3
capital being traded in ever-expanding complex of markets for an evolving portfolio of
instruments” (2000: 5). Susan Strange refers to today’s finance as “mad money”, calling
it the most pressing issue for political scientists to investigate (1998: 18).
The key consequence of a more integrated and powerful financial market is a
pressure on non liberal
5
capitalist systems to converge toward liberal (Anglo-Saxon)
systems. As the presence of foreign investors in domestic non liberal countries increases,
their voice rises and their threat of exit grows more potent. Domestic political leaders are
left to navigate between a potential increase in the cost of capital for domestic industry
and the wrath of domestic constituencies. This dilemma is the subject of an intense
debate in the literature.
6
On the other hand and relatively independently from the rise of financial
globalization
7
, the European Union has slowly been building its supra-national regulatory
system since the creation of the European Coal and Steel Community in 1952. In
particular, the EU (or EC at the time) played a key role in coordinating financial
deregulation among EU countries in the late 1980s. With the creation of the euro in 1999,
the EU naturally moved into the business of integrating and regulating national capital
markets. Whether by its own natural (partly unintended) progression or whether through
the will of its most influential member states, the EU came to head with the forces of
financial globalization by the mid 1990s.
The intersection (clash?) of these two major international trends informs the
central research questions of this paper: how good a mediator of global finance is the EU
and what is its particular contribution in the state-market confrontation? How does the
EU solve its core internal tension between the search for competitiveness and the search
for broad-based legitimacy (and support)? Why and according to what mechanism?
Given the complexity of the issues involved, the small set of visible cases, and the
ongoing nature of this clash, a good approach is one involving a crucial and controlled
experiment. Such a controlled experiment requires at least four features. It must involve a
novel issue-area of high salience to global investors, that is, an issue about which
investors care and where their preferences are clear. Second, the issue should have a
direct impact on the national type of capitalism: that is, the issue should matter to national
interest groups and labor unions and their preferences must be clear. The outcome must
be clear and permit conclusions regarding the level of convergence between types of
capitalism. Third, the issue should be one where the bulk of the action takes place at the
EU level, that is, a case where the EU’s role is not trivial. Fourth, ideally, the EU policy-
making process involved in this issue should be protracted over time and involve all steps
of the EU decision-making machinery. Such a condition allows researchers to trace the
preferences and actions of all relevant national and supra-national actors. The protracted
nature of the battle allows researchers to break the case into sub-case studies and thus to
get leverage over the perennial small N-many variables problem.
5
Streeck and Yamamura 2001
6
See, among others, Albert 1991, Berger and Dore 1996, Kitschelt, Lange, Marks, and
Stephens 1999, Dore 2000, Hall and Soskice 2001, Streeck and Yamamura 2001, and
Tiberghien 2002.
7
Although this can be the subject of arguments
Convention