The Debate on the European Deposit Insurance Scheme: Explaining the
Obstacles to the Completion of the European Banking Union
Name: Stijn van Woerkom Student number: 11328002
Master thesis Political Science: Political Economy
Research Project: New Forms of Governance: From the EU to the World? Supervisor: Prof. J. H. Zeitlin
Second reader: Dr. B. Stellinga Date: 05/06/2020
Acknowledgements
Materialising this thesis would not have been successful without the support of several people, of which I would like to thank some in particular.
First and foremost, I would like to thank my supervisor, Professor J.H. Zeitlin. His ever timely, comprehensive and reasonable feedback and advice helped me a lot. Furthermore, he ensured that the switch to online education did not interfere with the completion of this thesis project.
Secondly, I would like to thank Dr. B. Stellinga, for taking the time to read and review this thesis.
Third, special thanks to the respondents I spoke to during this project for taking the time to talk to me despite their busy schedules.
Lastly, I would like to thank my family, friends and roommates. Their efforts to help me to take time off now and then, talk with me about my thesis and most importantly have study days with me really contributed to the realisation of this thesis in times where staying at home was obliged.
Abstract
As there is disagreement among academics on the question how the non-completion of the Banking Union can be explained, this thesis analyses the obstacles to the completion of the European Banking Union. The debate on the completion of the Banking Union is analysed through the theoretical lenses of intergovernmental approaches and a neo-functional approach, utilising a process-tracing method based on interviews, speeches, reports and academic articles. After examining the cases of Germany, the Netherlands, France and Italy together with supranational institutions it is argued that the completion of the EBU could best be analysed through a combination of the intergovernmental and the neo-functional approach. The outcome of the debate on the EBU is a result of incomplete intergovernmental bargains resulting in spillover effects, which are addressed by supranational actors. The different positions of member states in the intergovernmental bargain are mostly a result of ideological and political factors, and less so of political-economic differences. An intensive debate between supranational actors and member states is necessary, especially in times of crises, to complete the Banking Union. Finding a point in which risk sharing and risk reduction complement each other is a necessary condition in this development, as this trade-off is the biggest matter of debate.
List of abbreviations
AQR Asset Quality Review
CCTB Common Corporate Tax Base CDO Collateralised Debt Obligation EBU European Banking Union EC European Commission ECB European Central Bank
EDIS European Deposit Insurance Scheme EMU Economic and Monetary Union EP European Parliament
ESM European Stability Mechanism ESRB European Systemic Risk Board EU European Union
LSI Less Significant Institution NPLs Non-Performing Loans SI Significant Institution
SME Small and Medium-sized Enterprise SRB Single Resolution Board
SRM Single Resolution Mechanism SSM Single Supervisory Mechanism WHO World Health Organization
Table of contents
Acknowledgements ... 1
Abstract ... 2
List of abbreviations ... 3
Chapter 1 Introduction ... 5
Chapter 2 Literature review and theoretical framework ... 8
2.1 Literature review ... 8
2.2 Theoretical framework ... 12
Chapter 3 Design of the research ... 16
3.1 Research design ... 16
3.2 Process tracing ... 17
3.3 Documentary analysis ... 18
3.4 Interviews ... 18
Chapter 4 Member state positions ... 21
4.1 Germany ... 21
4.2 The Netherlands ... 25
4.3 Italy ... 28
4.4 France ... 31
4.5 Interpretation of the findings ... 34
Chapter 5 The debate at the EU level ... 36
5.1 Interplay between governments ... 36
5.2 Supranational actors ... 39
5.3 The role of crises and spillover ... 42
5.4 Interpretation of the findings ... 45
Chapter 6 Conclusion ... 47
List of interviews ... 50
Chapter 1 Introduction
When the former president of the European Central Bank (ECB) Mario Draghi spoke the words “We will do whatever it takes”, many believed that he saved Europe from a disastrous ending of the Euro crisis (Smal 2019; Beunderman 2019). However, as Draghi (2019) himself admitted during an interview with the Financial Times, he would not have said these words if he were not aware of the fact that the founding of the European Banking Union (EBU) had been agreed upon by European leaders (ibid.; Smal 2019). These European leaders agreed on the Banking Union as a response to the Euro crisis (European Commission 2014). The EBU would comprise a single framework for Eurozone countries regarding financial supervision and regulation consisting of three key pillars: The Single Supervisory Mechanism (SSM), the Single Resolution Mechanism (SRM) and the European Deposit Insurance Scheme (EDIS) (European Parliament 2016). After already introducing the first two pillars in 2014 and 2016, the European Commission (EC) envisaged introducing the third pillar in three separate phases between 2017 and 2024 (ibid.). At the time of writing however, nearly eight years after the agreement upon the Banking Union, the introduction of the third pillar has been put on hold (European Parliament 2020). Where an intergovernmental agreement on the proposition of the Commission is necessary, there is still no consensus and there are ongoing political negotiations between member states, which were recently reinvigorated by a non-paper by the German Ministry of Finance to spur negotiations about the EBU (ibid.; Scholz 2019a).
A European Deposit Insurance Scheme would comprise a Eurozone-wide institutional framework ensuring depositors guaranteed liquidity of their bank accounts, up to a predetermined account. In this way depositors’ confidence in their deposits could be increased and therefore their incentives to withdraw their money in risky times would decrease. In the end, this would reduce the likelihood of a new financial crisis (ECB 2018). Insofar as the SSM and the SRM are still not accompanied by this EDIS, the third pillar of the EBU framework, it is justified to be concerned about the completion of the Banking Union (Smal 2019). Although European banks seemed healthier on the eve of the COVID-19 pandemic compared to their situation during the Euro crisis, with a big decrease in non-performing loans (NPLs), the need for a complete Banking Union has not disappeared (Enria 2019a). In fact, the need for a complete EBU seems more important than ever. Persistent financialization, which can be understood as a regime of accumulation, the growing influence of finance of everyday life and the ascendency of shareholder-value orientation, demands a complete institutional framework (Van der Zwan 2014: 101 – 103). A complete EBU could do much to stabilise the European
financial sector where the crisis has shown that a national approach is ineffective towards financial stability and eventually results in a diabolic loop between national governments and banks (Schoenmaker and Siegmann 2013). This is agreed by the ECB (2018), which argues that financial and macroeconomic stability could be improved, which in turn underlines the need for a Banking Union. Shifting banking regulation from the national level to the European level can also be considered as a necessary reaction to persisting financial integration happening within the Eurozone. This leads to interdependent financial relationships between member states, resulting in a need for a joint solution (Hoffmann et al. 2019: 1 – 4; Niemann et al. 2019). Kerstin af Jochnick (2020), member of the Supervisory Board of the ECB highlighted the need for a complete Banking Union in a speech. She argued that the EBU was necessary to avoid repeating mistakes of the past that led to the crisis. The Banking Union could resolve the problem of trapped liquidity and capital within national boundaries and in that way eliminate the doom-loop between sovereigns and national banks, as referred to by Schoenmaker and Siegmann (2013). The European Parliament (2016) argues that the completion of the Banking Union would reduce the spillover effects of local bank failures to EU-wide financial stability. All in all, the completion of the EBU is socially very relevant.
The inability of the European Union to complete the Banking Union with the EDIS, being a socially relevant topic, has been discussed academically before. However, while the EDIS is often discussed as the policy completing the EBU, there is more to completing the EBU than implementing EDIS. The positions of different member states often go hand in hand with their positions towards other unsolved issues regarding the Banking Union. As German Finance Minister Olaf Scholz (2019a) argues in his non-paper on the Banking Union, there are other things that have to be solved before implementing the EDIS. These other measures all have to do with the trade-off between risk sharing and risk reduction. There are certain member states such as the Netherlands and Germany who are opposed to sharing risks via the EDIS when there has not yet been an improvement in the reduction of risks (Quaglia 2019: 5). Measures to reduce those risks within the European financial sector could, for instance, include reducing NPLs on the balances of banks, harmonising resolution policies among member states, regulation on sovereign bond portfolios, combatting money laundering and introducing a Common Corporate Tax Base (CCTB) to prevent arbitrage (Scholz 2019a). Where these measures do explain the positions of certain actors within the EU, one could identify competing views on the different explanations for the incomplete EBU. Hence this thesis seeks to answer the following question: “What are the key obstacles to the completion of the European Banking Union?” The completion of the EBU, as mentioned in the research question, refers mainly to
the implementation of the EDIS, which is seen as the third and last pillar of the EBU by the European Union itself (European Parliament 2016). To answer this research question, three different sub-questions have been formulated to reach a more structural analysis of the case. The first of these sub-questions goes as follows: “What are the positions of Germany, The Netherlands, France and Italy towards EDIS and the completion of the EBU and what are their motivations for these positions?” The second question refers to the interplay between these positions and is formulated in the following manner: “How do the different positions of the member states play out at the EU level?” The third and final question is concerned with the role of supranational actors: “What is the role of supranational actors in completing the European Banking Union?” The answers to these sub-questions should complement each other and eventually contribute to answering the research question.
To answer the research question, first the different strands of literature on the obstacles to the completion of the EBU will be discussed. Second, a theoretical framework will be constructed consisting of different explanations for the obstacles to the completion of the EBU. Thereafter, an elaboration on the research design and the chosen methods, process tracing based on documentary analysis and semi-structured interviews, will follow. Fourth, the analysis of the textual materials collected and the interviews will be conducted. This will be done in two different chapters. The first chapter of the analysis focuses on the positions of the four EU member states discussed in this research: Germany, The Netherlands, France and Italy. It mainly discusses the first sub-question. The second chapter of the analysis focuses on the interplay between these positions, the role of supranational actors, spillover effects and crises. The two remaining sub-questions will be discussed within this chapter. Lastly, an answer to the research question will be formulated alongside a discussion of the research findings within the conclusion.
Chapter 2 Literature review and theoretical framework
As mentioned before, the topic of the completion of the EBU has already been discussed by many academic researchers and policy analysts. Within this chapter the debate on the obstacles and the possible solutions to the completion of the EBU will be briefly reviewed. Discussing other possible solutions than merely the implementation of the EDIS is necessary, since it is argued that certain key political actors believe other measures should be taken before implementing the EDIS (Micossi 2017: 8). Thereafter, the different views on the obstacles towards the completion of the EBU will be classified into a political, political-economic and an ideological approach.
2.1 Literature review
Adopting an intergovernmental approach, Quaglia (2019) tries to explain the establishment of the EBU, which she also considers to be incomplete. In her view, through different policy debates on the foundations of the Banking Union, the preferences of German policy makers are mostly reflected within the agreement on the EBU. She sees this as a result of the unequal bargaining powers of the member states of the EU, who try to pursue their own preferences which are shaped by political-economic considerations. These considerations in turn are linked to the fiscal and financial sector conditions of each member state. The unequal representation of German interests in the foundations of the Banking Union has led to an EBU which is far from stable and which produces asymmetric effects firstly for member states by weakening national institutions dealing with peripheral ailing banks without sharing risks and secondly for EU institutions, by increasing the power of the ECB (idem: 12 – 13). Quaglia argues that the disproportionate representation of German interests in the establishment of the foundations of the Banking Union can be recognised in various steps. As for the first pillar of the EBU, which is the creation of the SSM, the EC proposed direct supervision of the ECB over all of the banks in the Eurozone. Germany did not agree with this proposal, and eventually a compromise was made that took German interests into account. From then on, the SSM differentiated between Significant Institutions (SIs), mainly large banks, which are supervised by the ECB and Less Significant Institutions (LSIs), mainly smaller banks, which are supervised by national authorities (Quaglia 2019: 6; ECB 2020). The regulation on the SRM, the second pillar of the EBU, also reflected the dominance of German policymakers. As a result, the SRB and national resolution authorities were given the power to decide on bank resolutions instead of the EC. Furthermore, strict rules were imposed on the use of common resources of the European
Stability Mechanism (ESM), where the opponents of Germany were in favour of making more use of common financial resources (Quaglia 2019: 6). Lastly, the quiet disappearance of the debate on the EDIS has also reflected the interests of German policymakers, who are opposed to risk sharing. Ultimately, all of the proposals on the Banking Union that were agreed fell within the win-set of Germany (idem: 7).
Jones (2018: 1 – 2) discussed the case of Italy and the completion of the Euro area. He argues that Italy has an ambivalent position vis-à-vis the future of the Euro area, because it is hesitant about the Euro area imposing fiscal discipline but supportive of strengthening European institutions that stabilise cross-border capital flows. Regarding this position towards Banking Union, Italy has the support of France (Bénassy-Quéré et al. 2018). The view of France and Italy is challenged by Germany and the Netherlands, who argue that fiscal rules and more market discipline are more important than stricter risk-sharing instruments (idem: 1).
Epstein and Rhodes (2016), also trying to explain the emergence of the incomplete Banking Union, take a different approach to Howarth and Quaglia’s intergovernmentalism. Instead, they follow a neo-functional approach highlighting the active role of supranational actors like the ECB and the EC who interpreted the crisis as a call for a supranational solution instead of separate national solutions. Subsequently, they shaped the EBU against the opposition of certain member states like Germany (idem: 416 – 419, 432 – 433). The crisis and its spillover effects of financial interdependence were crucial in the process towards the strengthening of power of the supranational actors. The argument is made that the EC made use of integration spillover tactics and a ‘there is no alternative’ discourse in their proposals regarding the Banking Union (idem: 417 – 420). Contrary to Quaglia (2019), who saw the prevailing German interests shaping the EBU, Epstein and Rhodes (2016: 432) argue that Germany eventually gave in and accepted the vision of the Banking Union which was put in place by supranational actors. Furthermore, the policy changes that were implemented by these supranational actors weakened governments and the national control over banks (ibid.).
Jones, Kelemen and Meunier (2016) also discuss the neo-functionalist approach and its account of spillover effects. They argue that the initial step of European integration towards an economic and monetary union was already incomplete, and that this integration led to spillover effects that call for extending integration into new areas. This integration into new areas happens because functional problems in certain sectors become so interdependent that they can only be solved with more integration. Furthermore, the governments and institutions involved also play integrative roles, as they are already conducting joint policies (Niemann et al. 2019: 49). The neo-functionalist approach does recognise the role of governments, but it argues that
there are more actors and that the role of governments is changing due to their initial steps towards integration, which caused historical constraints (Jones et al. 2016). In their discussion of neo-functionalism and intergovernmentalism, the authors propose a synthesis between the two different approaches. They call this synthesis ‘failing forward’ and argue that intergovernmentalism explains the short-term incomplete solutions because governments tend to agree on the lowest common denominator. These incomplete solutions lead to crises and a neo-functionalist call for further integration (idem: 1027). In the long term, this process of ‘failing forward’ could lead to a decline in public support for the EU due to the public perception of the EU being in a perpetual state of crisis (ibid.).
Deeg and Donelly (2016) focus on the experience of banks within the introduction of the Banking Union. They argue that the introduction of the Banking Union after the Euro crisis conflicts with the interest of so-called ‘alternative banks’. These alternative banks are primarily savings and cooperative banks and are seen as key institutions for European Small and Medium-sized Enterprise (SME) finance. However, these banks are having trouble to meet the standardised capital rules of the EBU because they are non-profit oriented. The authors argue that the future of the impact of the Banking Union relies on the extent to which the ECB rules apply to these alternative banks. There is thus a tension between the support for alternative banks and the support for the Banking Union (ibid.). Culpepper and Tesche (2019: 4 – 7) provide another argument dealing with the influence of banks on European financial regulation. They argue that the preferences and power resources of big multinational banks shaped the intergovernmental bargaining process towards the creation of the EBU. These big banks benefit from supranational supervision by the EBU because it reduces compliance costs and opens up the European market. The political divergence between these big banks and the smaller banks mentioned by Deeg and Donelly (2016) influenced the shift of the position of France and Germany in the intergovernmental debate, which eventually resulted in the establishment of financial institutions such as the SSM and the SRM benefiting the big banks (Culpepper and Tesche 2019). The completion of these institutions however, yet has to be implemented (European Parliament 2020).
Besides the introduction of an EDIS, there are some other views on a possible completion of the EBU that are alternatives or additions to the EDIS. Garicano (2019: 7 – 10) for instance discusses the SRB+, which would be an empowerment of the Single Resolution Board by setting up the EDIS, and the Safe Portfolio Approach. This Safe Portfolio Approach is a measure to cut the diabolic loop between sovereigns and banks that caused the crisis. Garicano (2019) describes the Safe Portfolio Approach as a distribution key of the portfolio of
banks dictated by the ECB. Banks would face charges based on the distance between their own portfolio and the portfolio dictated by the ECB. In this way banks would be incentivised to hold on to other, more diverse bonds than merely the ‘safe’ ones or their own sovereign bonds (ibid.).
Garicano (2019: 1) argues that the Safe Portfolio Approach would be the basis for a European Safe Asset. This European Safe Asset is a widely discussed instrument which deals with two different types of problems. The first problem is the flight to safety cross-border capital flows (Brunnermeier et al. 2016: 223 – 224). This problem is caused by assigning zero-risk weights to the bonds of all European states, while in reality the bonds of different member states are perceived in different risk categories. German bonds are for instance considered as safe, and therefore in risky times financial flows will take place to these German, safe, bonds (ibid.). A European Safe Bond, without any joint liability but with a distinction between junior bonds and senior bonds, would tackle this problem of cross-border capital flows by bundling the bonds of different member states (idem: 224 – 226). Such a currency-area-wide safe asset eliminates the differences of the assets of different member states, contributing to a more stable union (ibid). The second problem that is tackled is the trade-off between risk sharing and risk reduction. By also issuing junior bonds, which represent less safe bonds, creditor countries’ concerns about sharing liability with riskier countries would be eliminated (ibid.). Thus, it tackles one of the main discussed arguments against EDIS for example, which is that countries would like to see risk reduction before risk sharing.
De Grauwe and Ji (2018: 3 – 4) also discuss the implementation of a European Safe Bond proposed by the European Systemic Risk Board (ESRB) and are sceptical about it. Because a European Safe Bond would repackage sovereign bonds and not replace them, it would not eliminate the risks originating from the sovereign bond market. Only risk-sharing mechanisms could eliminate these risks, where a safe asset would merely conceal these risks. In fact, the authors compare this situation of repackaging bonds with pre-crisis CDOs (idem: 1 – 6). While a European Safe Bond could be useful in normal times, it would not help in times of crises. Instead, risk-sharing trough the creation of Eurobonds with joint liability and the provision of liquidity in times of crises through programmes like the Outright Monetary Transactions (OMT) of the ECB could enhance financial stability. Unfortunately, the political will to implement such measures is non-existent (ibid.). Seven French and seven German economists, referred to as the 7+7, argued that the sharp distinction between risk sharing and risk reduction is unnecessary. Instead, the two options should be looked at as complementary (Bénassy-Quéré et al. 2019: 10 – 16). The German and French economists present six proposals for reform in the Euro area, which should overcome the deadlock in the debate. These six
proposals are as follows: introducing sovereign concentration charges for banks combined with a common deposit insurance, replacing the fiscal rules by a long-term debt reduction target, creating institutions underpinnings for sovereign-debt restructuring, creating a Euro area fund, creating a synthetic safe asset and lastly, reforming the Euro area institutional architecture by giving responsibilities to the ESM and separating prosecutor and judgemental functions of the EC (ibid.). These proposals would, according to the authors, contribute to the common financial stability of the Euro area (ibid.).
2.2 Theoretical framework
Reviewing the literature discussed and relating it to the research question, an intergovernmental approach and a neo-functionalist approach can be identified. The intergovernmental approach, presented by Quaglia (2019), tries to explain the incompleteness of the EBU and its asymmetric operations by exploring the different preferences of the member states involved. These preferences are, according to Quaglia (2019), motivated by their different fiscal and financial positions. However, these preferences can also be motivated by alternative explanations which will be discussed below. The neo-functionalist approach, as presented by Epstein and Rhodes (2016), rejects the intergovernmentalist position and argues that supranational actors interpreted the crisis as a problem demanding supranational solutions. Therefore, these supranational actors shaped the outcomes of the crisis in the form of the EBU against the preferences of some European member states (ibid.). Within this process, the logic of neo-functionalist spillover is crucial. This spillover concerns the way supranational actors try to empower themselves where there is a policy slack, like there is in the EBU with an incomplete design. Functional spillover effects occur when the integration of one sector leads to more interdependence and thus technical pressure to integrate in other sectors, such as banking regulation after implementing a monetary union in the first place. These functional spillover effects are accompanied by political spillover and cultivated spillover. These types of spillover refer to integrative roles of national elites and supranational institutions (Niemann et al. 2019: 48 – 49). Supranational actors like the EC and its ally in the form of the ECB try to empower themselves not only by their official role of presenting proposals, but also by other strategies. Such strategies are ‘venue shopping’, ‘side lining’ and making use of the ‘treaty base game’. Venue shopping refers to the search for appropriate supranational forums which are conducive to their aims, side lining is a strategy that consists of making use of preferences of member states and juxtaposing them, while the treaty base game consists of making use of treaty articles to refute constitutional constraints to the legality of commission proposals. An example of the
side-lining strategy is the distance created between German policymakers like Angela Merkel and Finance Minister Wolfgang Schäuble by the ECB president Mario Draghi (Epstein and Rhodes 2016: 417 – 418). This neo-functionalist approach could explain the establishment of the SSM and the SRM, and it could also explain the absence of the EDIS with the decreased intensity of the Euro crisis, leading to a weaker demand for more integration (ibid.). The other articles discussed also take into account this non-completion of the Banking Union and propose different explanations for it, which can be categorised within the intergovernmentalist approach. Therefore, within this theoretical framework, three different explanations for the incompletion of the EBU following an intergovernmentalist logic will be discussed.
The first of these explanations, which will be termed the political explanation, focuses on the preferences of European member states motivated by their party-political and electoral situations. As Beck (2012: 17) notes, the political legitimacy of the Eurozone is decreasing regarding the fiscal and banking integration. The citizens of both creditor and debtor countries are having feelings that integration could lead to increasing economic risks. In the end, the EBU could only be completed accompanied by sufficient electoral support (ibid.). This argument is supported by Bulmer (2014), who discusses the tension between the German domestic politics and national politics towards Europe. Bulmer (2014: 1257) also argues that the rescues regarding the Greek bailouts in the Euro crisis were hardly affordable for the German government electorally. Cassel and Hutcheson (2019) elaborate on the German electorate in presenting their explanation for the German position towards the Banking Union. Within this explanation, the authors argue that the relationship between the policymakers and the electorate is decisive for a country’s position towards the EBU. The SSM and SRM were implemented in times were the electorate did not perceive itself in a situation of loss, whereas during the time of the debate around the EDIS there was much more salience around the Banking Union (idem: 576 – 577). Micossi (2017: 1 – 22) seems to agree with this electoral focus, arguing that due to a pro-European result of the elections in France and Germany, the chances for implementation of the EDIS were high. Regarding the case of Italy, Jones (2018: 1 – 9) sees political developments as decisive for Italy’s position towards the EBU. The rise of a populist government in Italy would not contribute to the chances of Euro area reform, according to Jones (Eriksson et al. 2018: 10 – 11). With this prediction, Jones makes a sharp distinction between the technocratic and centrist government of Italy in place at the time he wrote the article and the MS5/Lega government likely to be elected, which will most likely go against European values. This M5S/Lega government however, has already been replaced by a coalition between the Democratic Party and M5S (Jones 2020). Thus, the role of the electorate and party politics
is highlighted. Lastly, following the ‘failing forward’ logic of Jones, Kelemen and Meunier (2016: 1027), one could argue that European integration could be self-undermining and that every progression made could worsen the position of the European electorate towards the EBU. All in all, from the political point of view, there is a tension between the domestic electorate of the member states and the goals of the completion of the EBU.
The second of the three explanations, again emphasising the intergovernmental debate between member states and their preferences, focuses on the role of banks, the competitiveness of the domestic financial sectors and fiscal transfers. It will be further referred to as the political-economy explanation. This political-political-economy explanation flows out of the discussions of the EBU of Howarth and Quaglia (2014; 2016), Quaglia (2019), Deeg and Donelly (2016) and Culpepper and Tesche (2019). Quaglia (2019) focuses on the unequal bargaining powers between member states of the Eurozone that results from their fiscal and financial situation. Within this view, often a distinction is made between the core countries and the peripheral countries of the Eurozone. The core countries are the creditor countries like Germany and the Netherlands and the peripheral countries are debtor countries like Spain and Italy (ibid.). The views of Deeg and Donelly (2016) and Culpepper and Tesche (2019) are more concerned with the role of banks. Deeg and Donelly (2016), with their discussion of the tension between Banking Union and alternative banks, make use of the political-economy explanation. Banks, and in this case in particular alternative banks, are seen as actors who try to get influence in the decision-making process to achieve their interests (ibid.). This is in line with the argument of Keller (2018: 287 – 306), who claims that German business lobbyists successfully obtained financial regulatory capture by making use of noisy business politics. The independent banks, which are often relatively small, are the main point of focus in the article. These banks can mostly be found in Germany, Italy and Austria (idem: 300). Culpepper and Tesche (2019) on the other hand, argue that big banks, which are interested in European markets and the reduction of compliance costs, were able to get regulatory capture. All in all, the political-economy explanation tries to explain the absence of the EDIS through domestic financial and fiscal positions and highlights the role of banks in the intergovernmental debate.
The third and final theoretical explanation is concerned with ideas and will be referred to as the ideological explanation within this thesis. This account can be found in the discussed work of Jones (2018) and Bénassy-Quéré et al. (2018). Jones discussed Italy’s ambivalent position towards European cooperation. This ambivalent position is a result of the ideological position of Italy’s policymakers, who are in favour of cooperation on financial regulation but are sceptical towards European involvement in fiscal policies (Jones 2018: 1 – 9). Regarding
its position towards the cooperation on financial regulation, Italy has the support of France, which also believes more European cooperation in financial sectors would be beneficial (Bénassy-Quéré et al. 2018: 1). France and Italy’s positions are challenged by the position of Germany, which believes domestic fiscal rules should be made stricter (ibid.). This argument is different than the political-economy explanation, because ideological preferences do not necessarily stem from a priori preferences vis-à-vis political cooperation. An example of this is the disagreement between France and Germany, which are both considered as core countries of the Eurozone (Campos and Macchiarelli 2018). Their disagreement is thus not as easily explained by their predetermined political-economic preferences. Therefore, this third theoretical explanation tries to explain the non-completion of the EBU by the different ideological positions of member states’ policy makers. Brunnermeier et al. (2016: 56 – 82) elaborate on the ideological differences between Germany and France and summarised their economic views in a few points. The German view is considered to focus on the free market which should be bound by strict rules, favours a strict distinction between monetary and fiscal policy, being concerned with moral hazard and lender of last resort facilities, positive towards strict debt ceilings and being in favour of austerity, which is expected to produce economic gains in the future (idem: 66 – 67). The French view on the other hand, is considered to be more flexible. It argues that rules are subject to political negotiations, that monetary policy can be used for other goals than merely price stability, that austerity in the present would not lead to growth in the future and that constraining the government to act or borrow would be undemocratic (idem: 74). These ideological typologies seem highly incompatible, and therefore it is conceivable that ideological differences could be the explanation for a struggle to cooperate in terms of a Banking Union.
Chapter 3 Design of the research
This research will consist of a case study of the debate on the introduction of a European Deposit Insurance Scheme. Within the case study, a within-case comparison will be conducted. To do so, process tracing, a qualitative research method consisting of document analysis and elite interviews will be utilised.
3.1 Research design
Looking back at the research question, “What are the key obstacles to the completion of the European Banking Union?”, this thesis tries to reach a deeper understanding of a certain development. Therefore, a case study will be conducted (Vennesson 2008: 227 – 228). Case studies are especially well suited for these kinds of questions which tackle detailed explorations of hypothesized causal mechanisms, as discussed in the theoretical framework, better than other methods (Flyvbjerg 2011: 306). While the definition of a case study is contested within the academic world, Flyvbjerg (2011: 301) argues that the following definition developed by the Merriam-Webster dictionary (2009) is the most suitable: “An intensive analysis of an individual unit (as a person or community) stressing developmental factors in relation to environment”. The exploration of the obstacles to the completion of the Banking Union can be seen as such developmental factors corresponding to the environment of the European Union. Therefore, a case study is the suitable approach for this research. In relation to the implementation of the EDIS, the cases of the Netherlands, Germany, Italy and the EU more generally will be analysed. These cases are chosen because the Netherlands, Germany and Italy are seen as extreme cases regarding their position towards European financial cooperation, due to their status as core and peripheral countries (Campos and Macchiarelli 2018). The case of the EU in general will be analysed due to the supranational and neo-functional explanations of the incomplete Banking Union.Lastly, the French view will also be incorporated in the analysis. The case of France is an interesting case from a theoretical point of view, where France is not considered to be a high debtor country but often sides with other debtor countries within the Eurozone (Campos and Macchiarelli 2018; Bénassy-Quéré et al. 2018: 1). By analysing these different cases, a more complete view of the different perspectives can be identified and thus a more precise answer to the research question can be formulated.
3.2 Process tracing
Since this research is ultimately interested in identifying causal mechanisms, process tracing is the preferred method. Process tracing is a research procedure that tries to explore processes through which initial conditions are transformed into certain outcomes (Vennesson 2008: 224). There are three different forms of process tracing: testing process tracing, theory-building process tracing and explaining-outcome process tracing (Beach and Pedersen 2013: 11 – 13). This research will make use of explaining-outcome process tracing, since it is interested in explaining the non-completion of the EBU. Although there are some theoretical assumptions about the process towards the completion of the Banking Union, the process tracing in this research is not theory-testing, because within theory-testing process tracing inferences are made only about whether the postulated mechanism is present or absent in the single case (idem: 18). In this research the main point of interest is the exploration of the causal mechanisms. The first causal mechanism that is explored through process tracing is the political mechanism, that focuses on the domestic electoral constraints that policymakers have to face. The second causal mechanism focuses on political-economic factors and the interests of banks as being decisive for the attitude towards further banking integration. The third causal mechanism focuses on the differences of ideas and ideology between different policy actors and again tries to identify such reasons through the process-tracing method. Lastly, because Jones, Kelemen and Meunier (2016) argue for a synthesis between the neo-functionalist view and the intergovernmentalist view, the fourth causal mechanism that is being examined focuses on actors other than governments, such as supranational actors. Within this causal mechanism, there is a central role for crises, which are seen as moments calling for further integration (ibid.).
Process tracing often requires a collection of a lot of data from a wide range of sources (Tansey 2007: 765). For the collection of the data from this wide range of sources, it makes use of an array of data collection methods like histories, archival documents, interview transcripts and other sources (Vennesson 2008: 232). This research is interested in the positions and motivations of different actors. Therefore, at first a documentary analysis will be conducted. By looking at different official proposals, documents and speeches regarding the EDIS, the different positions of the actors discussed will be explored. Second, to identify the motivations for the different positions, semi-structured elite interviews were trying to be conducted with officials from the member states and European institutions. Where interviewing these officials seemed unfeasible due to unforeseen circumstances which will be discussed later in this chapter, the sample of respondents was changed.
3.3 Documentary analysis
Documentary analysis, or textual content analysis as Halperin and Heath (2017: 335 – 361) call it, is concerned with the study of texts. The growing awareness of the importance of language in political analysis resulted in an increase of interest in textual analysis within the social sciences. The goal of textual content analysis is to uncover the intentions, motives, meanings and purposes from certain texts. Such texts can vary from official documents like government reports and speeches to cultural documents and personal documents like letters (ibid.). Where this research is interested in the motives and purposes of different actors towards the implementation of the EDIS, a policy, personal and cultural documents are less important than official documents. The main body of documents will consist of speeches, government reports and reports of policy decisions. The process of content analysis involves four different steps: the selection of the population of texts, defining categories of analysis, define the segments of the texts to be examined and marking the texts with codes or tags according to the defined categories (idem: 347 – 349). The population of texts in this research will consist of speeches, government reports and policy reports of intergovernmental and supranational actors within the debate on the implementation on the EDIS. These main actors are the Netherlands, Germany, Italy, France, the EC, the ECB and to a lesser extent banks. The categories of analysis are the causal mechanisms described in the beginning of this section. These causal mechanisms are the political mechanism, the political-economic mechanism, the ideational mechanism and lastly the supranational mechanism. The texts will be analysed as whole texts, so there will be no definition of segments. Lastly, the coding will consist of the application of coloured tags corresponding to the different casual mechanisms described. In this way, it is tried to identify the motivations for the different positions of the actors.
3.4 Interviews
For the interviews, a semi-structured interview approach is the method of choice. This interviewing approach consists of a combination of structured and unstructured questions, to obtain factual information and motivations and experiences at the same time. By incorporating unstructured questions, the researcher is able to get more insight in the meanings of the experiences of the subject and therefore provide more valid data. A disadvantage is that it is hard to compare the responses of different interviewees and that data is not standardised and therefore cannot be generalised from. Hence, semi-structured interviews are ideal for a small sample of respondents (idem: 289 – 300). Where much political research, just like this research, is interested in understanding decision-making processes and political institutions, interviewing
the political elite is a key element of doing research. Therefore, the population of respondents will mostly consist of this political elite. The political elite is understood as people who exercise disproportionate power in the decision-making process of the research area, or who have disproportionate information (Pierce 2008: 119). Interviewing the political elite also enables the researcher to make inferences about a bigger population of political (Halperin and Heath 2017: 298). Typing up the notes and transcribing the recordings as soon as possible after conducting the interviews helps in processing the data as accurately as possible (idem: 300).
The hardest part of conducting elite interviews however, is getting agreement of respondents to the interview requests (ibid.). Sending out a well written and thought out interview request is the first step to increase the chances of success (ibid). Unfortunately, there is another factor that hinders a smooth progress of the data collection process. The COVID-19 virus, which has spread all over the world, has caused a lot of deaths globally. It is classified as a global pandemic by the WHO. Furthermore, it impacted social and economic life in the Netherlands and across the globe (Adhanom 2020; RIVM 2020). People are instructed to stay in their houses and only people working in essential jobs are allowed to go to their work (RIVM 2020). Where this situation is expected to persist to at least June, the month in which this thesis has to be submitted, it is impossible to conduct interviews through face-to-face meetings. Therefore, every interview will be conducted online. This limits the natural flow of conversations and consequently limits the number of questions (Halperin and Heath 2017: 297). Where this is the most appropriate alternative, it is still tried to conduct the interviews in a satisfactory way. Second, where the virus impacts social and economic life heavily, the political elite that was targeted for the interviews had other priorities in these times of crisis. This does not mean that it is not tried to conduct interviews at all. Instead of conducting interviews with policy officials, two interviews have been conducted with a policy advisor to the Dutch Parliament and a professor who is considered to be an expert on the Italian case. A consequence of a shift in the type of respondents could be that the interviews are not as representative for the actual positions of the member states. However, keeping this in mind, the interviews can still be used where the interviewees are considered to be experts on the subjects discussed.
By making use of different methods of data collection and making use of different sources, it is tried to meet the research goal of triangulation. Triangulation is the cross-checking of the collected data by making use of different sources and methods. In this way, the robustness of the findings is increased (Tansey 2007: 766). For the interviews, the sampling was intended to be done on a non-probability basis since the point of interest is in certain actors with expertise (idem: 769). Since this is a master’s thesis, there is a limited amount of time and resources for
the execution of the research. Therefore, samples were intended to be mostly conducted on a convenience basis (ibid.). Furthermore, originally it was expected to engage in snowball sampling. Snowball sampling involves finding respondents who meet the criteria of the interests of a research and secondly asking these respondents to advise on other possible respondents (Halperin and Heath 2017: 277). The disadvantage of this strategy is that this type of sampling tends to result in a sample of similar respondents. However, it is being used in qualitative research in the case of a hard to reach population sample, of which the political elite is a good example (ibid.). As conducting the research in the intended manner did not seem feasible anymore due to the outbreak of the corona virus, another approach was followed, which is discussed in the previous paragraph. Following this approach, consisting of interviewing less and another type of respondents, impacts the degree to which the content of the interviews contribute to the conclusions of this thesis. Therefore, the contents discussed hereafter do not carry as much authority with them as desired. Triangulation of methods and sources, by analysing reports and speeches, should contribute to minimise this problem.
Chapter 4 Member state positions
Within this chapter, one of the three different sub-questions will be discussed. This sub-question goes as follows: “What are the positions of Germany, the Netherlands, France and Italy towards EDIS and the completion of the EBU and what are their motivations for these positions?” This question focuses on governments as the main actors within the decision-making process on the EBU, and thus follows an intergovernmental approach. The selection of Germany, the Netherlands, France and Italy as the units of analysis is motivated by the idea that the positions of Germany and the Netherlands are often contrasted with that of Italy. Furthermore, while France is considered to be a core country of the Eurozone just like the Netherlands and Germany, it does not always support the German and Dutch positions (Campos and Macchiarelli 2018; Bénassy-Quéré et al. 2018: 1). For every member state discussed, a process-tracing analysis will be conducted based on interviews, speeches and official government reports and documents. In this way, the causal mechanisms leading to the non-completion of the EBU are identified and reported in different sections. The first section focuses on the position of Germany, the second section focuses on the Netherlands, the third section refers to the position of Italy and lastly, the fourth section focuses on the position of France.
4.1 Germany
Within the literature discussed, the case of Germany played a central role in the decision-making process on the EBU. Quaglia (2019: 3) argues that Germany is the most powerful and most resourceful player within the Eurozone, and that its preferences consequently are strongly represented within the outcomes of the debates on the SSM, SRM and EDIS as the three pillars of the EBU. Quaglia (2019) follows an intergovernmental logic and argues that the preferences of member states are based on their fiscal and financial position and the competitiveness of their banking sector and national economy more generally. Following this logic, Germany’s position towards the completion of the Banking Union should be influenced by its role as one of the biggest and economically most competitive countries of the Eurozone. This is true according to Quaglia (2019), and she categorises Germany within the category of core countries like Austria, the Netherlands and Finland. These core countries reap benefits from the incompleteness of the EBU, where the delay of the implementation of an EDIS shields them from sharing risks with less competitive countries. At the same time, risk control has increased with the supranationalisation of banking supervision along the lines of the SSM. This benefits these core countries, which would like to reduce the risks in different EU member countries
before engaging in risk-sharing through a shared deposit guarantee scheme (Quaglia 2019: 12 – 13). Thus, setting up the institutional framework for risk reduction and subsequently not engaging in a risk sharing institutional framework has been beneficial for Germany and this outcome of the decision-making process reflected the interests of this member state (Quaglia 2019).
Discussing the German position towards the completion of the Euro area, Schwarzer (Eriksson et al. 2018: 49 – 59) agrees that Germany’s perspective emphasises a low degree of risk sharing and the own responsibility of member state governments. This corresponds with the German ordoliberal ideal. Previous governments of Germany have always been supportive of further European integration and European issues have always been high on the agenda of the government. However, German governments always showed their strong positions and preferences towards European issues, which sometimes caused controversy. These preferences were mainly based on rules concerning the separation of fiscal discipline, financial stability and macroeconomic stability from political influence (ibid.). While the current government, consisting of the CDU, CSU and SPD also has a strong focus on European cooperation, Schwarzer argues that this focus could be endangered insofar as the majority within the Parliament is smaller than that of the preceding government. Euro-sceptical concerns in the Parliament seem to be growing. According to Schwarzer, any initiative regarding the Eurozone should contain elements of risk reduction, market discipline and risk sharing to be accepted by the Franco-German coalition, which was established in February 2018. This declaration states that new reforms should always be formulated together to increase the crisis resilience of the Euro area (ibid.). Within this declaration, the EDIS is not excluded. The German government is thus in favour of EDIS, if substantive conditions concerning risk reduction will be granted (idem: 53).
These substantive German conditions regarding the completion of the EBU, including among others the implementation of the EDIS, were also brought up during an interview with a policy advisor to the Finance Committee of the Dutch Parliament. Discussing the role of the Netherlands, he argued that the Netherlands did not have to express themselves that much due to the hard line of Germany. “The Netherlands are quite sceptical, but did not have to do that much work due to the work of Germany, who were very clear. Until last November, when the pressure was so high that Scholz let a kind of non-paper circulate through Germany” (Bokhorst 2020). With this quote from the interview conducted in April 2020, the evident position of Germany towards the completion of the EBU can be recognised clearly, and with the following quotation it appears that the non-paper summarises the view of the German government: “This
non-paper is a very important document of about eight pages about the German view” (Bokhorst 2020.). Looking at this non-paper, written by the German Finance Minister Olaf Scholz (2019a), the different conditions of Germany regarding the completion of the EBU can be identified. The German Ministry of Finance proposed the following seven conditions before engaging in the EDIS: expanding the supervision and resolution of banks towards the European level, harmonising the legislation on bank insolvencies, deepening the integration of EU Banking Groups, using a safe portfolio approach of sovereign bonds, further reducing NPLs to 2.5% net, combatting money laundering together and setting up the CCTB to prevent arbitrage among member states (ibid.). When these conditions are met, the EDIS could be developed, with a cap on the European contribution, which could be called on when national resources are exhausted (ibid.). All of the conditions mentioned are targeted at the reduction of risks. When discussing this non-paper however, it is important to keep in mind that a German policymaker is allowed to present a personal opinion, without having approval from the government (Bokhorst 2020).
Now that the position of Germany towards the completion of the Banking Union has been made clear, the motivations for this position should be uncovered. According to the literature, there are three different approaches to the way a member state develops its position: the political explanation, the political economy explanation and the ideological explanation. The political explanation, focusing on party politics and electoral constraints, seems to be dominant within the disagreement among German and French policymakers, as reported by Reuters (2018). Within this article, it is stated that German taxpayers, who constitute the electorate, are concerned with moral hazard issues of other governments. Furthermore, Klaus Regling, ESM chief, urged governments to take action regarding Eurozone reforms because otherwise the political momentum would be lost that had been created with parties who were in government back then (ibid.). This is in line with the discussion by Schwarzer (Eriksson et al. 2018: 49 – 59), who noticed a shift within the Parliament that could be detrimental for pro-European reforms, with the rise of anti-EU populism and nationalism. Bulmer (2014: 1244 – 1263) also describes this process of the increasingly politicised German party-political climate. Furthermore, he argues that the German political opinion displays Europamüdigkeit, which can be translated as Europe fatigue. In other words, the German leadership in reforming the Eurozone is getting more and more constrained by its own domestic party-political situation (ibid).
In the second interview that has been conducted with Erik Jones (2020) to discuss the case of Italy, the political-economy approach regarding Germany was also discussed in several
ways. The political economy approach focuses on bank lobbying, the competitiveness of the financial sector and the fiscal positions and transfers between countries. Referring to the deadlock in the debate on EDIS, Jones said the following:
They had a big debate in the middle of the 2000s inside Germany. About whether to bring together the deposit insurance schemes that cover the savings banks, the co-operative banks and the commercial banks, yeah. In one network in that conversation collapsed. Right. Because the political allies of the savings banks and the political allies of co-operative banks did not want them to have to get into the commercial banks. Now, if you can't unify deposit insurance inside Germany, is it hard to understand why Germany doesn't want a unified deposit insurance across Europe? (Jones 2020).
This quotation shows the relevance of the banking sector, and especially the influence of the alternative banks within Germany, as also discussed by Deeg and Donelly (2016: 585 – 604). The other respondent also touched upon this subject, arguing the following: “In Germany the banks have a very powerful position in certain states, and this would cause the red line to be to not even consider it” (Bokhorst 2020). As for the other points of the political-economic explanation, this respondent seemed less positive. Answering to the question if he rejected fiscal explanations for the deadlock in the debate, he answered that fiscal explanations are not satisfactory, and that rather financial competitiveness is decisive, given that this is a question of financial architecture (Jones 2020). That fiscal explanations are not that important, is highlighted by the arguments made within the speech of Scholz (2019b) on the Future of Finance Conference by Bloomberg and the 2019 Annual Economic Report of the German Federal Ministry of Finance (2019). Within the discussion of Europe within the Annual Economic Report, the focus rests upon solidarity, especially in times of crisis (ibid.). This does not correspond with the idea of a North-South divide in terms of fiscal transfers being decisive for the incomplete EBU. Scholz (2019b), highlighting the common need for EDIS and the completion of the Banking Union, also shows that the fiscal element is not decisive. In fact, if this element was decisive, he would not pursue a shared deposit insurance scheme so clearly.
The ideological approach can also be traced back in the Reuters (2018) article, where it focuses on the conservative lawmakers being sceptical of the reforms and it is this conservatism that is decisive for their opinion. Within the first interview conducted, this presence of ideology within the German debate was also discussed. Commenting on the revival of the debate with the non-paper of Scholz, the respondent argued: “As far as I know it is because Scholz is from the SPD, where the ministry mostly consisted of people from the CDU before. These parties
have a different ideology. And where a minister is allowed to appoint his own team, you can expect him to appoint economists of his own liking” (Bokhorst 2020). Furthermore, within a written explanation of vote in the European Parliament by Thomas Mann, a German MEP of the CDU, the German ordoliberal approach can be identified very clearly, where he focuses on individual responsibility of member states and following strict rules to reach a stable economic and financial architecture (European Parliament 2020b). Degner and Leuffen (2020), making use of an ideational approach, argue that Germany is still opposed to a lot of European policy proposals such as the initial EDIS proposal, Eurobonds and the restructuring of debt in Greece because of its ideology. This can be identified within the inability to get in touch with its leadership partner, France, during and after the Eurozone crisis (ibid.).
4.2 The Netherlands
Profiling Germany as a core country, Quaglia (2019) argues that the Netherlands shares somewhat similar material interests. Both countries are being mentioned together with Austria and Finland. Schout (Eriksson et al. 2018: 60 – 69) however, argues that each country within the Eurozone has its own narratives and counter-narratives towards European integration, and therefore these countries cannot be treated as constituting a single unit of analysis. Discussing the case of the Netherlands, Schout argues that while the country is often portrayed as being euro-sceptical, it is actually quite a pro-European member state. Instead of seeing it as Euro-sceptical, Schout sees the Netherlands as a pragmatic, constructive partner within the debate on further European integration. This also accounts for the debate upon the completion of the European Banking Union. Schout even expects and hopes that the Netherlands will take over the role of the British as being a constructive counterweight towards the Franco-German leadership. This means that the Dutch will accept some forms of risk sharing within the Banking Union, but to a limited degree and on their own terms and conditions (ibid.).
Analysing the interview with the advisor to the Finance Committee of the Dutch Parliament, this statement seems to be shared. Referring to the stance of the Dutch towards the completion of the Banking Union, he answered very clearly: “The Netherlands officially is in favour of an EDIS as the keystone of the Banking Union” (Bokhorst 2020). However, where this statement seemed quite direct, he toned it down afterwards: “This means that they are willing to listen to the idea” and:
This is thus not a hard rejection of EDIS. Of course, the Dutch see it as something that causes more risk sharing within the Eurozone. There are some wishes that the Netherlands has had for quite a long time, and which they
present as conditions before agreeing on this idea of risk sharing. Their position is therefore quite ambiguous, arguing that the Banking Union is a top priority but at the same time setting conditions from their own position. (Bokhorst 2020).
Checking official government documents, this description of the Dutch position on the completion of the Banking Union appears to be correct. In the annotated report of the agenda of the Eurogroup and ECOFIN council for the Dutch parliament, it is stated that the Netherlands is willing to cooperate on reducing risks and constructing stability through EDIS, after realising a revised treatment of sovereign bonds and a stricter test of banks through Asset Quality Reviews (AQR). Furthermore, the Netherlands is not in favour of Eurobonds as an additional policy accompanying EDIS (Rijksoverheid 2019). This focus on the handling of sovereign bonds and the compliance with AQRs can be traced back in other government documents, like three letters of the Finance Minister Wopke Hoekstra to the Dutch Parliament and a report of the Dutch Committee on Financial Stability. In all of these documents it is stated that the ownership of sovereign bonds by banks should be limited and that AQRs should be conducted more precisely and frequently (Hoekstra 2018; Hoekstra 2019a; Hoekstra 2019b; Ministerie van Financiën 2019). Thus, before engaging in the deposit insurance scheme, the Netherlands would like to attack sovereign exposure, expand AQRs and not engage in Eurobonds. This also is what came out of the interview: “Within the debate, the Netherlands has a few core values. The first one is about sovereign exposure. I will explain that one later. The second one is about Asset Quality Reviews and the third one is that it does not want to engage in Eurobonds” (Bokhorst 2020). Where Schout (Eriksson 2018: 60 – 69) argued that the Germany and France are leading the debate around European integration, the interviewee seems to agree: “The Netherlands did not have to do that much because Germany was always doing all the hard work” (ibid.).
Where the position of the Netherlands has been exposed and now that it has been made clear that it does not express this position as loudly as Germany regarding EDIS in particular, it now is necessary to find out why it takes this position to give a satisfying answer to the sub-question. The first approach to explaining the positions of member states is the political approach, which focuses on party-political and electoral constraints. Schout (Eriksson 2018: 60 – 69) argues that there are some political constraints regarding party politics and the elections within the Netherlands, where there is a rise of EU-critical parties, resistance to make use of the ESM and a negative outcome of the referendum in 2016 on the EU-Ukraine Association Agreement. This is the case, despite the pro-EU position shown by the Eurobarometer for the
Netherlands (ibid.). Within the interview on the Netherlands, it also became clear that the political dimension is important. In the following quotation, it becomes apparent that politics do play a role: “If you look at the debate within the Netherlands, you see that the parties on the left side are way more inclined towards looking at the broader interest. A party on the right side will focus much more on direct effects and the harshness of the conditions” (Bokhorst 2020). Furthermore, it is argued that Dutch Euroscepticism has been growing, which can be recognised in the following two quotations: “It mainly is due to a growing amount of distrust that has been growing in the last years, also since the Euro crisis’ and as an answer to the question whether or not Euroscepticism plays a role “Of course that plays a role. At the right flank people have the idea that it all went too fast. We did not think good enough about the Euro” (ibid.).
Regarding the second approach, which focuses on political-economy explanations, the interviewee argued that fiscal explanations were not satisfactory, as it was also argued for Germany:
There is a North-South element, but you should not think of that too radically. Within the North there are different thoughts as well as in the South. In a certain way it is intellectual. What is safety? And what is risk and how do we measure it? Some Southern countries for example argue that where some Northern countries see sovereign exposure as a risk, they perceive the securitised products on the Northern bank balance sheets as a risk. (ibid.).
Within this quote it is made clear that fiscal explanations are not decisive. Rather, the interviewee hints at a more ideational approach. Furthermore, the interviewee made use of the example of the Greek bailout to illustrate the oversimplification of fiscal explanations: “It is certainly not the case that we transferred our money to Greece. No, we gave guarantees to the ESM and the ESM put that cheap money into the market. And Greece paid off that debt properly. In fact, at the beginning we even made some profit” (ibid.). With this example it has been made clear that fiscal transfers within a European architecture are not as simple as it may seem, and that some countries who are perceived as the disadvantaged could even make a profit out of it. Taken together, fiscal explanations are not perceived by this commentator as accounting for the Dutch position towards the completion of the EBU.
The third intergovernmental approach to explaining the incomplete Banking Union is the ideational or ideological explanation. Where the German case has been described quite clearly on this behalf, this explanation also seems applicable to the Dutch position. As described in the preceding paragraph, the interviewee hinted at an ideational explanation instead of a
political-economic explanation by focusing more on intellectual differences instead of economic differences. One example that was utilised was that of a different perception of risk. Where some countries and actors perceive sovereign exposure as a big risk, other countries argue that the actual risk originates from the securitisation of financial products in the first place. Another example the respondent made use of to explain the importance of intellectual differences between actors is the way in which people perceive solidarity: “Solidarity, of course, will be perceived differently under the average D66 voter or lawmaker than under people on the right” (ibid.). Besides indicating an ideational approach, this quote could also be explained through a political approach. On this behalf, the approaches seem complementary and not mutually exclusive.
4.3 Italy
Following the line of the literature that has been discussed previously, Italy seems to be quite supportive of further European integration related to the completion of the Banking Union and EDIS. Bénassy-Quéré et al. (2018) argue that Italy, contrary to Germany and the Netherlands, is in favour of implementing risk-sharing mechanisms accompanied by stronger governance and more accountability at the European level. Jones (2018) agrees with this statement, and further argues that Italy has a sceptical stance towards aggressive risk-reduction measures within the financial sector. Looking at the history of the country, Jones argues that Italy is likely to support EDIS, a European finance minister with powers over common European resources and more political accountability for European macroeconomic policy (ibid.). However, where Bénassy-Quéré et al. (2018) seem to contrast Italy with countries like Germany and the Netherlands because of their fiscal positions, Jones (2018) argues that Italy did not have problems with its export competitiveness and debts prior to the crisis. Instead, the Italians seem to be more concerned with increasing the confidence in the financial markets so that Italian assets will not be liquidated in the wake of a new financial crisis. Following this line of argument, Howarth and Quaglia (2016: 41), discussing the case of Italy during and after the crisis, argue that its main problem is not its high level of public debt, but rather its inability to reach higher levels of economic growth. This low level of growth is in turn the reason for the low level of confidence in Italian assets (ibid.). Lower levels of GDP and productivity growth thus seemed to be a bigger problem for Italy than its public debt and export competitiveness.
Since many things have changed since the time of writing of this literature, it is useful to get insight in an updated version of the arguments made. Therefore, an interview with Erik
