Completing Capital Markets Union, Brexit, and Creating a More Resilient Financial System in Europe

In the wave of globalization since the 1970s, characterised by the end of the Bretton Woods system and deregulation of finance, financial integration became more and more regarded as a powerful driver for development and increased financial stability. Especially Europe was successful in integrating its financial markets with the creation of the Single Market and the European Monetary Union. However, the Global Financial Crisis and the following European sovereign debt crisis have exposed fundamental design flaws in European financial integration and their regulatory governance. The unfinished project of ever deeper European financial integration suffered a massive blowback in a decade in which financial regulation changed rapidly. Reforms are still incomplete and moreover under review to investigate their cumulative impact, including possible negative consequences. Facing a situation of slow but maybe steady economic recovery and a still troubled, highly indebted banking sector European financial integration is also challenged by possible consequences of the UK’s decision to leave the Single Market. This paper will investigate the EU’s efforts of completing Capital Markets Union (CMU) as a strategic response to regulatory competition and global deregulatory tendencies and the possible effects of Brexit on European financial markets integration. Based on theories of financial integration and especially critiques of financial integration having gone too far and debates about how to downsize finance and make the system more resilient and sustainable, the paper will explore the trends in financial markets integration and how CMU is both a project of continuity of neoliberal policies and part of a new wave of deregulation. It will then investigate the possible effects of Brexit on the future of Europe’s financial centre and CMU and how the EU should respond to that challenge. The current strategy of finishing CMU as planned and trying to relocate some of London’s business to other European capitals is criticized as a wrong way to achieve the goal of a more resilient, sustainable European financial market.