How the European Commission deepened financial market integration. The battle over the liberalization of public banks in Germany

ABSTRACT

In this article, I argue that the European financial market integration cannot be understood without the European Commission's gradual enforcement of supranational competition law for financial services. The conflict over the liberalization of public banks in Germany demonstrates how the Directorate General for Competition (DG COMP) deepened financial market integration through legal proceedings without the participation of the Council of Ministers. How could DG COMP prevail over the fierce resistance of Germany even though member states never intended for European law to have enough leverage to alter core elements of national financial systems? The article focuses on DG COMP's capacities for strategic action. DG COMP was able to enforce European competition rules for financial services, skilfully combining its legal competences with political strategies. The case illustrates that the regulatory integration of financial services in the EU is much more driven by supranational institutions than assumed by the bulk of the literature.

KEY WORDS:

• European Commission
• European competition law
• European financial market integration
• German public banks
• liberalization policies

Acknowledgements

I would like to thank Susanne K. Schmidt, Roy Karadag and Sebastian Streb for helpful comments and suggestions. Martin Höpner and Armin Schäfer have commented on earlier versions of this article. Furthermore, I would like to thank the two anonymous reviewers for their constructive comments. The article presents results of my Ph.D. project, conducted at the Max Planck Institute for the Study of Societies, Cologne, between 2008 and 2012.

Notes

1 Grossman and Leblond (2011: 414–16) distinguish between de jure liberalization –regulatory integration – and de facto economic integration. The former covers legislative and regulatory measures at the EU level, the latter the increase of cross border economic transactions at the market level. In this article, I focus on the regulatory integration of financial services.

2 In the area of competition policy, the Commission has an autonomous law making competence.

3 Interviews, DG COMP, 18 December 2009 and 24 March 2010; Legal Service of the Commission, 10 March 2010; BdB, 4 April 2010; Commerzbank, 21 July 2010.

4 Interview, Rheinischer Sparkassen- und Giroverband (RSGV), 5 October 2009.

5 Interview, Federal Chancellery, 7 July 2010.

6 The credit worthiness of the Landesbanken without the guarantees was calculated below an investment grade. If the credit worthiness would have dropped below this level, the Landesbanken would have become insolvent.

7 Interview, WestLB, 16 March 2010.

8 Interviews, RSGV, 5 October 2009; DSGV, 24 February 2010; DG COMP, 5 May 2010; Federal Ministry of Finance, 17 June 2010; Federal Chancellery, 29 June 2010.

9 Interviews, RSGV, 2 February 2009, EU Commission, 11 November 2009; WestLB and Landesbank Schleswig-Holstein (LSH), 1 January 2010; Federal Ministry of Finance, 17 June 2010; Federal Chancellery, 7 July 2010.

10 Interviews, DG COMP, 18 December 2009 and 5 May 2010.

11 Interview, DG COMP, 5 May 2010.

12 Interviews, RSGV, 26 February 2009; DG COMP, 18 November 2010.

13 Interviews, DSGV, 9, 24 and 26 February 2010.

14 Interviews, WestLB, 16 March 2010; LSH, 26 January 2010; DSGV, 9 February 2010; DG COMP, November 2010; Ministry of Finance of Hessen and Ministry of Finance of NRW, 4 March 2010.

15 Interviews, Legal Service of the Commission, 10 March 2010; DG COMP, 24 March 2010.

16 For the importance of the methodology developed during the WestLB case, see Hansen et al. (2004): DG COMP enhanced the ‘private market investor test’, the basic tool for assessing whether a measure is a distortion of competition.

Additional information

Biographical note:

Daniel Seikel is a researcher at the Collaborative Research Center 597 ‘Transformations of the State’, University of Bremen, Germany