Shifting Equilibria of European Financial Integration Explaining Continuities and Changes

This paper analyzes the process of European financial integration in light of the varieties of capitalism (VoC) ideas. According to the VoC approach, institutional differences between various types of economies should produce a conflict of preferences between countries over the form and direction of integration. This conflict should be especially evident in case the integration process involves most important spheres of domestic production systems. One of key spheres of the production systems is the financial sphere. The principal question of this research is why, despite the alleged conflict of preferences, the process of European financial integration has advanced. The paper will draw on game theoretic methods to demonstrate the equilibrium stemming from the VoC assumptions. The focal issue of the analysis is the changes of the European financial integration equilibrium, which led to the adoption of a comprehensive package of measures aimed at harmonization of the European financial sphere (Financial Services Action Plan).