Financial Structure, Income Inequality and Privatization of Risk in the EU

The global financial crisis of 2007/2008 was the painful peak of a decade of “financial euphoria” and inadequate financial re-regulation in the advanced economies. However, during that period of “financial euphoria”, the structure of the developed financial systems in the EU varied significantly, considering the importance of the banking market or that of the capital market in the system as a whole. Thus, an area for political economy research emerges, considering the institutions and the structural elements of an economy that could have contributed to this kind of differentiation. In this paper, the analysis is focused on the financial system’s funding from individuals and households as one of the three basic fields of the financial intermediation process. Particularly, we discuss and examine the relationshipbetween “privatization of risk” and income inequality -as characteristics of the households’ investment orientation- with the development of structurally varied financial systems in the EU. The descriptive and statistical results suggest that households’ investment orientation is related with the differentiation in the characteristics of the EU financial systems. However, this nexus can partially interpret -in terms of political economy- the varied financial systems in the EU, as the analysis must take into account the remaining fields of the financial intermediation process: the funding from international and interbank markets and the financial system’s funding to the economy.