The Financialization of the Welfare State in Europe: Explaining the Deadlock under the European Union Financial Transactions Tax (2011/0261/CNS) from a Pension Funds Perspective

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The Financialization of the Welfare State in Europe:

Explaining the Deadlock under the European Union

Financial Transactions Tax (2011/0261/CNS) from a

Pension Funds Perspective

Supervisor: Teodor Uzunov

Dr. N.A.J. van der Zwan s2267047

Second reader:

Master’s in Public Administration International and European Governance

Master’s Thesis (Word Count: 16995) 11 June 2019

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1. Introduction

Following the substitution of the Bretton Woods system by the Washington consensus in the 1970s, international markets have become exposed to external threats and unpredictable volatility. While the Western European democracies have arguably increased their wealth and pace of development as a result of national markets’ deregulation, the risk of financial market failures has increased as well questioning the benefits of hyper globalization (Rodrik, 2017). The absence of institutions to supervise the financial investment practices at the international level is one of the reasons for a number of financial crises in the last couple of decades with the most recent financial disaster taking place in 2008.

Fortunately, shortly after the crisis in 2011 the European Commission undertook immediate actions to offset the costs incurred by European Union’s (EU) Member States (MS) and prevent future crises. It proposed the Tobin tax under the name Financial Transactions Tax (FTT) which is a levy on all financial transactions made within the EU including both, spot and derivatives (European Commission, 2011). Since 2001, however, not much progress has been achieved. Out of the 27 MS, only eleven had agreed to adopt the tax under the EU’s Enhanced Cooperation Procedure, while the rest opposed the measure or remained uncertain over their stance on the issue. Such an outcome is puzzling given the enormous externalities harnessed by the citizens of Europe as a result of the 2008 financial crisis such as the steep increase in unemployment, the bankruptcy of leading international banks and companies and the increase of societal inequality.

Unsurprisingly, the FTT had become a subject of discussion among scholars as well, who have approached the issue from different perspectives (Cédelle & Vella, 2017; Kalaitzake, 2017; Kastner, 2018; Schulmeister, 2014; Wasserfallen, 2014). While Schulmeister (2014) has assessed the FTT gridlock through the lenses of the classical and neo-classical economic theories, the rest of the scholars have raised issues of financial lobbying, tax heterogeneity and the internal market that had prevented the EU MS from reaching a consensus under the FTT. Schulmeister (2014) attributes the issue to the long-standing debate between classical or ‘realist economists’ and neo-classical ‘idealist’ economic experts. According to him, the opponents of the FTT have successfully promoted arguments that praise the self-regulative abilities of the financial market. Kalaitzake (2017) and Kastner (2018) explain the disagreement with the strong financial lobby present at the EU level, while Cédelle & Vella (2017) analyse the issue

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from the perspective of the EU internal market. Still other authors, such as Wasserfallen (2014), focus on the tax heterogeneity present in the EU. In short, the scholarship that aims at revealing the reasons behind the FTT deadlock is to a large extent focused on generic explanations that can be applied to almost any debate that concerns an EU tax initiative.

Nevertheless, none of these authors focus on the most pressing issue discussed by the FTT opponents. This is the possible negative impact that the EU legislation will have on the financial sustainability of pension funds. In the last couple of decades, the pension systems in many western European countries have undergone high levels of financialization which made them a direct subject of financial investments. In countries such as Denmark, funded pensions had become the main source of income for pensioners, while in states such as Germany, most pensions are still financed on a Pay-As-You-Go basis which does not involve the financial market. Interestingly, the latter MS is a leading proponent of the tax, while the former strongly disapproves the introduction of the FTT.

Given the different types of pension systems in Europe, the purpose of this research is to find out whether a strong correlation exists between the propensity of states to agree on the FTT and the level of pension funds financialization that they are currently experiencing. Hence, this thesis aims at answering the following research question: Do pension institutions influence for member-states’ support of the FTT? Thus, this is an X-focused thesis aimed at revealing the possible effects of institutional factors on the propensity of MS to agree under the FTT proposal (Blatter & Haverland, 2012).

In order to examine this possible correlation, I will apply Hall & Soskice’s (2001) Varieties of Capitalism (VoC) approach which distinguishes between Coordinated Market Economies (CMEs) and Liberal Market Economies (LMEs). This categorization will facilitate the case selection process by allowing to focus on countries with the same or similar institutional contexts, which only differ with relationship to the level of pension funds capitalism characterizing their pension systems. In this thesis, I will compare Germany and the Netherlands which are both CMEs with varying levels of pension funds financialization. Along with the type of market economy, I will use the extent to which pension governance is subject to tripartite (state, employees, employers) negotiations as another control variable, since the presence or absence of trade unions representing the employees might affect the examination of the hypothesized relationship as will be shown later.

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In terms of methodology, I rely on a small-n comparison that aims at isolating the effects of the level of pension financialization in a country on its propensity to agree on the FTT. This will be achieved with the Most Similar Systems Design (MSSD) that restricts confounding variables from affecting the examined relationship (Toshkov, 2017). Additionally, this thesis will benefit from Process-Tracing (PT) as well, which is another data analysis method. This one is useful in tracing the causality between the public statements made by the governments and representatives of the pension institutions in Germany and the Netherlands since 2011 when the Commission made its proposal until the present. Such statements serve as the main source of data for this thesis. They are sourced from the ‘Investment and Pensions Europe’ which is an online magazine for all countries running pension systems in Europe. The data collection method utilized in this thesis is documents analysis.

Hence, in the second chapter of this thesis I will present the ‘grand’ debate over the FTT and its advantages and disadvantages for the EU MS from the more general financial arguments perspective, followed by a discussion of the previous scholarship that addresses the FTT deadlock and the gap that I acknowledge there. Then, I will narrow down the debate to the link between the FTT and pension funds and propose an alternative explanation to the FTT deadlock. In the third chapter, I will delve into the theoretical underpinning of this thesis by discussing the VoC approach and deriving two hypotheses that will help me answer the research question.

In the fourth, methodological chapter, I will elaborate on the data collection, data analysis method, the type of data that will be used in this thesis and the limitations associated with it before moving to the cases chapter. In the latter, I will discuss the different pension systems in Europe and then will elaborate on the particularities of Germany and the Netherlands. In the following second empirical chapter, I will trace the public statements made by the Dutch and German institutional actors during the FTT negotiations process. Before last, I will analyse the results of this thesis and relate them to the theory and previous findings. Finally, I will draw the conclusion.

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2. The Debate Over the Robin Hood Tax

In this chapter, I will present the debate on the advantages and disadvantages of the EU’s FTT proposal of 2011. Then, I will link the discussion to the previous scholarship that has sought to explain the deadlock under the EU initiative and denote the persisting gap in the latter, followed by a discussion of the relationship between the FTT and pension funds governance. Consequently, I will explain the theoretical approach that will be utilized in order to address the limitations in the state of the art before elaborating on the methodologies.

2.1 FTTs: Pro’s and Con’s

Before discussing the potential advantages and disadvantages of the FTT that lay at the core of the debate between proponents and opponents of the EU proposal, it is first imperative to define its scope and central functions. The Commission proposal covers a broad range of products, transactions, financial institutions, and transactions initiated within financial groups (Van Vooren, 2013, p. 333). In terms of institutions, the FTT is meant to be imposed on investments firms, credit institutions, insurance companies, banks, pension funds and others. When it comes to the intended purposes of the FTT, the Commission has envisaged two main functions that it should serve within the European society. First, the tax should correct the market behaviour of the financial actors who are usually accused of excessive short-term high frequency trading (HFT) and engaging in speculations that negatively influence the real economy. Second, the FTT is meant to force the financial institutions to ‘pay’ for their wrongdoings that led to the 2008 financial crisis and secure financial services’ future contributions to the national budgets (Commission 2011). These two objectives have laid the grounds for scholarly discussions of the usefulness and pitfalls of the FTT.

Based on these two functions and the complex debate over the proposed directive, one can discern efficiency and revenue as the end goals of the Commission proposal. The latter two are in a clear trade-off, since the achievement of higher effectiveness, better predictable outcomes and thus, more stability in the financial sector comes at the expense of higher capital

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costs, less investments, and thus less revenue, as the prevailing studies confirm (Anthony, Bijlsma, Elbourne, Lever & Zwart, 2012; Honohan & Yoder, 2010; Matheson, 2011; Worstall, 2011; Grahl & Lysandrou, 2014, Vella, 2012). Another issue arising from the incommensurability of the delineated objectives relates to the real and relative gains for the society from the financial markets. A number of scholars questions the degree to which the current regulations shaping financial trades are sufficient to yield outcomes that are in favour of the public interest and whether alternatives exist which would better serve the national interest (Buckley & North, 2012; Schäfer, 2012; Schulmeister, 2012; Buckley, 2012). These competing perspectives and ideas on the feasibility, necessity and purpose of the FTT form the core of the scholarly debate. Hence, the following discussion begins with a short introduction of the original Tobin Tax from 1972 that precedes the recent forms of financial transaction taxes such as the FTT, followed by an analysis of the general arguments concerning the benefits and costs of the EU FTT for the business and society at large.

2.1.1 The Tobin Tax

The original Tobin Tax was proposed by James Tobin in 1972 and took the form of a currency transaction tax (CTT). The idea behind it was to disincentivize financial market players to engage in short-term currency exchange practices for the sake of making profits from the differences between the value of the international currencies. Such a tax became desirable following the replacement of the Bretton Woods international framework from the post-war period with the newly established Washington Consensus system under which the US dollar was no longer pegged to gold. The latter development allowed for fluctuations in the monetary value of the currencies which destabilized the proper functioning of the international financial markets. Some countries such as the UK have had similar taxes in place prior to the Tobin Tax proposal (The Stamp Duty Reserve Tax), while others such as Denmark and Sweden have introduced them more recently.

Competing arguments exist over the effectiveness of Tobin Taxes in creating financial stability. In the UK, the effects of the Stamp Duty on firms with more frequently traded shares were negative for their profitability (Bond, Hawkins & Klemm, 2005), while in Sweden, the introduction of the transactions tax on stock trading (‘puppy-tax’) in the period 1984-1991 has

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led to a decline in liquidity which usually coincides with more volatility (Umlauf, 1993). Although no empirical proof exists to support the latter relationship, other studies have showed that the introduction of a tax will not necessarily lead to more financial stability either (Aliber, Chowdhury & Yan, 2003). In contrast, proponents of such taxes have argued that volatility will be diminished by disincentivizing noise traders (Palley, 1999), and that the stabilizing effects of the FTT are rather associated with its impact on market traders’ speed of reaction to price changes than trading volume (Erturk, 2006, p. 72). Thus, no general agreement over the effectiveness of the Tobin Tax in stabilizing the financial market exists.

Similarly, no consensus has been reached on the issue of revenue. Scholars such as Werner (2003) have argued, that financial actors can easily circumvent any taxes aimed at their taxable accounts by simply shifting to a different jurisdiction that is not taxed or by quickly adjusting their financial instruments to the new tax (pp. 513). Also, if the tax is too high this might have a negative impact on financial actors’ hedging activities which are crucial for ensuring the stability of the financial market. Thus, a clear trade-off is observed between revenue and market efficiency. Despite these concerns, Schmidt (2008) is more positive about Tobin taxes’ potential in raising revenue than other mechanisms in place such as International Finance Facility (IFF) and International Finance Facility for Immunisation (IFFIm)1. The author argues, that a CTT can bring around $33 billion of revenue to the international community each year which would not affect the efficiency of the market (Schmidt, 2008, p. 18). Thus, a lack of consensus over the revenue-raising potential of the Tobin taxes in general exists as well.

2.1.2 EU FTT Supporters

When it comes to the EU FTT, the main driving force behind the stance of its proponents is the efficiency objective and the long-term contributions of the tax to a financially ‘healthy’ society. Buckley & North’s (2012) central claim is that a potential tax on the everyday transactions of

1_{The International Finance Facility (IFF) was created to foster the process of findings aids for the eight} Millennium Development Goals set by the UN in the beginning of the 21st_{century (to be achieved by 2015). The} idea behind this mechanism is to issue bonds on the capital market against governmental securities in order to maintain the flow of aids. The International Finance Facility for Immunisation (IFFIm), in particular, was initiated mainly by France and the UK in 2006 to speed up the process of identifying available funds for immunisation.

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the financial market will change the direction of financial actors’ behaviour in the market. They believe that such a directive will limit financial bodies’ incentives to invest in short-term speculative trading which will reduce the volume of financial trading. As a result, markets will distribute resources more efficiently and stimulate more proportionate allocation of human resources and financial capital within the society (p. 747). Similarly, Schäfer (2012) views the FTT as a means to preserve the integrity of the international financial markets that has been shattered by the financial crisis and as a complementary mechanism to the current financial regulatory framework.

Both Buckley & North (2012) and Schäfer’s (2012) studies are concerned with the huge interest of the business sector to invest in trading practices which enhances the propensity of risk-taking among the financial players and augment the already existing uncertainties over the real economic gains from trade. Additionally, these scholars recognize the large long-term costs that are most likely to be encountered if the current HFT trends are not ceased or at least limited. Although the FTT might not succeed in preventing excessive speculative trading, Schäfer (2012) argues that this tax is expected to raise sufficient amounts of tax revenue that could be used to cover the costs of the 2008 financial crisis (p. 76). This claim is supported by Schulmeister (2012) and Buckley (2012) who delve into and respond to the common misunderstandings of the impact of the FTT on economics.

Schulmeister (2012) challenges the argument, that as a result of the FTT financial players will be discouraged to trade and invest as the costs of capital will raise. In support of Schäfer’s (2012) perspective on the dual-function of the FTT, he argues that the tax will rather charge the trading of the derivatives rather than the assets themselves and only these dividends that are most-frequently traded (Schulmeister, 2012, p. 88). When it comes to the debate on the alternative sources of tax revenue such as the Value Added Tax (VAT), the author is quite eloquent as well. Schulmeister (2012) states, that the financial transactions between financial and non-financial institutions shall be perceived as a one-time exchange rather than as intermediate inputs or intermediate outputs that are taxed on several occasions leading to cascading trends (p. 88). Thus, the importance of the FTT is firmly supported by the author who together with Buckley (2012) offer further evidence that financial markets are inefficient and shall be taxed. They both share the common assumption, that the volatile and unpredictable nature of the asset markets is strongly correlated to the deregulation that these markets had undergone which has led to the financial disaster in 2008.

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In contrast to the opponents of the FTT, they argue that the social benefits of decentralized financial markets shall be questioned to the extent that these are often presented in relative rather than absolute gains. Schulmeister (2012) proposes, that a significant increase in the tendency to rely on past prices when trading had been acknowledged prior to the crisis, while Buckley (2012) raises concerns about the sheer increase of well-educated elites that prefer speculative trading over engaging in more prudent activities (p. 88; p. 102). Moreover, both scholars counter the argument that the FTT will stimulate off-shore practices in order to avoid taxation. According to Schulmeister (2012), a large number of asset funds have for very long conducted their trading activities from abroad due to the tax evasions opportunities they present (p. 90). The long-established world trading centres such as Honk Kong and London are well-recognized by international financial institutions and will remain central to their trading activities (Buckley, 2012, p. 103). In line with Buckley & North (2012) and Schäfer (2012), these authors support the adoption of an FTT and provide logical arguments for its necessity.

Thus, the arguments made by the FTT supporters are largely made from the perspective of the inefficiency of the financial markets. As a result of the deregulation of the latter brought by globalization, there are no supervisory mechanisms in place to regulate investors’ behavior. The absence of such institutions has permitted the thriving of irrational actions among financial actors who choose to engage in speculative types of trade that quickly bring greater financial benefits than other more prudent investments, but simultaneously tend to destabilize the proper functioning of the market. Therefore, these authors support the introduction of new regulations such as the FTT which is meant to curb such inefficiencies of the financial market. Next, I will elaborate on the mainstream criticisms of the FTT and explain why the opponents of the tax disdain its effectiveness in bringing stability into the financial market.

2.1.3 EU FTT Sceptics

The opposing group is to a large degree concerned with the negative effects of the FTT on the profitability of the financial sector. In contrast to the advocates of the tax, this plethora of scholars disproves the predicted effectiveness of the financial directive in curbing the inefficiencies of the financial market and holds in contempt its capacity to raise revenue from the latter. More strikingly, the literature against the implementation of the FTT doubts the

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assumptions that this tax will stabilize the financial markets. Instead, it proposes that this legislation will render financial markets even more volatile and increase capital costs disproportionately.

Anthony et al. (2012) and Honohan & Yoder (2010) are explicit in their statements that the FTT will raise less revenue and less stability than expected. While it will possibly decrease the potential of financial shocks as a result of its influence on the asset prices and reduce speculative trade, it cannot be inferred that systemic risks will be limited (Anthony et al., 2012, pp. 6-7). Similarly, even if off-shore taxes circumventing practices are fully abandoned, levies on transactions will not bring stability in financial markets since microstructure analysis reveals that foreign exchange swaps are not related to speculation at all (Honohan & Yoder, 2010, p. 141). Although the FTT will discourage financial activities that are beneficial to private entities rather than the general public, it will have insignificant effects on financial actors’ behaviour since it is poorly targeted. In line with Worstall (2011), Honohan & Yoder (2010) suggest, that such tax shall be aimed at institutions issuing credits and subprime mortgages in particular, since these are most to blame for the crisis.

When it comes to the issue of revenue, the major concerns raised are related to the presence of superior taxes such as the VAT currently in place and the Financial Activities Tax (FAT) meant to be imposed on the profits gained by financial institutions. While in the short-run the costs of the FTT will be covered by financial entities that are in possession of securities, in the long-term the victims of the tax will be consumers of financial goods such as pensioners (Anthony et al., 2012, pp. 13-14). Moreover, as already mentioned there are a few states which are held accountable for the smooth flow of world finances and thus required discretion in financial policy making. As a result of the FTT, these international markets will register significantly lower transactions volume which will negatively affect both, their liquidity and risk management capacities (Honohan & Yoder, 2010, p. 154). Last, the potential revenue gained from the tax will be shadowed by the fall in income generated from other taxations. Thus, the overall GDP of the EU will decrease more than it will gain due to the imposition of the tax (Worstall, 2011, p. 6). Such outcomes will have an ambiguous effect on the functioning of the welfare state in the EU, questioning the effectiveness of the FTT.

Thus, alternative forms of taxation are scrutinized by Matheson (2011), Grahl & Lysandrou (2014) and Vella (2012). Matheson (2011) look into the effects of a currency transaction tax (CTT), a securities transactions tax (STT) and a financial activity tax (FAT) on

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the financial market. He restates the trade-off between revenue and efficiency, arguing that mitigating speculative behaviour comes at the expense of raising revenue (Matheson, 2011, pp. 12-13). His analysis of the FTT, shows that financial institutions which are predominantly engaged with the trade of securities are overwhelmed disproportionately by the tax since it is extremely complex to design a tax that has an equal effect on all financial structures (p. 28). In contrast to Schäfer (2012), the author also disproves the belief that an FTT can serve as an additional regulatory instrument for the financial market since no proof exists that this tax will disincentives actors’ to engage in short-term trading.

On their turn, Grahl & Lysandrou (2014) and Vella (2012) argue that a FAT will serve better the Commission proposal’s intended purposes, since compared to the FTT it does not impose negative externalities on the trading volumes of financial markets. In fact, these authors seriously challenge the central claims made in favour of the tax. As a result of focusing too much on the role of financial prices as an intermediate between the FTT and financial markets’ stability, the supporting group has fully misinterpreted the relationship between HFT and the size of the financial asset trading (Grahl & Lysandrou, 2014, p. 237). Together with Worstall (2011), these scholars propose the opposite, namely, that any attempts to decrease trade volumes will end up in destabilizing the financial market, since prices will rise rapidly which will have contradictory effects overall (p. 8; Grahl & Lysandrou, 2014, p. 242). Moreover, these studies branch out in a different direction on the question of HFT and its role in asset markets. In contrast to Buckley & North (2011) and Schulmeister (2012), they do not fully discount the positive effects of speculative trading, since these forms of financial trade has become the norm over time and thus should be treated as a normal phenomenon.

Finally, it has been also argued that the FTT will have an extremely negative impact on investors’ entrepreneurial endeavors in general which are vital for the sustainability of the financial markets. In line with Matheson (2011), Leen & Fuxman (2012) argue that the FTT will harm the price discovery process, having deteriorative consequences for the tentative profits of the financial investors (p. 436). They challenge Schumpeter’s (2012) argument of the role of prices in navigating financial bodies’ behavior and underline their significance for the stability and profitability of the financial sector.

Thus, similarly to the promoters of the FTT, its opponents admit that the financial markets tend to be inefficient which often leads to financial disasters such as the 2008 financial crisis. However, these scholars express strong skepticism towards the effectiveness of the FTT

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in serving its intended purposes. As discussed, their major concerns stem from FTT’s lack of focus, which is targeted at all financial transactions, while not all of them have contributed to the destabilization of the financial market. In complete contrast to the FTT supporters, these authors believe that the tax will actually be harmful, since it will reduce trade volumes vital for the efficient functioning of the market. Thus, the arguments put forward by the opponents of the FTT prove equally strong to the statements made by FTT’s defenders.

2.2 Explanations of the Deadlock under the EU FTT

Given the complex nature of the FTT, it is not surprising that a number of scholars has actively sought to uncover the powerful mechanisms that prevent the adoption of the FTT. Scholars such as Schulmeister (2014) have approached the outcome of the negotiations from a broad perspective on financial economics, whereas others such as Cédelle & Vella (2017), Kalaitzake (2017), Kastner (2018) and Wasserfallen (2014) have rather addressed more specific features of the negotiations context surrounding the FTT.

To begin with, Schulmeister (2014) proposes that the leading explanation for the lack of consensus on the FTT is related to the long-standing debate between classical or ‘realist economists’ and neo-classical ‘idealist’ economic experts. According to him, the latter are driven by abstract beliefs that economics are conducted in a fully rational manner and tend to serve primarily the interest of hedge funds and banks in deregulated markets (Schulmeister, 2014, p. 3). In the course of the extensive negotiations on the FTT, their position has prevailed as a result of skillfully restating the post-ante negative externalities, securing the support of the banking sector that is a key beneficiary of governmental bailouts and emphasizing the governmental losses derived from the negative effects of the tax on repurchase agreements (repos) (Schulmeister, 2014, pp. 19-21). As a result of active policy advocacy, the EU policymakers were convinced to drop out the proposed Directive.

Similarly, Kalaitzake (2017) and Kastner (2018) to a large extent attribute the FTT failure to the lobbying efforts of the financial industry which yielded unexpectedly successful outcomes despite the high salience of the issue and the multiplicity of actors involved. Building

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on Culpepper’s (2011) theory of noisy and quiet politics, the latter points to the shift from the agenda-setting to the policy formulation stage where public attention has decreased significantly and the negotiations on the FTT have moved to the more formal level. As a result, the business lobbying groups had effectively used framing strategies to portray the negative effects of the FTT on economic growth and reiterated the structural dependencies of national governments on the business industries (Kastner, 2018, p. 1657). The deployment of such strategies had become possible with the involvement of the right allies in the face of non-financial corporations (NFCs) (Kalaitzake, 2017, p. 711). Both studies explain the deadlock under the FTT with actors’ ability to successfully exercise financial political power which manifests itself in the structural and instrumental capabilities of the financial bodies.

Other studies analyzing specific institutional factors have approached the FTT case from a more comparative perspective. In line with Van Cleynenbreugel & Devroe (2017), Cédelle & Vella (2017) have questioned the effectiveness of the Enhanced Cooperation Procedure (ECP) in preserving a reasonable equilibrium between diversity and uniformity within the EU. The authors explain the disagreement under the Commission proposal with the lack of persuasive arguments for the overarching nature of the tax which interferes with the internal market rules. Not only will external actors suffer from the FTT but some of them will have to come up with protective mechanisms against its negative impact (Cédelle & Vella, 2017, p. 376). This tension between the EU and national jurisdictions lies at the of differentiated integration (p. 381). The adoption of the FTT by the initial 11 member states shows that states undergoing high speed harmonization can easily progress in high-level policy areas simultaneously exerting negative influence on the preferences on external actors.

Yet, other authors such as Wasserfallen (2014) justify the limited fiscal and European integration at the EU level with the advent of eleven Eastern European states in the EU during the period 2004-2007 as a result of which the Union has become even more heterogenous in terms of tax regulations. Similarly to Cédelle & Vella (2017), he considers the EU policymaking procedures largely ineffective (Wasserfallen, 2014, p. 420). In relation to the FTT, his main argument is that low tax countries are more reluctant towards harmonization in the field than states with high taxes in place. In line with the political economy framework utilized in his work, the author proves that the pooling of national rights to the supranational level can be both costly and beneficial depending on the policy area and state in question (426). Both Cédelle & Vella’s (2017) and Wasserfallen’s (2014) texts show that irreconcilable

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tensions exist between the supranational and national levels that have obstructed the full adoption of the FTT.

It can be inferred, that the previous literature addressing the deadlock in the FTT negotiations is quite comprehensive, covering for a large number of factors that can be held accountable for the outcome. Nevertheless, most of the scholars seek understanding the disagreement from a more international, European-level perspective rather than focusing at the core issue of supranationalization which relates to the high national sovereignty concerns of states. While Wasserfallen (2014) digs into the level of national taxes, his analysis is limited since similarly to Schulmeister (2014), it sheds light on a more general phenomena that has not necessarily directly contributed to the FTT stalemate. I will fill this gap by applying an institutional analysis, which will allow me to look into the level of pension funds financialization in western European states. Before moving to the theory and hypotheses section it is important to discuss the link between the FTT and pension funds.

2.3 EU FTT and Pension Funds’ Dilemma: Revenue or Stability

The relationship between pension funds and the FTT has been analyzed based on scholars and international pension funds organizations’ contributions to the field who have extensively analyzed the consequences of financialization on pension funds (McCathy, Sorsa & Van der Zwan, 2016; Van der Zwan, 2014; 2018) and acknowledged both the perils and positive effects of the FTT on pension funds governance (Gray, Griffith-Jones & Sandberg, 2012; Hillman & Ashford, 2012; ITUC-TUAC, 2012; PensionsEurope, 2015). Thus, this section seeks to present the debate on the tentative positive and negative effects of the Commission legislation on the stability and profitability of pension funds. It also aims at revealing why pension funds in EU MS are perhaps facing the dilemma between having stable financial markets in place and earning high profits on their investments.

Recently, financialization has occurred at all levels of the society altering the ‘rules of the game’ in a profound way and bringing new opportunities for development. Such a phenomena named ‘financialization of the everyday’ has changed the working practices in all

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sectors, where the individuals have benefited from the penetration of financial technologies and knowledge in all activities (Van der Zwan, 2014, p. 103). The advent of financialization, however, has also brought new risks that necessitate extra vigilance on behalf of the individuals who are responsible for obtaining financial literacy and protecting themselves from these threats (p. 113). These uncertainties have also translated at all levels of the society including national pension policies.

The pension systems in Europe have undergone rapid financialization changing the nature of pension schemes which has increased the size of pension funds and their regulatory frameworks. Initially concentrated on patient investments, pension funds have gradually switched to equity investing as a result of increasing financing needs, governmental austerity measures, and new supranational regulations that will be further discussed in the empirical part of this thesis (McCarthy, Sorsa & Van der Zwan, 2016). In the Netherlands for instance, the 1952 Pension and Savings Act that required pension funds to invest in solid investments was replaced with the prudent person rule in the 1980s that later stimulated the significant increases in impatient investments (p. 760). Thus, a gradual shift from PAYG to funded occupational pensions has taken place that has brought new financial risks on the table.

In contrast to the common believe and initial idea of funded pensions, the latter are not always beneficial for the ordinary people and in fact might be counter-productive leading to lower pension benefits at retirement age. In line with Van der Zwan (2018), it can be argued that when funded, the costs of occupational pension plans directly depend on the stability of the financial market that in recent years tended to be highly volatile and unpredictable in nature. This process has altered the ‘rules of the game’ in a way that has changed the trade-off between risk allocation and control of occupational pensions (Van der Zwan, 2018). Having lost discretion in regulating occupation pensions, it is expected that the social partners (employers and employees) will be in favour of more state involvement in the governance of pensions.

To this end, it is important to clarify that employers do not have many choices on their disposal to compensate for the absence of control over the global financial markets that can have a direct impact on their profitability. One possible option is to seek a shift from Defined Benefit (DB) to Defined Contribution (DC) pension schemes which has already taken place in some countries such as the UK and Denmark in order to transfer the financial risk to the employees. The former type guarantees a fixed income at retirement age, while the latter required a fixed contribution on behalf of the employer (sometimes employee) but with a

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variable outcome at retirement (Van der Zwan, 2018). As already stated, the other alternative is to rely on external source of supervision such as the state or a third party in the face of an international regulatory body such the EU. This leads the discussion to the FTT proposal whose effects on the pension systems in Europe are predominantly perceived as positive by scholars and pension funds organizations.

These offer a number of reasons why the FTT will both, ensure stability in the pension systems of Europe and have negligible impact on their profitability. As a starting point, they point out to the long-term investment nature of the strategies pursued by the pension funds actors in general. The latter invest over long horizons, where the tax imposed on the transaction entry in and exit from the market will be negligible in comparison to the benefits gained from it (Gray et al. 2012; Hillman & Ashford, 2012, p. 4; ITUC-TUAC, 2012, p. 2). Although it can be argued that such costs will still harm the end users (employees represented by pension funds), the proponents of the FTT believe these externalities will be fully neutralized by the asset managers who trade on behalf of the asset owners (pension funds). The latter make a one-time transaction to the former that are responsible for the future costs spreading over a year or more (Hillman & Ashford, 2012, p. 11; ITUC-TUAC, 2012, p. 2). Thus, the argument that the long-term nature of pension funds’ investments will lead to a multiple taxation of transactions is misleading, since the action of buying and selling assets does not respectively represent an intermediate input and output (Schulmeister, 2012, p. 88).

These authors and organizations refer to the pensions finance methods in Europe as an argument in support of the FTT as well. It is argued, that public transfers which are not a concern of the financial market account for more than 50% of the payments made to retirees in 80% of the EU states including France and Germany that support the FTT (Hillman & Ashford, 2012, p. 4; ITUC-TUAC, 2012, p. 1). Although the financialization of the pension funds sector has stimulated these institutions to increase investments in the equity markets (McCarthy, Sorsa & Van der Zwan, 2016), it seems that the majority of the pension systems in Europe still rely on traditional methods of pension financing that are not a concern of the financial market. Last, the FTT ensures the long-run employment of citizens by reducing the probability of financial crises and thus indirectly contributes to the sustainability of pension funds. It has been shown as an example, that in Brazil, Australia and Taiwan, pension funds growth in the range of 13-22% has been acknowledged following the introduction of an FTT (Gray et al., 2012, p. 6). Despite the tremendous economic growth in these countries that might be an alternative

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explanation for the rapid pension funds growth, such numbers at least prove that the FTT shall not have a negative impact on pension funds revenue either, ones the tax is implemented.

Given these well-supported arguments for the positive effects of the FTT on pension funds, one might wonder why I have chosen the financialization of these institutions as a possible explanation for the FTT deadlock. The reason to believe, that the capitalization of the pension systems in Europe might affect countries’ decisions on whether to support or reject the FTT is that there are still these 20% of the EU states in which public transfers are not the substantial source of income. In states such as Denmark and the Netherlands pensions are primarily funded by capital investments (ITUC-TUAC, 2012, p. 1). As a result of the FTT, investment costs will increase which might negatively affect the efficiency of pension funds investment strategies and their hedging activities in such countries where the pension systems largely depend on the financial markets (PensionsEurope, 2015, pp. 2-3). Thus, I acknowledge that a trade-off between financial stability and pensions’ sustainability might be the reason behind EU states’ varying stances on the FTT.

This dilemma, that EU states are possibly facing constitutes the basis for this thesis. In order to measure the explanatory force of the relationship between pension funds financialization and MS’ propensity to agree on the FTT, it is important to make sure that the institutional structures of the market economies of the states under analysis assume the same or similar characteristics. Therefore, the next section will elaborate on Hall & Soskice’s (2001) Varieties of Capitalism (VoC) approach which will facilitate the selection of the cases.

2.4 Theory

In order to answer the research question, I will apply Hall & Soskice’s (2001) Varieties of Capitalism approach (VoC) to the institutional contexts of Germany and The Netherlands. This theory has been previously utilized in many research projects related to the intersection between pension funds and financialization (Ebbinghaus, 2011; McCarthy, M., Sorsa, V., & Van der Zwan; Van der Zwan, 2017). The next section discusses the conceptual underpinnings of this theoretical approach and draws hypotheses.

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2.4.1 Varieties of Capitalism (VoC)

Hall & Soskice (2001), offer a new dimension to the literature on comparative capitalisms and institutional variation in modern democracies. The authors challenge the previously established approaches towards understanding the interaction between the society and economics, by emphasizing the importance of businesses in shaping modern political economy (p. 4). Crucially, the VoC approach denies the traditional frameworks utilized to conceive the impact of political institutions on behaviour on the grounds that they omit to consider the strategic interactions fundamental to the effects on actors’ actions (pp. 4-6). At the core of their framework, Hall & Soskice (2001) place ‘firms’ whose role is to solve coordination issues in order to effectively exploit resources and competences vital for their functionality.

The VOC approach distinguishes between Coordinated Market Economies (CMEs) and Liberal Market Economies (LMEs) that differ in relation to their institutional particularities which allow or constrain actors in solving coordination issues. Whereas the interactions between business and government in the former are largely based on non-market relationships which necessitate high levels of collaboration, in the latter, competitive market provisions and formal hierarchies established by market institutions are crucial. Thus, Hall & Soskice (2001) underline the role of institutions in monitoring, sanctioning and building capacities relevant for the interactions between business and other actors (p. 12). Examining the institutional features of pension funds in Germany and The Netherlands is imperative for revealing the reasons behind the FTT deadlock.

The VoC approach is especially relevant in the context of pension funds for two reasons. First, the institutional bodies responsible for the regulation and governance of pensions are still largely incorporated in the nation states. Second, this framework is particularly useful for drawing links between economic and pension systems and pension fund governance (Wiß, 2015, p. 133). Thus, the interaction between these different actors through country-specific mechanisms tends to have larger impact on the society in comparison to individual institutional structures such as pension funds. The design of employment relationships and the level (company, sector, government) at which they are coordinated are essential for the broader coordination of the economy.

It has been argued that in LMEs deeper financialization has taken place than in CMEs (Ebbinghaus & Wiß, 2011). One can acknowledge the presence of different types of pension

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schemes depending on the extent to which financialization has penetrated the economic system. In particular, a clear relationship between LMEs and high level of investments in funded pensions has been acknowledged in comparison to CMEs and PAYG statutory pensions (Ebbinghaus & Wiß, 2011, p. 359). Such observations suppose, that pension funds in less regulated market economies will be more intertwined with financial market forces than similar bodies in CMEs.

It is possible as well, however, that the link between the institutional underpinnings of an economy and the levels of capital investments in pension funds is not specifically strong. It has been argued, that capital funded pensions pertinent to LMEs are equally increasing in CMEs but in accordance to the market coordination logic (Wiß, 2015, pp. 133-134). As a result, the overall regulation of pension provisions rather than pension funding per se shapes the distinction between pension regimes. In line with Wiß (2015), I argue that the share of market funded pensions relative to public transfers combined with the institutional structure of the economy account for the different outcomes between states.

A crucial mediating factor between the type of market economy and the coordination of pension funds is the extent to which they are jointly administrated by the social partners (employees and employers) and the government. Such tripartite decision-making in the governance of pensions can be related to features of corporatism. In the case of collectively agreed pension schemes, unions play an important role in negotiating better welfare provisions for their employees by exerting organizational, bargaining and electoral power in policymaking (Ebbinghaus, 2017). For instance, they exert direct pressure on investment managers, by threatening them to cut fund money (Wiß, 2015, p. 134). Moreover, the greater the involvement of different actors in the decision-making process, the more disseminated the ideas of solidarity and an equal community. Thus, the presence of such interest groups, to a large degree defines the type of market coordination. Therefore, it is expected that there will be a clear support for the FTT in CMEs due to the presence of tripartite decision-making.

Although for example, the Netherlands enjoys high levels of pension fund capitalism creating the impression of a LME, it is still considered a CME due to the high degree of collective bargaining between employers and labour unions in pensions policymaking which is pertinent to corporate governance (Van der Zwan, 2017, p. 574; Wiß, 2015, p. 137; Ebbinghaus & Wiß, 2011, p. 359). In contrast, the level of pension funds financialization in traditional CMEs such as Germany is moderate while interest groups are equally strong

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represented as in the Netherlands (Wiß, 2015, pp. 136-137). Given the literature on financialization, I also pose that an alternative explanation to the varying stance of MS on the FTT is the level of pension funds financialization. Therefore, it is important to consider both the type of market economy and the level of pension funds financialization when examining the reasons behind the FTT gridlock. Thus, I aim at answering the research question by finding evidence for or against the following:

Hypothesis I

In CMEs with low levels of pension funds financialization, the FTT will be supported.

Hypothesis II

In CMEs with high levels of pension funds financialization, the FTT will be opposed.

3. Methodologies and Data

This is a qualitative explanatory research that seeks to understand the effects of the institutional factors in western democracies on the propensity of states to consent on financially sensitive supranational legislations such as the FTT. In order to measure these effects, this X-oriented thesis is focused on a population of cases. Namely, it will compare the institutional underpinnings of Germany and The Netherlands since the latter is one of the leading countries in Europe with a share of funded occupational pensions relative to GDP exceeding 170% in 2016, while in the former these pensions comprise less than 10% of GDP in the same year (Anderson, 2019, p. 621).

In line with Toshkov (2017), this thesis perfectly fits the purpose of the small-N comparisons data analysis method, since it aims at revealing strong causal relationships

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between the explanatory variable and the outcome (p 259). A juxtaposition of the institutional contexts of the countries under examination and the rates of financialization characterizing their pension systems will reveal whether the presence of these variables is related to the existing disagreement under the FTT. Although Large-N comparison would have benefited such research as well, it is less suitable due to the large number of inferences in comparison to observations at stake and the goal of this research which is revealing strong causal effects rather than statistical variation.

In order to compare the cases in practices, I will utilize the Most Similar Systems Design (MSSD). This form of comparison seeks to isolate the explanatory variable from possible confounding alternative explanations by comparing a number of variables that take the same or similar values for all cases with the exception of one that gives the outcome (Toshkov, 2017, pp. 262-263). Thus, in such designs it is crucial to ensure the presence of similarity of values for the control variables among the cases under examination. Establishing such ex-ante plausibility demands a direct reference to the theoretical assumptions which shall provide the direction of co-variation between the independent variables and the outcome (Blatter & Haverland, 2012, p. 57). Arguably, such deliberate selection of the variables will also reduce the risk of fallibility and enhance the causality between the explanatory variable and the outcome.

In line with the methodological tenets, I have derived two control and one explanatory variables from Van der Zwan (2017) and Wiß’s (2015) studies who, as already mentioned, have also utilized the VoC approach. The former refer to ‘the type of market economy’ and ‘the extent to which pension governance is subject to tripartite negotiations’, whereas the latter is ‘the level of pension funds financialization’. In order to keep the type of market economy constant, I examine only countries with CMEs. Similarly, I also control for the extent to which pension governance is subject to tripartite negotiations in these countries which is ‘High’ within both of them. When it comes to the explanatory variable, it is expected to find a clear variation among states which will yield the different outcome for the cases under analysis (Table 1). In particular, it is predicted that opposing countries to the FTT such the Netherlands have high levels of financialization in contrast to states such as Germany which have a limited share of financial assets in pension funds.

In order to operationalize these variables, I rely on concepts and tools utilized by Hassel, Naczyk & Wiß (2019), Hall & Gingerich (2009) and Wiß (2015; 2019) in their studies.

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Тhe former examine the shift in pensions investment strategies and the preservation or change of the mechanisms regulating them in response to the 2008 financial crisis. Hall & Gingerich (2009), assess the suitability of the VoC approach in explaining the different types of capitalisms by providing indices for the coordination of labour relations and corporate governance in the OECD economies and test whether institutional complementarities occur across them, while Wiß (2015) has examined the mediating effects of trade unions on the relationship between CMEs and LMEs’ coordination mechanisms and pension fund governance systems in order to explain state vulnerability to financial crises. Finally, the latter has also examined the paradox related to the increase of pension funds financialization in Europe following the 2000 and 2008 financial crises’ negative repercussion on pension funds profitability (Wiß, 2019).

In line with Hall & Gingerich (2009), the type of market economy will be defined by examining the presence of high coordination of labour relations and corporate governance in the cases under examination (p. 455). Additionally, the extent to which pension governance is subject to tripartite negotiations will be measured based on the degree to which pension funds are jointly administrated within an economy which shows pension fund actors’ level of participation in national governance (Wiß, 2015, p. 137). In line with Hassel, Naczyk & Wiß (2019) and Wiß (2019), the scope of pension fund capitalism (a synonym of pension funds financialization) in this thesis will be measured based on three indicators. First, the value of the average total assets of all non-sovereign pensions funds as a % of GDP in 2009-2016 in a country (p. 485). Second, the propensity of pension funds to yield stable investment returns. Third, the nature of the pension scheme – Defined Benefit (DB) or Defined Contribution (DC) (Wiß, 2019, pp. 503-504).

Table 1: Variables and preliminary partial findings based on previous research

Variables

_Cases

The Netherlands Germany

Control variable: Type of Market

Economy CME CME

Control variable: The extent to which pension governance is subject to tripartite negotiations

High High

Explanatory variable: Level of

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Outcome: X Y

Source: own compilation based on Hassel, Naczyk & Wiß (2019), Hall & Gingerich (2009) and Wiß (2015; 2019)

Additionally, this thesis will benefit from Process-Tracing (PT) as well. This data analysis method is crucial for establishing the link between the theoretical findings of the thesis and the empirical evidence. As argued by Gerring (2006), a covariational analysis is not always sufficient to derive causal relationships from the variables at stake (p. 172). Thus, PT It is particularly relevant for this thesis, since it will help constructing the causality between the public statements of officials representing the countries under analysis and their individual pension governance frameworks. Such contribution is essential for answering the research question and enhancing the internal validity of the thesis.

In order to utilize PT, it is imperative to identify causal factors that might be directly related to the EU FTT case under examination or others of more general nature but still relevant to the context of the study. In line with Gerring (2006), the latter might take the form of more general perceptions of the environment surrounding us that are quite theoretical (p. 180). In the case of the EU FTT, relevant contextual factors considered are the 2008 financial crisis, the lack of an international FTT in place, the current state of globalization characterizing the world financial sector and other aspects of more secondary importance. Linking the country-specific institutional particularities of Germany and The Netherlands will arguably yield a comprehensive picture of the deadlock under the EU FTT.

In terms of data, this thesis relies on both primary and secondary sources. As a leading scholar in the field of pension governance, Ebbinghaus (2011) offers a comprehensive research on the Varieties of Pension Governance in Europe. Thus, his research is considered a major source of reference for this study. Additionally, this thesis will benefit from the works of other prominent researchers in the field such as Anderson (2011) who have also delved extensively in the particularities of European pension systems and others. When it comes to primary sources, I relied on twenty newspaper articles for my analysis sourced from the ‘Investment and Pensions Europe’ (IPE) and other online newspapers of secondary importance such as Bloomberg and Euractive. The former is an online magazine for all countries running pension systems in Europe which makes it particularly relevant for this thesis. In order to collect my data, I employed a targeted research by typing the keywords ‘FTT’ and ‘Tobin tax’ as the latter is the most common substitute for the FTT. Moreover, insights of advocacy groups such as

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PensionsEurope and TUAC and other relevant actors are analysed as well. All these are crucial in order to establish the link between the empirical world and the theoretical hypotheses made.

When it comes to analysing the collected data, I will rely on documents analysis which is compatible with the PT data analysis technique. This method allows for a qualitative, deliberate selection and assessment of empirical data. In line with Beach & Pedersen (2013), however, it is imperative not to randomly select data that support the argument but seek evidence that would reveal the plausibility of the theoretical accounts (pp. 123-124). Such strategic selection of empirical evidence is meant to test the dominant causal logic of this thesis which manifests in the relationship between the level of pension funds financialization and the decision on whether or not to adopt the FTT.

In the process of the data collection, however, it is possible to encounter selection and unwarranted biases. The former is usually present when secondary sources are utilized as the main evidence for the thesis, while the latter bias is related to the random selection of evidence in support of the argument (Beach & Pedersen, 2013, p. 124; Thies, 2002, p. 355). Such biases might negatively influence the external validity of this thesis. The latter will be enhanced by triangulation which entails the collection of a number of different observations (Beach & Pedersen, 2013, p. 128). Thus, I will combine both secondary and primary sources in order to strengthen the plausibility of the argument.

In terms of the reliability, the number of cases examined in this thesis might be inadequate to generalize the results to the broader EU level, since LMEs are not examined at all. This limitation, however, is justified to the extent that the omittance of LMEs in the analysis strengthens the correlation between the explanatory variable and the outcome which enhances the internal validity of this thesis. Hence, the next chapter discusses pension governance in general before presenting each case individually.

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4. Pension Systems

Since the 1970s-1990s, the major political confrontations surrounding welfare provisions have concerned countries which depend to a large extent on tax revenues. In particular, the social security contributions made by employees and employers in financing pensions schemes have become a major issue of contestation (Bahle, Kohl, Wendt, Immerfall & Therborn, 2010, p. 588). As a result of demographic challenges, budgetary cuts and the need to implement the Maastricht criteria in the 1990s, retrenchment in social policies had taken place in many European governments. Such developments have necessitated the search for alternative sources of pension funding for the augmenting gap in pension provisions especially relevant for low-skilled workers. In France, for instance, a number of reforms had been introduced since the 1980s such as the 1993 Balladur Reform which gradually introduced new forms of funded pensions (Naczyk, 2011, p. 98). Similarly, in the Netherlands, the public pension schemes and the occupational pensions have undergone significant changes since the 1980s in relation to their structures of financing (Anderson, 2011, p. 300). Thus, Western European bureaucracies had undergone a rapid transformation of pension systems.

In order to discuss the varying pensions governance systems in Europe, it is important to distinguish between the different types of pensions offered in contemporary democracies and the two traditional models of public pensions, namely the Bismarckian and Beveridgean traditions. When it comes to the different kinds of pension schemes, one can acknowledge the presence of Ist pillar state pensions, IInd pillar (funded) occupational pensions and IIIrd pillar personal pensions. The former refer to the basic flat-rate pensions that each citizen is eligible to receive after reaching a particular age. Although these pensions might take the form of Defined Contributions (DC), they most often are Defined Benefits (DB) financed on a PAYG or funded basis. The former financing method is present when the contributors to the pension fund decide how much money of their regular oncome shall be deducted to their retirement fund.

In contrast, occupational schemes are pre-funded workplace pensions financed by employees and employers. They are commonly perceived as deferred compensation by employee organizations (Ebbinghaus, 2017, p. 206). The final value of these pensions that are most often DC plans (but can also be DB) varies depending on the share of investments. Similarly, personal pension schemes are pre-funded as well. The difference between the two,

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is that the IInd_{pillar funds must be established by the employer under trust, whereas the III}rd

pillar schemes can be initiated by the individual as well (OECD, 2000, pp. 10-11). Although the institutional underpinnings of the varying pensions schemes persistent in European democracies will be examined in general, this thesis’ main focus will be on funded occupational schemes.

Before moving to the empirics, it is important to elaborate on the traditional ideological streams in public pension governance characterizing the field since the end of WWII. In countries following the Beveridgean model, the leading purpose of public pensions is to ensure that after a concrete age, elderly people receive a minimum level of income that protects that from poverty (Bahle et al., 2010, p. 591). This tradition originates from the Poor Law Amendment Act of 1834 in England, which had established some fundamental workers’ rights and was meant to ensure social relief provisions for poor households. The state’s authority shall be limited to providing the most basic benefits, thus, stimulating funding initiatives in the form of occupational pension schemes.

In comparison, political systems that had adopted the Bismarckian tradition are rather concerned with the provision of income to workers and employees when reaching old age, becoming disabled or in the case of death, for their relatives (Bahle et al., 2010, p. 590). This type of social insurance plans must be related to previous income which implies that such a system aims at maintaining the social divisions within the society. Similarly, to the Beverdgean model, however, this ideological stream has also promoted the upgrading of state provisions by leaving room to earnings-related contributions. Both types of pension governance traditions are still present in today’s capitalist economies which are discussed in the following sections.

4.1 The Netherlands

The Dutch political system has for long been regarded as a consociational democracy. The name of this type of corporatist governance had been developed by the famous Dutch political scientist Arend Lijphart in the second part of the 20th_{century. In one of his books, Lijphart}

(1985) emphasizes on four main features pertinent to this type of democracy. Namely, the author mentions executive power-sharing among participants from all interest groups in the society, their right of being proportionally represented, veto discretion, and internal autonomy

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for the ones that desire it (p. 8). These unique characteristics of the Dutch political system have become the hallmark of Dutch policymaking in all spheres of governance. They date back to the historical traditions of governance in the Netherlands which have been preserved for centuries in a remarkable way.

Underlying core features of the Dutch society such as tolerance, pragmatism and consensus explain why despite the uncertainties of the post-war period and the shifting between corporatist, state-led, and democratic forms of governance, the Dutch consensual corporatism had been preserved until today (Kickert, 2003). Although corporatism in the legal sense of strict distribution of right in deciding social and economic policies between the state, industry and trade unions might not exist in the Netherlands, it is argued that corporatism as a model of democratic interest mediation has been in place in the Netherlands since a long time ago (Kickert 2003, p. 135). For instance, many advisory groups and institutions in the field of education, health, housing and welfare are officially recognized and legally established in the country which explains why this strongly fragmented society is quite stable from a political perspective.

Thus, Culpepper’s (2010) critique of the corporatist model in the Netherlands might be considered imprecise. The author has challenged the dominant features of Dutch politics in the area of takeover protection policy. He argues, Dutch managers of large firms had enforced their financial economic power through successful lobbying which deprived trade unions from involvement on issues of corporate control. According to Culpepper (2010), the small territory of the Netherlands permits managerial associations to create long-lasting ties with the strongest corporate lawyers which tend to be crucial for the outcome of the negotiations (p. 83). These remarks are relevant with regard to the traditional, legal conceptualization of corporatism. As already stated, however, the consensual corporatism in the Netherlands is of different nature. It can be argued that in other spheres of governance such as pension policies, the Dutch corporatist features distinguished by Kickert (2003) and Lijphart (1985) are clearly visible.

The Dutch welfare provisions system is a mix of Beverdgean and Bismarckian practices. The former can be acknowledged in the Ist pillar state pensions, whereas the latter can be attributed to the occupational and private schemes which have remained largely conservative (Anderson, 2011, p. 296). In line with Lijphart (1985), the pillarization of the Dutch society and the consociational practices characterizing the policymaking in the country had shaped the distribution of authority between the societal organizations and the state in the

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governance of pensions. In general, the latter actor had a small role in decision-making in the field of welfare politics, since the different societal groups or pillars were expected to act in the interest of the people they represent (Anderson, 2011, p. 298). Thus, the corporatist trends in the Dutch political system were clearly observable soon after the end of WWII.

Although the Dutch government had recently increased its influence in the field of pension policies by establishing regulatory frameworks for their negotiation and management, the social partners comprised of employees and employers are the chief administrators of the individual pension schemes (Table 2). They bargain together over occupational schemes at the firm and industry level, jointly establish the rules for governing pensions within corporatist institutions at home and equally share the responsibilities for governing pension funds (Van der Zwan, 2018). In line with Anderson (2011), it can be argued that the administrative pension funds boards are a great example of Dutch corporatism (p. 310). In fact, the Dutch trade unions are such a formidable actor in pensions governance that the government prefers circumventing legislation procedures and directly negotiate with them on these matters (Anderson, 2011, p. 302). Thus, employees together with employers have a considerable discretion in deciding different aspects of pensions governance.

The strength of the Dutch unions is particularly salient in the governance of the IInd pillar occupation schemes which receives the lion’s share of the Dutch pensions schemes. These pensions date back to the late 19th_{century and are meant to supplement the public basic}

pensions. They are negotiated by the social partners and covered around 90% of the wage earners in The Netherlands in 2010, while today they cover 96% of them (Anderson, 2011, p. 295). Since the early 20th century, the regulation of these pensions has been conducted by tripartite boards comprised of the government, employees and employers where the former has met a powerful pension lobby by the social partners (p. 297). Thus, the Dutch pension system has been characterized by a high involvement of different actors in decision-making.

Unsurprisingly, occupational pensions in the Netherlands are fully dependent on financial investments. In the beginning of 2008, these combined DB-DC schemes have accounted for €657 billion in financial assets, while in 2017 these have reached €1,4 trillion (Anderson, 2011, p. 295; European Commission, 2017, p. 7). The value of the average total assets of all non-sovereign pensions funds as a percentage of GDP in 2009-2016 amounted to 145 % (Hassel, Naczyk & Wiß, 2019, p. 486). Interestingly, the pension increases and pay-outs are directly dependent on the solvency of the pension funds which means that the sustainability

The Financialization of the Welfare State in Europe: Explaining the Deadlock under the European Union Financial Transactions Tax (2011/0261/CNS) from a Pension Funds Perspective