The regulatory state and the concept of regulation itself are contested fields of discussion for political economy. Scholarly contributions have created as much disagreement and divide as the regulatory state itself. Examining the pan-European experience of nation states gives rise to a range of equally fascinating debates concerning macroeconomic policy, microeconomic dynamics, delegation to non-majoritarian institutions and the move towards an internationalisation of markets. The issue of whether or not all European governments have converged on the regulatory has concerned academics for decades; despite the difficulties in semantics that arise from the term ‘regulation’ and ‘the regulatory state’, the question at hand remains highly relevant, particularly in relation to the omnipresent topic of the EU. This essay constructs a discussion surrounding the assertion that all European governments have converged on the regulatory state, in an attempt to offer a substantive answer to whether or not they have done so.
The question at hand necessarily warrants a comparative perspective. For this reason, the cases of Britain, France, Germany and Italy will predominantly be referenced to create a comparative lens, although other nation states may be incorporated as nuances in the debate arise. Given the admittedly broad implications of a ‘regulatory state’, it is useful to focus particularly on financial markets (stock exchanges, in particular), planning, legislation, EU regulations and delegation to non-majoritarian institutions.
Examining the case of France, its regulatory ‘convergence’ with other European nation states has been a relatively slow one. Prior to 1996, in conjunction with the 1986 Big Bang in the London Stock Exchange, resistance to independent regulatory authorities and non-majoritarian institutions was rife, as it was in Germany during a similar time frame. The example of the Paris Bourse as the predominant central authority on financial transactions and exchange mechanisms in France was generally undisputed until the early 1990’s, when France had to begin modernising regulatory practices in order to compete with an increasingly internationalised market. Where bodies such as the Paris Bourse were seen as restrictive to international capital flow and competitivity on the international field, France, along with Germany, saw a shift towards a more independent, privatised logic of the regulatory state. More specifically, the Paris Bourse was structurally transformed in the early 1990’s to compete with overseas exchanges (Thatcher, 2007); the banks displayed greater power over the Paris Bourse, which evolved from a public service into a private for-profit company, with a view to competing with markets such as the LSE. Eventually, the Bourse evolved from a non-profit to an international quoted company; this same regulatory trend is evident in the German model during the 1990s (Thatcher, 2007).
It was argued by champions of internationalisation that regulatory legislation pre-1980 restricted liquidity in European markets. The 1996 Law in France formally recognised the Commission des Opérations de Bourse (COB) as an independent regulatory authority, an obvious catalyst for France’s ability to competitively trade with the rest of Europe. The fact that the COB was renamed the Autorité des Marchés Financiers (AMF), and merged with two major self-regulatory bodies, meant it became a ‘public independent authority’ with its own legal remit (Thatcher, 2007). The desire to create a common regulatory ‘language’ across Europe was present amongst all EU member states; the 2003 merger of the COB and the independent self-regulatory bodies was an attempt to ‘catch up’ with other countries like Britain, where a single regulator for securities trading had been developed, in contrast to France whose dual regulators were perceived as ‘complicated’ for non-nationals.
In the case of Germany, and as late as the mid-1980s, West Germany had 8 small regional stock exchanges owned by the regional governments (the Länder) and seen as public utilities. By 2005, as with France, the government took on the central aim of creating a large, internationally competitive stock exchange. The Deutsche Borse was a privately owned listed company and a federal regulator had been set up with formal rules controlling securities trading. It is key to note just how similar the pace of this trend is in relation to France. Once again, the central aim of European convergence was to make the stock market and financial institutions (e.g. the Finanzplatz Deutschland) amenable to international exchange. Compared to Britain, Germany lacked a large, powerful central exchange and a sector-specific regulator, meaning the trading of overseas stocks was difficult (Thatcher, 2007). This highlights the inevitability of the international market in terms of requiring regulatory expansion and convergence as a nation is forced to sink or swim.
Electronic trading and technological paradigms demanded even greater levels of regulatory reform to accommodate a pluralist international market. The 1989 Stock Market Act in Germany was a response to London and Paris designing their own markets to attract German-listed companies. The 1989 law allowed the adoption of a financial futures exchange in Germany (the DTB), financed by large banks. This was a regulatory breakthrough in the sense of moving away from the regional exchanges that previously dominated Germany. The DTB was also a fully electronic trading market, moving with the European-wide trends towards non-physical trading floors (Thatcher, 2007). Arguably, then, the natural corollary of a demand for a common financial ‘language’ has been convergence on the regulatory state from European governments.
Italy saw the same EU-inspired trend in selling off its regional stock exchange (Borse)– Borsa Italiana – which was privatised in 1997. The selling of the Borsa Italiana as a profit-making company runs in a similar vein to the selling of the German regional exchange. Attracting foreign investors was a huge concern for national political economies, and adapting to the shifting tide of the European regulatory state – bolstered by EU regulation and directives – was imperative if a nation was to stay afloat above the financial waters. The capitalisation of the Borsa Italiana increased to such an extent that it actually overtook many other European exchanges to become the 4th largest after the LSE, Frankfurt and Paris (Thatcher, 2007).
Despite overarching convergences on the regulatory state at the European level, fragmentations, differences and clashes continue to prevail; as an example, in West Germany and Italy, trading was divided across regional exchanges, and public banks carried out most trading, whilst in France, the Bourse of Paris dominated trading. Furthermore, France and Italy had weak national sectoral regulators, whereas West Germany regulated with regional authorities. Lastly, each nation state has had individual rules concerning types of markets. For example, futures trading was banned in West Germany, whilst France had two markets for the same stocks, and strict restrictions on brokers trading on their account (Thatcher, 2007). Nevertheless, by 2005, these institutional structures were altered significantly. The domination of individual brokers was stopped, entry into the market was allowed for most companies, including the banks (Thatcher, 2007). Exchanges were privatised and turned into profit-making companies that were quoted on the market; convergence has therefore lost none of its weight where consensus on internationalisation and competitivity of markets is concerned.
Looking specifically at the EU, the European Commission has continuously sought to maximise influence over policy paradigms of member states; the single European market has very much encouraged regulatory convergence. All member states can be said to have converged on three key interrelated policy decisions: the privatisation of activities previously undertaken by national ownership frameworks, the evolution of quasi-autonomous agencies with quasi-legislative powers, with a remit for economic regulation of privatised activities, and the contractualisation of relationships within the regulatory policy domains (Lodge, 2008). One may indeed ask whether or not it is possible not to converge when one is a member state of the EU.
Despite a move towards convergence on the regulatory state at a European-wide level by national governments, the fact that cross-country differences prevail in terms of approach, methods and practices, suggests that total convergence is certainly not an obvious fact. A substantial portion of scholarly research suggests that the regulatory state in Europe has merely rearranged the centrality of the national state in its regulation of economic and social activities, rather than weakening it (Lodge, 2008). Moreover, the adaption to the international regulatory state has not necessarily been born out of a need for convergence along European lines, but rather out of a wide variety of factors and causalities relating to macroeconomic turbulence more generally (Lodge, 2008).
To conclude, it is clear from empirical examples that convergence on the regulatory state by all European governments can be said to have happened at the level of a general trend where the EU is concerned, predominantly where the internationalisation of the market is of importance to member states. However, looking at the specific dynamics of microeconomics and governmental frameworks across Europe, it is obvious that practices, methods and approaches continue to differ where national characteristics prevail; the nexus between non-majoritarian agency concerns and credible commitment issues relating to electoral motivations is a complex dynamic, but one that suggests total convergence on the regulatory state by all European governments cannot be realistically said to have happened. Looking at the national specificity in which the structure of the modern regulatory state has been transposed across states, the dynamics are both universal and particular (Lodge, 2008); national interests will continue to sharpen and emerge.
One can therefore state that a very general convergence on the regulatory state by all European governments has emerged. However, whether or not this is due to active political will on the part of governments or rather through the demands of EU directives and regulations themselves is difficult to establish. It is much more likely that convergence on the regulatory state in Europe has developed in conjunction with reform and modernisation of international markets and financial paradigms, rather than being due to an active government will. Ultimately, the literature demonstrates that convergence has certainly taken place where overarching concerns of EU regulations have necessitated changes at a legislative and administrative level. A more compelling case put forward by the literature is that national interests will still prevail and that convergence on the regulatory state, where it is present, is more a response to a wide variety of microeconomic and macroeconomic developments, rather than an active convergence by all European governments on the regulatory state itself.