Study On The Institutional Changes Of European Financial Cooperation

After the Brettonwoods system,the “anarchy” status as a matter of fact in global finance masks a risk of financial crisis.Financial risk,on the one hand,challenges regional financial cooperation,on the other hand,propels cooperation in Europe to thrive on adversity.This study reviews three stages of the development of European financial cooperation in the past 70 years: Stage?,from the European Payment Union(EPU)in 1950 to 2008,on the eve of the financial crisis.Stage ?,the outbreak of financial crisis in 2008 to the economic pickup in 2012.Stage ?,the post financial crisis stage since 2012.This study looks into the three stages respectively in a threefold discussion of the institutional changes of financial policies,including monetary policies,regulatory policy and stabilization policy.Under the framework of the demand and supply equilibrium of institutional changes,the external variables,systematic circumstance,constitutional basis as well as cooperative principle are shaping the changes throughout the process.It is the interaction and gaming surrounding cost-revenue analysis and power-interest assessment among subjects of institutions that influence the institutional changes and institutional innovations as the core logic.Prior to financial crisis,the EU had had numerous practices in terms of financial cooperation.(1)As for monetary policy,major achievements include European Payment Union,exchange rate coordination,European monetary system,European monetary stability fund,economy and monetary union of the European communities and the establishment of the Eurozone.The most remarkable ones are the Delors Report in 1989 and the circulation of euro in 2002.The former one implies the support of Deutsch Mark as the center of European currency shown by European countries,and the consensus reached by major countries(i.e.Germany and France)that Mark should be accepted and managed as one of the common currencies and German's willingness of being responsible for the public goods of the economy and monetary union as well.Such a crucial and innovative measure in monetary system compensated the exchange rate coordination in Europe,which used to be flexible but not effective enough.On the basis of the report,the establishment of the Eurozone elevated the system with more regional exchanges of economy and trade and deeper integration.(2)Cooperation in bank regulation,epitomized with the Lamfalussy Framework,and regulation institution cooperation mainly among administration within member states.This responds to the ‘separation of monetary and regulation' policy stated in EU financial regulation.To make ‘bank subjected to scrutinized regulation in home state and business activity regulation in host state also meets demands of member state and finance industry.(3)Institutional innovation in this stage takes the form of Stability and Growth Pact.According to the legislation,member states ought to submit their budget stability plans,and control fiscal deficit,or they will face punishment.The outcome of the great game gradually appeared to be the victory of Germany's will.France is backed by Germany in terms of integration and other aspects,while other countries,under the impact of the idea of a long-term union,accepted Germany's appeal to fiscal equilibrium.Thus,a new demand-supply equilibrium was achieved.During the financial crisis,the EU and the Eurozone coped with the challenge and furthered transformation of EU systems at the same time,which can be seen in monetary policy the lender of last resort(LOLR),in supervision the De Larosière report and in stability the European Stabilization Mechanism(ESM).A series unconventional measures was taken throughout the outbreak,spread,exacerbation,moderation and recovery of the financial crisis.Nevertheless,most of the policies didn't help mitigate the problem or improve growth,but lowered market confidence and exacerbate the crisis.The De Larosière report(2009)suggested that a supranational supervision system and institution should be set up and the supervision in European should be switched to a scrutinized manner.Both the permanent European Stabilization Mechanism,which was proposed in the amendment of the Lisbon Treaty by the European Council in 2010,and Outright Monetary Transactions(OMT)by the Europe central bank served as the LTRO of the Eurozone and thus stabilizing the finance market.The three institutional innovations above resulted from the great game: Germany varied its previous stance of avoiding unlimited aid responsibilities for attaining sufficient policy compensation.France received Germany's support in terms of European central bank policies.Opposed to any form of fiscal union as the UK was,it lost the momentum for its leaving tendency.Others,however,echoed Germany so as to gain support from it in tackling domestic crisis.The new institutional equilibrium reverse the trend of finical crisis and lead the Eurozone back on the right development track.Despite the fact that tension brought about by the crisis was mitigated,a multitude of problems facing the Europe finance system remain to be settled.It is imperative to cope with a series of institutional setbacks.Currently,the EU crisis management mechanism is mainly composed of the Eurozone reform,the banking union and the fiscal union.Since 2010,European countries have reached more consensus in financial cooperation than ever before.Germany has been taking core leadership constantly.Macron,the French elected president has put more emphasis on the authority of supranational organizations and consolidation of the economic and political union.The aftermath of Brexit gives rise to stronger agreement between Germany and France,thus pushing forward the most crucial institutional reform in the six-decade history of Europe integration.Even though the current situation,to a great extent,reflects the EU cooperation standard and institutional path dependence,it's still early to assert that a new equilibrium be achieved.The institutional construction of European financial cooperation still has a long way to go.To conclude,the study conducts analysis of institutional change of European financial cooperation sticks to the method of the demand-supply equilibrium of cost-revenue measurement.Only the institution design that equipped with core innovation and meets the demand of the institution in a certain period,can reach equilibrium in practice and achieve revolutionary reform.The history of European financial cooperation is a history of institutional changes through the game of power among institutions so as to achieve demand-supply.In contrast to the European mode,financial cooperation in East Asia remains at the primary stage in terms of area,depth and institutionalization,with distinct regional features.Financial cooperation in East Asia is led by group of small countries,rather than major economies(such as China,Korea and Japan).The institutionalization remains at a moderate degree,and is not likely to follow the European mode due to the strong regional culture background.The application of demand-supply equilibrium analysis in financial cooperation institution reveals that on participating in East Asia financial cooperation,primarily,China is supposed to identify the institution demand,in particular demand for exchange rate stabilization and crisis aid fund from ASEAN countries with core influence,and then make respond with institutional design innovations.Moreover,as a prominent country,China should make full play of its economic power in providing interdisciplinary public goods.Though financial cooperation in East Asia is on different track from that in Europe,demand-supply analysis of institutional changes can be compatible with the Asian context.