Domestic politics and national differences in restructuring EU financial supervision

Abstract

ABSTRACTWhen the 2007/2008 financial crisis hit the European Union's (EU) financial system distinct flaws of the pre-existing architecture of financial market supervision were exposed. In order to mitigate the impact of the crisis on its member states and to prevent recurrence, widespread calls within the EU arose about the need to revise the existing framework and adopt a new system of financial supervision. This new supervisory structure, known as the European System of Financial Supervisors (ESFS), started operating on 1 January 2011. Despite the fact that European countries’ responses towards the necessity to reform EU financial supervision converged, they however fiercely debated this issue which resulted in considerable discordant national policy positions towards the precise role and structure of the ESFS. This article investigates this empirical puzzle thereby focussing on the European Supervisory Authorities (ESAs). Following the societal approach to governmental preference formation it is argued that governmental positions are shaped by domestic material interests and societal ideas, and in order to remain in office these are prone to be responsive to domestic sources. This argument will be examined in a cross-country comparison through an analysis of the national policy positions of Germany and the United Kingdom.