Between competition and centralization: the new infrastructures of European finance

Abstract

Ongoing European financial market integration relies on the creation of harmonized and centralized market infrastructures: the little-known institutions and systems that settle financial transactions across borders. Since the constitutional conception of market integration within the EU entails creating 'a level playing field' for competition, a fundamental problem emerges of how to provide that centralization and harmonization without violating the core principles of an open market economy either through private monopolization or public privatization. The paper presents a sociotechnological study of a recent major infrastructure initiative by the European Central Bank, called Target2 Securities (T2S). Embedding the analysis of the struggles and debates around the birth and development of T2S in an analysis of the structural problem of competition and centralization in European financial market integration, the paper suggests an alternative perspective to that of performativity dominating the research field.

Money and the ‘Level Playing Field’: The Epistemic Problem of European Financial Market Integration

“…In this light, the following two sections analyse two realms of financial market integration practices in the EU that many political economy scholars and practitioners alike usually view as disconnected, but Between 2015 and 2017, the ECB implemented a major pan-European settlement infrastructure for financial markets, called TARGET2-Securities (T2S). Financial infrastructures in Europe used to be national, and connecting them across borders was a complex task (Quaglia 2010, Porter 2014, Panourgias 2015, Krarup 2019c). The T2S platform now settles financial transactions of stocks and bonds homogeneously and in real time across the Eurozone.…”

“…T2S has indeed solved the problem in practical terms -it is no longer manifest in any controversy. This is partly because the ECB was successful in silencing critics, but also because T2S is an obvious asset to most of the major financial institutions involved (Krarup 2019c). However, the interview above shows that the problem is still latent, which suggests that it could manifest again in the future, as it did in the Franco-German debate over DvP models in the early 2000s.…”

“…This epistemic problem regarding the nature and role of 'money' in relation to 'the market' and to market 'integration', which I first analyse within economic theory, is then shown to manifest itself in two contemporary financial market integration setups in the EU: (a) the provision of central bank credit for financial transaction settlement in Europe; and (b) the conduct of ordinary monetary policy in the Eurozone. Where (b) is politically salient and intensively studied in the political economy literature, (a) inhabits a considerably more anonymous realm of market infrastructures, and has only received limited interest in that field (for example, Braun 2018, Porter 2014, Krarup 2019c. While both (a) and (b) are realms of European Central Bank (ECB) activity, practitioners and political economy scholars alike tend to distinguish the two clearly, because the (almost) watertight bulkheads created between them mean that no (or only very minor) effects of them are visible, for example, from settlement credit to monetary policy.…”

The collateral liquidity problem in contemporary finance and the resurrection of quantity theory

“…The closer analysis leads to the identification of clear traces of further economic theories in contemporary financial practice -notably Keynesian and modern finance theories. Yet, where existing approaches to the epistemic role of economic theories in markets have thought of theories as either coherent, instrumental, and/or socio-technologically developing entities, the present article emphasises the co-existence of different and even contradicting theories in relation to a common problem (see also Krarup, 2019aKrarup, , 2019b. For example, Seabrooke and Tsingou (2014) focus on how different expert groups promote different policy ideas based on their distinct professional knowledge in relation to financial regulation; with her concept of epistemic culture, Knorr-Cetina (1999: 9) focused on the 'machineries of knowing' as the important feature tying together a knowledge domain;…”

“…In the article, I deliberately leave out of consideration the strategic and political power struggles within which the problem of collateral liquidity has emerged and quantity theory resurrected. Indeed, the main actors here are powerful lobby organizations, international banks, and European government bodies -all of which are engaged in a number of major projects and negotiations around continued European financial market integration (Krarup, 2019a). These power struggles are the main focus of the majority of contributions to the political economy of contemporary finance.…”