Neo-liberalism is variegated

More sophisticated accounts of neo-liberalism have, however, developed. One alternative from the field of political geography has been the work of Adam Peck and Jamie Tickell who noted that ‘although neo-liberalism privileges the unitary logic of the market while advocating supposedly universal cures and one-best-way policy strategies, it is in reality much more variegated than such self-representations suggest’. This suggests that we are witnessing processes of neo-liberalisation, neither ‘monolithic in form, nor universal in effect’ which can be termed variegated neo-liberalism.Footnote ⁴²

An interjection by Noel Castree allows us to define our terms more explicitly. He commented that such assertions should be taken with precaution since they risk ‘classifying otherwise different cases as neo-liberal when, in fact, the differences outweigh meaningful commonalities’.Footnote ⁴³ His concluding remarks questioned whether we are looking at differences of degree or differences of kind. In essence we risk suggesting that everything is neo-liberal and that neo-liberalism is everywhere, at which point we fail to say anything meaningful about neo-liberalism and commit a different yet equally serious error as the VoC literature.

Nonetheless the concept of variegated neo-liberalism is a useful tool. Moreover it has significant advantages over its VoC alternatives, since it implies that what is significant about neo-liberalism is its diversity; in essence it is defined by its diversity. Not only should we expect to see both common neo-liberal features and remaining national specificities but also we should note that they are not independent phenomena. Specifically, in the context of this article, this means that both similarities and differences between political economies are central to the dynamics of change in EU financial market integration. I will argue that a (neo-liberal) consensus has emerged between transnationally oriented market participants (fractions of capital) yet conflicts between the fractions still remain. These conflicts arise from competing hegemonic projects rooted in the respective historical accumulation strategies of the fractions. Variegated neo-liberalism allows us to explore the consensus and conflicts as dialectic, defining moments of (processes of) neo-liberalisation.

To begin then a working definition of neo-liberalism must be established. Andrew Gamble states that, with neo-liberalism:

The above definition is sufficiently narrow to highlight the commonalities of processes of neo-liberalisation within a specific historical and spatial context.

Its utility then, is connected to its historicity insofar as it emphasises a degree of departure from previous post-war nationally specific patterns of accumulation. Whereas the three case studies historically developed capital market-based (UK), state administered credit-based (France) and co-ordinated credit-based (Germany) financial systems, the liberalisation and integration imperatives at the heart of variegated neo-liberalism have centred on the increasing importance of capital market-based financial systems. Though these capital markets are located within specific territories this latest round of accumulation has been reterritorialised and reorganised on a transnational scale.Footnote ⁴⁵

Building on the concepts of accumulation strategies and hegemonic projectsFootnote ⁴⁶ it will be argued that whilst, in the context of this article, ‘neo-liberalism’ largely refers to the underlying accumulation strategy its (politico-ideological) expression as a hegemonic project is variegated; these hegemonic projects emerge from transnationally oriented fractions of capital. The existence of a set of common interests between transnationally oriented fractions rests on the fact that alongside similarities inherent to processes of neo-liberalisation its variegation enables it to incorporate, subsume and, where necessary, marginalise competing tenets. In this sense I employ the concept of variegated neo-liberalism as a dynamic rather than a rigid or monolithic hegemonic project.

Put differently, the ‘strength’ or resilience of neo-liberalism lies (in part) in its ability to be employed by capitalists who, in the process of making concessions to other social groups continue to drive forward processes of market liberalisation/integration and strategies of exploitation and alienation. Thus, whilst the neo-liberal ideology has emerged from the Lockean heartland it has been adopted and adapted by other transnationally oriented fractions with notably different sets of interests.Footnote ⁴⁷ Its immanence then rests on its malleability in the hands of transnationally oriented fractions who, whilst offering concessions continue to ‘enforce’ neo-liberalisation. In sum we witness variegated hegemonic projects (politico-ideological constructs) reflecting the specific ‘origins’Footnote ⁴⁸ of transnationally oriented fractions and dynamic so as to incorporate, subsume or marginalise competing ideologies.Footnote ⁴⁹

The article will seek to demonstrate that both the differences and the similarities can be meaningfully and simultaneously analysed in order to understand the particular dynamics of class struggle within the financial market integration process. This is not to suggest that ‘everything is neo-liberal’ but, as the conclusion will highlight, it does add weight to the accounts of the pervasiveness and resilience of neo-liberal reform. Simultaneously and significantly though, I argue that the divergent projects reveal the contingency of the unity of (what has been termed) ‘transnational’ capital. The remainder of the article focuses on the financial services sector as a striking example of variegated neo-liberalism.

Wherefore fractions of capital?

Before the article can proceed then, we must contextualise the emergence of neo-liberal hegemonic projects from transnationally oriented fractions of capital. Two points must be noted: one is that the operations of fractions are ideologically pertinent; the other is that the various fractions are interconnected within the overall circuit of capital. The first point pre-empts the ensuing argument that a common interest has emerged between transnationally oriented fractions of capital; the second pre-empts the argument that these fractions retain (organic) linkages to domestic social forces. These twin strands are incorporated within variegated neo-liberalism.

In accounting for the agency of capital, neo-Gramscian perspectives have theorised the ‘fractionation of capital’ and the political relevance of this process.Footnote ⁵⁰ The basis for this analysis is found in Capital Volume 2 in which Marx:

In essence, capital is ‘divided’ into various forms according to its function and position within circuits of accumulation and circulation.

The first point to note is this: the interests of fractions of capital are shaped though not determined by their position within the realm on production and/or circulation.Footnote ⁵² The interests of a money or finance capitalistFootnote ⁵³ would tend to be different from those of the productive capitalist. The circulation of capital (finance and money capital) ‘can not but have a strong international aspect whereas … the interests of the functionary of productive capital, however, must … be rooted in territoriality since he is tied to existing investments of men and machines’.Footnote ⁵⁴ This implies that the interests of our fractions are shaped by their position and are ideologically relevant.Footnote ⁵⁵ The second point to note, however, is that these interests cannot be assumed a priori. To assume that bankers would adopt a financial capital perspective because they are bankers would overlook ties with industry and vice versa.Footnote ⁵⁶ Instead, interests must be understood historically.

Consider Marx's account of fractions of capital. The formula for the circuit of money capital is M-C … P … C’-M’ where the dots indicate that the circulation process is interrupted and C’ and M’ denote an increase in C and M as the result of surplus-value. The circuit of productive capital has the general formula P … C’-M’-C … P. Here the circulation presents itself in the opposite form from that which it possessed in the circuit of money capital; now the circuit reads C-M-C. In turn, the general formula for the circuit of commodity capital is C’-M’-C … P … C’. Simply, where money capital enters and exits as money capital (with surplus-value ‘added’), productive capital begins with the commodity, converted into money (that is, sold) with that same money used to buy another commodity which enters the production process. Commodity capital in turn bears similarities to both of the other two circuits.Footnote ⁵⁷

In short, whilst it is evident that the ‘start point’ and the ‘end point’ for the money capitalist, the productive capitalist and the commodity capitalist are entirely different, essentially they are engaged in the same overall circuit of capital.Footnote ⁵⁸ Two fundamental points emerge: fractions of capital assume different circuits within the overall circuit of capital; importantly though, they are all components within the same overall circuit.Footnote ⁵⁹ This is significant because, even at this level of abstraction (prior to an analysis of the institutional forms of capital) it should be noted that money capital cannot exist independently of productive capital. Overbeek explains that:

The importance of this statement should not be underestimated. No fraction of capital exists in a vacuum; for finance or money capital (effectively, different forms of investment) to acquire surplus value they require, albeit often in indirect ways, the central role of production.

This is important because, though I focus on transnationally oriented investment firms and banks I will argue that their interests are both significantly similar and significantly different. Their transnational orientation and emphasis on circuits of finance capital give them certain similar interests in the single European market. Their differential linkages with other circuits of capital and other social forces mean that each fraction is distinctive. I will go further and argue that their differences are even more significant than their similarities. For this reason, it is most useful to understand fractions as ‘the form in which capital as a collective social force made up of competitive units seeks to achieve a degree of collectivity to be able to act as a class agency’.Footnote ⁶¹ Hence the term, as it is used in the analysis, does not refer to fixed entities but instead fluid rallying points around which various social groups coalesce. ‘Fractions’ therefore convey a distinctiveness between these social forces. Combined then, with variegated neo-liberalism the notion of fractions enables us to conceptualise the relative ‘disunity’ within what has elsewhere been misrecognised as a transnational class.

Variegated neo-liberalism and transnationally oriented fractions

Having established the conceptual apparatus of variegated neo-liberalism and fractions of capital the empirical crux of the article unfolds in two stages: firstly by examining the contingent neo-liberal consensus between three fractions before secondly, elucidating the relative disunity between them. As noted above (footnote 46), neo-liberalisation has intrinsically fuelled (and has indeed been fuelled by) the competitive restructuring of former patterns of accumulation which tended to be organised on national scales.Footnote ⁶² One prominent outcome of this, in the context of the EU, has been the development of capital markets to compete with those of the New York/City of London ‘heartland’. In this respect what were once markedly different financial systems now bear notable similarities;Footnote ⁶³ the case of EU financial market integration therefore provides a formidable and perhaps unique entry point into the wider dynamics of neo-liberalisation and the degree of departure (or non-departure) from embedded patterns of accumulation.

The EU entered a new epoch in financial market integration with the 2001 establishment of the ‘Lamfalussy Process’. Importantly, the Lamfalussy provided enhanced opportunities for investment firms and banks to influence legislative ‘details’ at Level 2.Footnote ⁶⁴ This involves consultation papers circulated by national and EU regulatory agencies (the Committee of European Securities Regulators) and the ensuing responses of the financial services industry provide insight into their positions on the wider integration project.Footnote ⁶⁵ The article therefore focuses primarily on this material alongside several annual reports published by the key actors. These negotiations are inherently lengthy and complex; in the interests of this article the material presented is therefore strategically selective.

The article will use evidence from two of the most comprehensive EU directives to be covered under the recent Financial Services Action Plan: the Capital Requirements Directive (CRD) (2006/48/EC & 2006/49/EC) and the Markets in Financial Instruments Directive (MiFID) (2004/39/EC). Specifically the article will focus on two of the most contentious issues in the MiFID, namely price transparency and internalisation. Price transparency itself is nothing new; it refers simply to the fact that once a trade has been executed the price at which the exchange took place must be made public. Internalisation refers to the practice, abolished under MiFID, of limiting financial transactions to those executed on ‘regulated markets’ (that is, stock exchanges). As will become clear, their importance for the argument is that they both highlight significant differences between the market traditions and accumulation strategies underpinning the respective fractions.

The three fractions

I begin then with a brief analysis of the fractions themselves and their institutional approximations. The first of these fractions will be referred to as the transnationally oriented Atlantic fraction. The ‘label’ highlights the fact that whilst the fraction have a transnational-global scale of operations they have a specific and formative interest in sustaining accumulation strategies rooted in both UK and US financial markets. In promoting their particular hegemonic project the Atlantic fraction have coalesced around particular trade associations corresponding to their operations; the two most significant associations in the City of London are the British Bankers Association (BBA) and the London Investment Banking Association (LIBA).Footnote ⁶⁶

Specifically the BBA begins each of its consultation responses with a similarly worded paragraph, stating that ‘(t)he British Bankers Association is the primary association within the City of London for banks and investment firms involved in the securities market. We comprise 250 of the leading firms … ’Footnote ⁶⁷ Concerning securities markets the BBA combines its responses with the LIBA and states that, ‘(t)ogether we represent over 250 banks and investment firms from around the world, most of which are present in the City solely to gain access to the widely diverse and innovative capital markets that thrive in London’.Footnote ⁶⁸ Amongst these members are a collection of institutions substantiating the claim that they are a transnationally oriented Atlantic fraction of capital. These banks/firms include Citigroup, Royal Bank of Scotland, HSBC, Goldman Sachs, Barclays, Rothschilds, Salomon Smith Barney, Merrill Lynch and Schroders.

The second fraction will be referred to as the transnationally oriented Rhenish fraction, linking the transnational-European scale of their operations and their ‘domestic’ German market. They are represented within the private banking sector by the Bundesverband deutscher Banken (BdB), the private banking association. The Rhenish fraction comprises transnationally oriented institutions such as the Commerzbank, Deutsche Bank, Dresdner Bank, and the Hypo Vereinung Bank.

The third fraction will be referred to as the transnationally oriented Gallic fraction because of their roots in the French financial system. The two most prominent trade associations in Paris have been the French Banking Federation (FBF) and the Association Française des Entreprises d'Investissements (AFEI). Here the FBF and the AFEI comprises the large French brokers which are subsidiaries of French transnationally oriented banks.Footnote ⁶⁹ Among them are institutions such as BNP Paribas, Crédit Mutuel, Crédit Agricole, Société Générale, Dexia; that is, Gallic institutions with transnationally oriented operations. The argument is as follows: the transnationally oriented operations of the three fractions give rise to a common interest in the single financial market; this interest constitutes an (albeit tacit) neo-liberal consensus due to its emphasis on liberalising and integrating markets; yet this consensus remains contingent and fragile whilst all three fractions retain significantly different hegemonic projects.

‘Super-equivalence’Footnote ⁷³

The industry responses to capital adequacy directivesFootnote ⁷⁴ have been littered with allegations of ‘super-equivalence’, targeted at various aspects of the FSA's interpretation of the Basel and EU standards. Attention is drawn to one clause in particular; namely the FSA's intention of raising the capital requirement above the 4 per cent minimum established in the EU text.Footnote ⁷⁵

Simply, both the EU draft directive and the Basel Committee's proposals employed a separation of different forms of liabilities and required correspondingly different ratios of capital to underpin each ‘portion’ of these liabilities. According to the FSA consultation paper (CP 155) the regulator intended to raise the capital requirements for liabilities issued under Tier 1 significantly higher than the 4 per cent minimum required by EU legislation and excluded certain financial instruments from an issuers calculations; the effect being an increased need for issuers to retain greater amounts of capital.Footnote ⁷⁶

The BBA and LIBA's concerns over super-equivalent standards were, however, primarily related to the dual regulatory criteria such measures would provoke. This was reinforced when the FSA issued CP 136 laying out its proposals for Individual Capital Adequacy Standards (ICAS), designed to fit within the framework constructed by the Basel Committee for Banking Supervision.

Within this framework, specifically designed to promote international convergence, the BBA and LIBA rightly noted that the FSA was ‘likely to considerably exceed the international norm in the application of Pillar Two’..Footnote ⁷⁷ They acknowledged that in operating globally they favoured a single set of international standards; the associations’ rhetoric was tactically employed, however, to suggest that the implication of the UK becoming an ‘international outlier in the manner in which it applies and interprets Pillar 2’Footnote ⁷⁸ might threaten the City's attractiveness amongst the international community of banks and investment firms.Footnote ⁷⁹ The possibility of any of the three regulatory authorities (FSA, EU or BCBS) implementing incommensurable requirements would compel global operators to comply with several potentially conflicting sets of criteria. This fact prompted the (neo-)liberal proposals of the Atlantic fraction.

One such example is Citigroup. In its response to CP 189, Citigroup clearly states that, ‘a primary concern of Citigroup is the maintenance of a globally competitive playing field for its’ business:

Similarly, the Royal Bank of Scotland (RBS) states its case for the global convergence of capital requirements, arguing that, ‘the FSA should consider how the US and UK approaches can be aligned more closely’.Footnote ⁸¹

Clearly these interests are not simply reducible to a form of neo-classical economics but are primarily prompted by finance/money capitals' search for efficiency (transnationalisation) and underpinned by the global scale of their operations. Dual regulatory standards potentially decrease profit margins for the Atlantic fraction. Liberalisation and integration are driven by pragmatic concerns. For us though, interests are therefore shaped by the function a fraction performs in the overall circuit of capital and the scale of their operations.

The Atlantic fraction has also called for principles-based as opposed to prescriptive legislation.Footnote ⁸² The premise underpinning principles-based legislation/regulation is that it encourages a specific type of market integration; that is, with a dependence on market forcesFootnote ⁸³ in determining market outcomes. This is distinctive in that it most closely corresponds to the ideological preferences of finance capital as outlined above.Footnote ⁸⁴

In their joint response to CP 136 the associations commented that, ‘there is no need for the regulator to take a prescriptive view of the process a firm might adopt’ in establishing its capital requirements.Footnote ⁸⁵ Instead they stated that, ‘the industry favours a principles-based approach to the implementation of the new Accord and the Capital Adequacy Directive’..Footnote ⁸⁶ The rationale for these requests was that, according to the Atlantic fraction ‘[c]ommercial pressures and market forces achieve greater choice and flexibility of execution without a need for intrusive regulatory intervention’.Footnote ⁸⁷ Whilst the hegemonic project of the Atlantic fraction is already displaying specificities it clearly pertains to a more ‘economic liberal’ set of interests.

Variegated neo-liberalism: the Rhenish fraction

The hegemonic project of the Rhenish fraction also displays a ‘neo-liberal’ interest in a liberalised and integrated market. There is also evidence that these interests have emerged from Rhenish responses to recent crises of accumulation though this is largely beyond the remit of this article.Footnote ⁸⁸ Broadly, their project as it concerns us comprises three strands; namely, an emphasis on self-regulation, less intervention by the state and finally a principles-based, flexible approach to regulation.Footnote ⁸⁹

Here again the emphasis has been on empowering transnationally oriented market actors and promoting market determined outcomes. In their 2004 Annual Report the BdB emphasised the need for:

The policy discourse again demonstrates that the transnationally oriented operations of the Rhenish fraction lend themselves to their concern for principles-based regulation and self-regulation.

The Rhenish preoccupation with avoiding excessive intervention in the market is also noteworthy. In a positional paper to the EU the BdB claimed that ‘state intervention in market activities should be kept to a minimum’..Footnote ⁹¹ In other documents concerned with structural changes to the German market, the BdB challenges state ownership of German banks as one of the primary explanatory factors stunting growth; in their words ‘only the withdrawal of the state and privatisation of public-sector banks will ensure the German economy is provided with financial services in an efficient and market-driven manner’.Footnote ⁹² In place of state guarantees the association champions the governing mechanisms of the free-market economy.Footnote ⁹³

The content of this rhetoric is significant, connected to the material conditions of crises which are further fuelling processes of neo-liberalisation.Footnote ⁹⁴ Again, as Bastiaan van Appeldoorn noted in his analysis of productive capital, there has been an overwhelming shift to the rhetoric of ‘competitiveness’ with pamphlets and positional papers increasingly adopting the language of competition and implying causal relations between efficiency and growth.Footnote ⁹⁵

This is evident in the Initiativ Finanzstandort Deutschland (IFD) or, tellingly, the Initiative for Germany as a Financial Centre; an engine room for structural reform.Footnote ⁹⁶ Its members include the Federal Ministry of Finance, the Bundesbank, the four largest associations (which include the BdB), and the largest private commercial (transnationally oriented) actors, Deutsche Bank, Commerzbank, Dresdner Bank, and Dekabank.

As with the BdB the IFD has espoused a rhetoric and ideology placing a greater emphasis on capital markets and securitisation. Their suggestions have been based on the premise that ‘[t]he positive effects of deeper and broader financial markets are now a received wisdom from empirical financial market research’ (emphasis added).Footnote ⁹⁷ As a result, they assert that ‘the key to unlocking (German) potential lies in shifting the focus more towards the capital markets’ (Ibid.) under the assumption that the capital market will bring better prospects for all portions of society. The integration of European financial markets is perceived as fundamental in the ‘competition for global capital to the benefit of employment and growth’.Footnote ⁹⁸ As is becoming clear, the transnationally oriented operations of the three fractions substantively underpin their interest in a single, liberalised market.

Variegated neo-liberalism: the Gallic fraction

Here the evidence from the Gallic fraction is perhaps less conclusive. Unlike the hegemonic projects of the Atlantic and the Rhenish fractions that of the Gallic fraction is less overtly liberal; this reflects their respective accumulation strategies and differential responses to crises.Footnote ⁹⁹ Whilst their project is shaped by close linkages with nationally oriented social forcesFootnote ¹⁰⁰ and an emphasis on nationally oriented circuits of capital the Gallic fraction also have transnationally oriented operations and, hence, a common concern for an integrated, liberalised financial market. However, given that my aim is to highlight the fragility of the consensus between the three fractions as opposed to its strength, the Gallic anomalies only confirm the argument still further.

For example, the Association Française des Enterprises d’Investissements (AFEI) states that the Gallic fraction share ‘the same interests’ as other transnationally oriented fractions and have a similar concern for cross-border financial market activity in Europe.Footnote ¹⁰¹ They assert that the single market is therefore proceeding as a result of the ‘cross-border nature of market practices and a relatively clear consensus’ concerning its benefits.Footnote ¹⁰² Further, in their annual reports the French Banking Federation (FBF) goes as far as insisting that the increased competitiveness of markets for investment is fundamental to the progress of both EU and French economies and hence ‘must be pursued’.Footnote ¹⁰³ As stated, a similar concern over the progress of the single financial market is apparent amongst all three fractions; hence the reference to a (contingent) consensus.

More substantively, one of the key impediments to cross border competition has historically been the French concentration principle. It had been a central feature of the French financial system during the 1990s development of French capital markets, ensuring that the traditional credit based (banking) system did not lose competitive advantages to foreign capital. This meant that foreign investment firms were unable to trade on their own account and instead forced to utilise a regulated market.Footnote ¹⁰⁴ Acknowledging the anti-competitive nature of this practice the Gallic fraction finally agreed to its abolition during the early MiFID negotiations.Footnote ¹⁰⁵

That said, the Gallic project reveals clear differences to either Atlantic or Rhenish projects; this points towards the argument to be developed in the second half of the article and, as a result, the conclusion concerning the ‘unity’ of capital. For example, the Gallic fraction have sought integration through harmonisation with an emphasis on investor protection. In contradistinction to the notion of integration through flexible, principles-based regulation the Gallic fraction have referred to ‘harmonisation’ or convergence-through-prescription.Footnote ¹⁰⁶ In other words, whilst demonstrating a common interest in a liberalised and integrated (hence neo-liberal) market, their project differs from those of the other two fractions.

An example of this approach is the AFEI's response to the consolidation of transparency information in the Markets in Financial Instruments Directive, referring to increased visibility of market information on the part of market vendors. The AFEI noted the existence of two alternatives, ‘achieving consolidation through CESR’, or through ‘leaving it to market forces’, before asserting that, ‘the idea of giving free rein to market forces is not necessarily the most obvious answer’.Footnote ¹⁰⁷ Ostensibly their concern is that unless specific measures are determined at the regional level, greater flexibility risks diverging national standards.Footnote ¹⁰⁸

The notion of prescriptive legislation has often simply been perceived as ‘French’ ‘protectionism’; that is, attempts to resist the neo-liberal logic of increased cross-border competition.Footnote ¹⁰⁹ Instead, I argue that a transnationally oriented Gallic fraction is indeed emerging, with neo-liberal concerns in common with other transnationally oriented fractions. The fact though that the Gallic fraction retains a strong emphasis on nationally oriented social forces within its historical accumulation strategies shapes processes of neo-liberalisation which are quantitatively different from those of Atlantic and Rhenish fractions. The requests for prescriptive legislation therefore have less to do with the Gallic fractions operations abroad than they do with a concern to retain the strong national linkages upon which their accumulation strategies have been founded.Footnote ¹¹⁰ This remains substantively different from arguing that the Gallic fraction are simply resisting competitive imperatives.

The transnationally oriented operations of the Gallic fraction clearly promote neo-liberal concerns. Like Citigroup, they too aim to avoid dual standards and unnecessary costs; responding to the CESR they state that ‘many ISP's (investment service providers) belong to corporate groups that operate across Europe and use common reporting tools. It is therefore vital that the reporting requirements imposed by different authorities are not superimposed onto these intra-group procedures’..Footnote ¹¹¹ Clearly then the transnational-national operations of the Gallic fraction both prompt their interest in a common, liberalised and integrated market, as well as compelling them to seek to retain their close linkages with national social forces.

The Atlantic project

In spite of their distinctly economic liberal project outlined above, the Atlantic fraction have displayed a marked concern to protect the regulatory arrangements and privileges they have achieved within the City of London. Here a close analysis of the price transparency clauses in the MiFID is useful since they highlight the ongoing differences between embedded patterns of market organisation in the case studies as well as enabling the ensuing discussion of divergent accumulation strategies.

As noted above, the UK has been characterised by its capital market-based system where investment is primarily provided through competitively established pricing systems. Within this framework the City of London has historically operated a system whereby bloc (large) trades were allowed an extended period before revealing execution prices. This avoided the risk of a firm negotiating a large deal only to witness other traders cut prices dramatically as soon as he revealed the share price. Price transparency conflicts are therefore underpinned by conflicts over ‘where’ trading takes place; through a regulated exchange or off-exchange.Footnote ¹¹⁶ These conflicts have a formidable history in the context of Europe given that the provision of finance was organised in historically and geographically specific ways. Two features are relevant therefore: one is that, as noted, processes of neo-liberalisation have revolved around the rise of similar patterns of capital market-isation; the other is that, in spite of this, these historical and geographical specificities remain significantly different.

Recall that the overarching objective of the MiFID has been to increase cross-border competition between firms/banks and exchanges in European capital markets. Since the UK system has historically been dominated by investment firms whereas the French system centred on stock exchanges the primary axis of conflict has understandably been between Atlantic and Gallic fractions.Footnote ¹¹⁷ Having accepted the abolition of the concentration principle the Gallic demanded the inclusion of stricter transparency clauses to avoid Atlantic firms having a competitive advantage.Footnote ¹¹⁸ Hence, when the Level 1 directive was adopted by the European Council on 21st April 2004, articles 4, 25, 26, 27, 29 & 44 included provisions for a degree of price transparency (Directive 2004/39/EC).

Early Level 2 proposals aroused the concern of the Atlantic fractions in two ways: one regarded the real time disclosure of prices, that is, at time of execution; the other concerned the wide definition of which operations conducted by firms/banks would be categorised as internalisation and be subject to the transparency requirements. In brief, the Atlantic fraction immediately lobbied for exemptions and less excessive obligations. fearing that the transparency requirements might skew competition towards regulated markets; thereby mirroring the obsolete concentration principle.Footnote ¹¹⁹

Whilst emphasising their desire to promote international convergence of transparency requirements due to the ‘global basis on which (their) banks operate’ (emphasis added)Footnote ¹²⁰ they asserted that:

Here the importance the Atlantic fraction placed on the City markets became increasingly clear.

The specifics of their objections to the original MiFID draft text, concerned systematic internalisationFootnote ¹²² and the threshold requirements determining which shares would be subject to transparency clauses. In order to elucidate the embedded accumulation strategies of the Atlantic fraction it is therefore necessary to explore some more intricate details of their policy positions. To begin, the issue of internalisation is summed up in the following quote by the BBA who, immediately following the Level 2 drafting, stated that:

The implication was that an investment firm or a bank trading securities could, on occasion, trade in a category defined by the EU directive as ‘systematic internalisation’, whereas, at other times, the same firm might be exempt from this classification. Whether or not an investment firm was obliged to meet internalisation requirements was therefore an intensely political issue.

In view of the additional cost burdens and the potential competitive disadvantage vis-à-vis regulated markets the Atlantic fraction sought to limit the definition of an internaliser to avoid indiscriminate price disclosure requirements. This objective informed several other elements of the MiFID but was clearly at the heart of the price transparency and internalisation requirements. In the words of the LIBA, ‘(t)he treatment of internaliser's in paragraph 99 is inconsistent with the treatment of on-exchange market makers in paragraphs 79 and 80. It also fails to take account of the different commercial position of RM's and SI's’.Footnote ¹²⁴ Clearly the historical competition between Atlantic investment firms and Gallic stock exchange-based actors underpinned these concerns.

In this example the MiFID text allowed market makers within a regulated market to withdraw quotes, because, by definition, all prices are necessarily publicly available on a stock exchange. On the other hand, in attempting to apply obligations for internalisers to publish firm bid-offer (execution) prices, the CESR text had suggested that once published, such quotes could not be withdrawn. This stipulation would have harmed firms which cater for a different cross-section of the market suited to their ability to constantly re-negotiate prices.Footnote ¹²⁵ Details aside, the importance is that the Atlantic fraction sought to ensure an equal footing with financial markets dominated by regulated markets; markets such as the French one.

The same is true of the Atlantic fractions' attempt to limit the proportion of shares to which the transparency requirements would be applied. In outlining their concern the Atlantic fraction stated that, ‘orders that would be damaged by being displayed to the exchange … should not come under the scope’ of transparency requirements.Footnote ¹²⁶ Two amendments were therefore proposed by the Atlantic fraction: the exemption of bloc trades from the requirements; and a high threshold for measuring which shares ought to fall under the transparency obligations.Footnote ¹²⁷ The exemption of bloc trades was clearly a product of London's niche in unwinding large orders (see above) and this is hugely significant to our argument. The criteria for measuring thresholds warrants a brief explanation, however. The point in both instances though is that the Atlantic fraction, in spite of their global operations, were primarily concerned (in the European context) to retain the historical privileges they held in the City of London.

The Committee of European Securities Regulators had initially contended that price transparency should be applied to liquid shares, to which the British Bankers Association responded that ‘liquidity is always a relative and subjective concept’.Footnote ¹²⁸ Towards the beginning of 2005 the Atlantic fraction elaborated on this with the following comments; they contended that:

The above definition had the advantage of taking into account the role of internalisers in the overall scope of shares traded. The BBA explained that:

In brief, the Gallic fraction were concerned that systematic internalisers should not undermine the profit-related potential of their dominant regulated markets whereas the Atlantic fraction were keen to note that excessive demands (and costs) would reduce the attractiveness of securities for an internaliser and hence negatively impact liquidity. A balance, as it were, needed to be achieved between the two sets of embedded market arrangements.

The BBA lobbied for a low threshold of an average number of 500 daily trades in a given share and for an average daily turnover of €2 million. For our analysis the figures are unimportant except to note the following; the BBA's proposals were calculated to incorporate a sufficiently large proportion of shares traded on a pan-European basis but with two significant caveats: firstly, the figure was not sufficiently high as to invoke excessive costs on internalisers and therefore discourage their operations; secondly, however, by virtue of London's high trading volumes, its propensity for bloc trades (largely exempted from the clauses) and the fact that the aforementioned calculations were conducted on a pan-European basis, the City markets would be able to maintain their competitive advantage in already established niches.

Amidst mind boggling details, this was the punch line; the Atlantic fraction were primarily concerned with protecting their competitive advantage within the City of London. Yes, the interests/identity of the Atlantic fraction are linked to their transnational-global scale but, significantly, their accumulation strategies depended on regulatory arrangements and social configurations within the UK. In conceptual terms, within wider processes of neo-liberalisation even the most economic liberal of fractions remained embedded within the City markets.

The Gallic project

To examine the Gallic project our argument is best conveyed with a move beyond the specific details of MiFID. This is because their concerns with price transparency were instead underpinned by a desire to preserve ‘long-term relationships’ between finance and industry in contradistinction to the perceived threat of the Atlantic fractions' penchant for profit-seeking, short-termism.Footnote ¹³¹ The French Banking Federation states that ‘Europe must develop its own model, based on its own values’ (emphasis added).Footnote ¹³² They contend that Europe must preserve the relations between financial service providers and industry, and avoid reducing financial services to the imperatives of short-termism. The FBF emphatically states that the Gallic strategy:

Further expounding upon these long-term relationships the FBF asserts that the Gallic ‘values’, ‘… seek in particular to strike a lasting balance between the interests of their shareholders, employees, customers and suppliers …’ (emphasis added).Footnote ¹³⁴

In turn they explain how this set of values differs from those of the Atlantic fraction. In response to more classical liberal imperatives the FBF contends that ‘Europe cannot be reduced merely to a market’ thereby negating the short-term, speculative accumulation of capital. In their words:

The issue of price transparency is therefore a constituent part of a wider Gallic project. As the FBF explain:

In emphasising the importance French banks attach to transparency they also reveal their preference for on-exchange trading. Complete rejection of transparency threatens all on-exchange transactions with French banks forced to compete under market practices familiar to Atlantic firms; Gallic players would initially be extremely disadvantaged. Profit margins would suffer and linkages between French production and French finance would weaken.Footnote ¹³⁷ In every respect transparency and Gallic accumulation strategies go hand in hand; once again the embedded character of the Gallic fraction within French markets is at the fore in spite of a shared interest in neo-liberalisation.

The Rhenish project

The Rhenish fraction then further re-inforce the argument that their accumulation strategies remain rooted in the German market despite their increasingly neo-liberal preferences.Footnote ¹³⁸ Hence, the Rhenish project is a product of the specific context of the German financial system.Footnote ¹³⁹ Like the UK Germany has an increasingly prominent capital market and yet like France it retains more traditional ‘hausbank’ relations between credit institutions and industry, similar to the Gallic system of interlocking shareholdings and credit provision.Footnote ¹⁴⁰ Both of these elements formatively influence their interests.

Since the mid to late 1990s the German economy has underperformed, contributing to rising rates of unemployment and slow growth.Footnote ¹⁴¹ These conditions have contributed to a diminishing importance for traditional means of credit provision and a greater dependence on both capital market and foreign investment as less costly sources of finance. In 2002 the BdB remarked that, ‘the bank loan has declined in importance. Companies are increasingly turning to the capital market and to foreign affiliates to finance their activities’.Footnote ¹⁴² The pattern is clear: faced with a faltering economy and an outdated financial system, German banks are being compelled towards a greater reliance on securities instruments as German companies turned their attentions to foreign sources of investment.Footnote ¹⁴³

The evidence from the Rhenish fraction presents two potentially paradoxical skeins but which nevertheless confirm the core argument of this article. The first contention is that the Rhenish fraction are concerned with a greater reliance on capital market innovation, global/EuropeanFootnote ¹⁴⁴ competitiveness and more classically liberal reform. The second contention, however, is that the Rhenish fraction is still very much a Rhenish fraction with an interest in preserving the historical linkages with ‘German’ social forces and circuits of productive capital upon which its strategies have traditionally been constructed.

The nature of the paradox is apparent in the rhetoric of the Initiativ Finanzstandort Deutschland and the Bundesverband deutscher Banken; on the one hand, the IFD emphatically states that, ‘[c]onsidering these strengths of Finanzstandort Deutschland, it is clear that a greater focus on the capital market, while ringing in a new era for Germany as a financial centre, does not represent a radical break with the past’ (emphasis added).Footnote ¹⁴⁵ Whilst, simultaneously the BdB asserts that:

These two interconnected demands permeate their rhetoric. Simultaneously they pursue: strategic domestic reform whilst preserving traditional German configurations of social forces; and an interest in transnational global/European liberalisation. For example, having asserted that their proposals do not represent a break with the past the IFD states that suggested reforms pose, ‘tremendous opportunities by enabling better use of the benefits of the capital market while preserving traditionally intensive client relationships’ (emphasis added).Footnote ¹⁴⁷ They explain that credit institutions will be able to securitise much of their debt whilst retaining formal linkages with industry; a means of ‘combining credit and capital markets’:

The means to achieve this is through ‘pro-active … strategic decisions’Footnote ¹⁴⁹ and the Rhenish fraction repeatedly highlight the removal of state guarantees and the privatisation of public credit institutions as of central import. In their minds the ‘levelling’ of the capital market playing field for all financial service providers would be sufficient to promote the kind of symbiotic capital-credit relationships of which the IFD spoke.

They explain that around forty five per cent of the banking market is covered by state-owned financial institutions with the following implications for capital market competition:

Therefore, whilst the Rhenish pursue increasingly neo-liberal interests they simultaneously aim to retain the domestic configurations and circuits upon which their strategies are established. Again, their project is underpinned by the remaining differences between the patterns of market organisation in the three member states; conceptually though, the embedded character of the Rhenish fraction remains in spite of wider neo-liberalisation.