Connectedness, Crisis and the Challenge to European Democracy : From Rapture, Through Fear, to Banalisation of Financial Markets

The financial crisis has spread from private to public, from financial markets (2007-9) to sovereign states (2010 onwards). Concerns over ‘connectedness' – between banks, between banks and states, and hence between states – lies at the heart of the Eurozone debt crisis, just as it propagated the transatlantic turbulence. Policy makers, regulators and commissions are searching for ways to reduce connectedness, as illustrated here in relation to the chaotic evolution of Eurozone policy making. The mood has swiveled, from pre-crisis intellectual complacency and emotional rapture over financial markets, to repudiation and fear. There have been three immediate casualties: (i) the public finances, which have picked up the greater part of the bill for speculation by financial markets; (ii) the integrity of policy-making and market regulation, suffering from a persistent difficulty in separating themselves from market assumptions; (iii) democracy. This chapter explores these developments and suggests that overt politicisation of the policy issues is necessary, introducing greater diversity into regulation, reducing connectedness of markets and thereby reducing global instability. For reasons of both regulatory effectiveness and democratic normativity, financial market services (noting that last word) should not be treated as a ‘special case', beyond politics, but they should be governed in as banal a manner as other areas of the economy. The Attachments is an extract from the pre-proof - section headed Attempts to Reduce Connectedness