The Influence of the Financial Industry in the European Policy Process

Contents

1 Introduction

2 An introductory approach to financial business influence
2.1 Definition of business interest
2.2 Classification of lobbying tactics
2.3 The organization of financial business interest on EU level

3 The influence of financial business interests on the different European bodies ..
3.1 The European bodies: Interplay and Accessibility
3.2 Influencing the European bodies
3.2.1 The Council of the European Union
3.2.2 The European Parliament
3.2.3 The European Commission

4 The influence of expert groups

5 Consequences and Conclusion

Bibliography

1 Introduction

At the end of 2005, the European Commission released a white paper on financial service policy (EC 2005: 3). It was called “the best financial framework in the world” (EU Press 2005 found in Stichele 2008: 13). After the Lehman Brothers bankruptcy in September 2008 and the accompanied full break out of the financial crisis, the question on, how such a crisis could occur with the regulation in place, was raised for good reason. Independent experts have warned that the actual lax regulation would lead to a crisis, but according to Haar et al. the Commission preferred to listen to the one-sided advice from the financial industry (2009b: 3).

After the full extent of the crisis and the failures in regulation policy became obvious, one might have expected that new financial regulation would be set up fast. On the G-20 meeting in London in April 2009, Gordon Brown and others proclaimed a counter strike against the financial and economic crisis by. But according to observers, after these confessions, not much has happened in practice due to financial lobby resistance (Zeit 2009). Still in April 2010, the German newspaper Zeit pointed out that the financial industry’s power has prevented new financial regulation.

Although financial lobby influence is certainly not the only reason, why regulatory reform is not getting further, it has a strong influence in the policy process and overshadows other interests. In Europe, it is especially effective: The European market has been continuously liberalized, but supervision did not keep up with this trend. Financial regulation must satisfy the international level but should also be flexible enough to grasp national differences. Moreover countries are played off The Influence of the Financial Industry in the European Policy Process against each other. When a single country decides to regulate more strictly, companies can always threaten to leave the country (Stichele 2008: 40, 48).

All these considerations give good reason to analyze how the financial industry seeks influence in the European policy process. This paper aims to introduce the different institutional channels where influence can be exercised. It does not cover the empirical influence that the lobby has had on concrete decisions nor does it address the specific content of regulatory changes. These topics are important as well but the frame of this paper is too small to deal with all of them.

The second chapter provides an introduction to the topic. An underlying definition of business interest is given; classifications of lobbying interests in general are introduced in order to give the reader an overall idea on how lobby interests operate; and furthermore the organization of financial business interest on EU level is depicted. The following chapter analyses the influence of the financial industry on the different European bodies. Therefore a short repetition of the institutional interaction patterns is given and the accessibility of them is considered. Hereafter, the European bodies (Parliament, Council and Commission) are regarded separately. While investigating this issue, it became obvious that the influence and the composition of expert groups are very significant in influencing European policy. Thus final recommendations of expert groups often end up in legislation. Furthermore, the composition of these groups reflects the superiority in influence of the financial industry in contrast to other stakeholder groups. Finally, the consequences of the superior financial business interference are regarded and some recommendations are given to cure this undesirable situation.

The Influence of the Financial Industry in the European Policy Process

2 An introductory approach to financial business influence

This chapter provides an analytical background to the topic. First of all, a definition and distinction of the term business interest is given. An outline of different classifications of lobbying follows in order to show the various ways of influence. After that, the particular channels of influence of the financial lobby are represented.

2.1 Definition of business interest

In this research paper, business interests or private interests are defined in contrast to public interests. Private interests pursue the goals of their members while public interests pursue goals that benefit wider parts of society. This dichotomy is being criticized by some authors because it simplifies and can be misleading. For instance, can the interests that businesses pursue, be in line with common interests when they lead to lower unemployment (Lehmann 2003: 5). This objection is reasonable and should be kept in mind in the following. However, the categorization has been chosen since the analysis addresses business interest no matter if they serve only business or public interests as well.¹

Business interests play an important role in the policy process since their activities and goods are being regulated. They have the best knowledge of the markets and contribute their viewpoints on the efficacy and costs of certain regulations (Lehmann 2003: 11). Moreover, they have the resources and a high degree of organization in order to involve effectively.

The Influence of the Financial Industry in the European Policy Process

2.2 Classification of lobbying tactics

After having defined business interests, different classifications of lobbying tactics are regarded in order to be able to classify the procedures of the financial industry. Lehmann gives a helpful summary of different theoretical classifications of lobbying: First of all, Berry offers three broad categories that distinguish the channels of influence. Well known is the direct communication between lobbyists and regulators. Another option is the communication via constituents, for example when members or sympathizers are asked to take part in public demonstrations. Even more indirect is the possibility to influence public opinion, for instance by sponsoring parties.

Alternatively, Guéguen looks at the form of reaction of the lobbyists. He distinguishes negative, reactive and proactive strategies. A negative strategy means that lobbyists stand in pure opposition or only make suggestions which are untenable. Whereas proactive strategies offer regulators incentives and knowledge in order to take part in the policy process. Reactive strategies are found in between.

Another helpful theoretical elaboration in this context is Coen’s analysis on what capacities are needed for successful lobbying. He lists a clear policy goal, the development of connections and credibility, a profound understanding of the policy process, and the ability to find allies (Lehmann 2003: 17).

2.3 The organization of financial business interest on EU level

The financial business industry lobbies the EU through different channels. Stichele outlines four main channels: (1) Branch associations and organizations involve on the The Influence of the Financial Industry in the European Policy Process different levels of the EU policy process like the European Commission (EC), Lamfalussy Committees or even in the Council via contacts in the working groups. Some are national and some are EU wide organizations like the European Banking Industry Committee. (2) Large financial companies involve directly. Often their spokespersons also wear the hat of a particular association, but at the same time they can put forward the specific interests of their company (Lehmann 2003: 13). (3) Furthermore lawyers and consultants are hired by associations and big companies to evaluate specific questions. (4) Finally there is the case of revolving doors which means that members of the European Parliament (MEP’s) become lobbyists, or that lobbyists are voted into Parliament (Stichele 2008: 42-43).

3 The influence of financial business interests on the different European bodies

After the analytical introduction, this chapter is dedicated to the research question, on how the financial industry influences European regulation. In order to do that, a brief repetition on the European regulation process and the interplay between the bodies is depicted. Furthermore, the results of an empirical study are presented, in which the accessibility of the different bodies for lobbying activities was analysed. Hereafter, the European bodies are studied separately.

3.1 The European bodies: Interplay and Accessibility

The European Parliament (EP) together with the Council of the European Union (Council) form the legislative branch of the EU. The Parliament does not have the official right to initiate legislation, it can only reject and amend proposals.

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¹ An alternative is the distinction between producer and civic interests. This dichotomy gives priority to the interests that are being pursued rather than the group behind it (Lehmann 2003: 5). I would recommend this categorization in other research since it is more profound but here it is less helpful.