kelemen, 2011: 6). However, their parallel finding that the success of new regulation depends critically on how it is implemented and enforced, speaks strongly to a focus on Experimentalism as an equally important explanatory tool.

(27)

CHAPTER 3: Research Design & Methodology:

1.0 Research question:

Is European financial integration best achieved through centralization? An Experimentalist and Eurolegalist analysis of ESMA’s role in integration of EU securities markets.

Perhaps first and foremost, I wish to draw a clear distinction between the goal of financial integration and the concept of centralization. These two phenomenon are sometimes confused. Financial integration has been a central goal of the EU since its inception. Since the 2008 crisis, there has been a marked increase in political support for integration of the banking and financial sectors. The creation of ESMA as one of the EU’s most powerful agencies to date, is clear evidence of this. The Commission’s renewed focus on a capital markets union for the EU provides further evidence.

Centralization on the other hand, emphasises rule from the centre. In the context of the EU, it represents one side of an ever present tension between Member State power and autonomy versus the central power of EU institutions such as the Commission and agencies such as ESMA. With this in mind, it becomes clear that the integration of EU financial markets is not necessarily best achieved through centralization. Both Experimentalism and Eurolegalism are ultimately in favour of decentralization as an approach. However, they arrive at the importance of decentralization via different routes. Experimentalism emphasises the power of local communities while Eurolegalism stresses the rights of private actors.

ESMA presents an interesting topic of study with reference to the above. Its empowerment by the Commission and EP, along with its extensive work on the creation of a Single Rule Book for EU securities markets, make it a potential force for centralization. However, the authority’s experimentalist methods of working along with an increased emphasis on individual rights highlighted by a Eurolegalist analysis, create a definite opposing centrifugal force. 1.1 Exploration of the problems raised by the research question:

This research question attempts to provide a more detailed understanding of ESMA’s governance approach with specific reference to EU financial market integration. ESMA’s governance is understood in terms of its institutional design and its use of supervisory tools. Using two major theoretical frameworks, the study attempts to better

understand how and to what extent, institutional design and supervisory tools are employed to further convergence. The main research question is provisionally operationalized in terms of four secondary questions:

1) Are Experimentalist and Eurolegalist approaches to centralization and EU financial integration, necessarily mutually exclusive?

(28)

2) How do the governance structure and regulatory and supervisory functioning of ESMA affect its ability to respond to the demands of the CMU project?

3) How does rule-making and individual rights creation affect the inherent tension between member state autonomy and EU authority in the securities markets?

4) Is ESMA’s drive for supervisory convergence at national level synonymous with centralization or merely an example of further integration?

2.0 Methodology:

The highly complex nature of the institutions studied and the environments in which they operate make simple quantification largely inappropriate as a research methodology. As Nietzsche said, ‘Above all one would not wish to divest existence of its rich ambiguity.’ (in Flyvbjerg,2011: 311). For this reason, a largely qualitative approach is deemed preferable.

2.1 Case study approach:

I have chosen to address the above research topic from what Flyvbjerg (2011) calls a problem-driven perspective rather than a methodological one. By using case study research as described by Flyvbjerg, I make use of both qualitative and quantitative data, as and when applicable. Case studies include ESMA, the AFM (the Netherlands’ NCA ) and CMU. Using Flyvbjerg’s categorization of case selection, all three were selected on the basis of an

information-orientated focus rather than a random one. Further classification within this broad area, follows: ESMA may be most helpfully classified as a paradigmatic case in so far as it provides a school for the domain of Financial regulatory authorities. Similarly, the AFM may also be categorized as a paradigmatic case in so far as it provides an example for the domain of National Competence Authorities. Finally, CMU may be classified as what Flybjerg defines as a critical case, in the sense that it provides a model of capital market integration and, as such, also allows logical deductions about EU integration as a whole (2011: 307).

Within each of these case studies, I have used quantitative data, where relevant and available along with as rich and detailed a narrative account of each, as time and space allow. Numbers can be very informative, however, as Fioramonti (2014) points out, they have a tendency to over-simplify social and political phenomena and as a result they can limit the range of potential perspectives that are inherent in such phenomena. Experimentalism and Eurolegalism provide my theoretical framework and will be operationalized and used to analyse the relationship between the two primary variables – ESMA’s governance approach and, supervisory convergence in EU securities markets.

Is European financial integration best achieved through supranational centralization? : an Experimentalist and Eurolegalist analysis of ESMA's role in the Capital Market Union

Master Thesis Political Science (Political Economy)