Publikation Gesellschaftliche Alternativen - Kapitalismusanalyse - Europa / EU Inequality and Financialisation: The Case of the EU

Study by Marica Frangakis.

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Marica Frangakis,

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April 2014

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After the collapse of the Bretton Woods system and the elimination of the system of fixed exchange rates, global finance made new inroads into the world economy, while the deregulation of financial services marked the beginning of the era of financialisation. Inequality in the distribution of income and wealth feeds the process of financialisation and is fed by it. It is a two-way relationship, which has favoured the meteoric rise of the economic, social, and political power of finance in the past thirty years. This rise has been marked by financial crises of varying intensity in different localities. The financial crisis which erupted in late 2007, however, has been both deeper and more widespread across the developed financial systems of the world than in the past, aggravating the distributional inequalities that are inherent in the process of financialisation. 

In the EU, the era of financialisation is associated with the introduction of the Single Market in the mid- 1980s and of the single currency in the 1990s, as well as the pursuit of financial integration from the late 1990s onwards at the expense of financial stability and consumer protection. As in other parts of the advanced capitalist world, the 2007/2008 financial crisis was succeeded by an economic crisis in the EU as well. Five years later, it is still unfolding. Certain areas are converging towards low growth, while others are deep in recession. The distributional implications of these trends are especially important. In this paper, we shall discuss the connections between inequality and financialisation in the EU. In this respect, the following areas of enquiry are pertinent:

  • Re-visiting distribution and tracing the theoretical approaches and debates that have marked this area of economic thought from the classics to the present; 
  • Exploring the theoretical, as well as institutional/historical roots of finance and finance–led capitalism; 
  • Examining the articulation between finance and distribution 
  • The above questions will be discussed in the context of the EU, as a special area of interest in view of its historical trajectory, its size, and presence in the global system, as well as of the developments currently taking place. 

Contents:

The study is divided into three parts, as follows: 

  • Part I deals with the theoretical aspects of income distribution and of money and finance.
    • Section 1 is taken up by a discussion of the theoretical considerations of the distribution of income;
    • Section 2 looks into the notion and development of financialisation and its connection to distribution. 
  • Part II looks into the case of the EU financial services sector and the way this is tied to economic and social developments.
    • Section 3 discusses EU financial policy and structures;
    • Section 4 examines in some detail the EU response to the financial crisis and financial policy reform. 
  • Part III discusses the pattern and extent of inequality in the EU in relation to finance.
    • Section 5 reviews trends in the functional distribution of income in the EU;
    • Section 6 looks into the personal distribution of income and wealth, taking into account the implications of the crisis and of austerity. The last section of the study draws together the strands of our analysis, summarises, and concludes.