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This chapter explores several famous mergers and shows how the victors became victims of the winner’s curse. It examines cases in which winner’s curse was apparent, and how it came about. In the analysis of failed mergers, it presents data on the pattern of acquisitions, the cost of acquisitions, the company’s stock price, and what happened to its financials over the five years leading up to its fall. As we look at several serial acquirers like Tyco, WorldCom, First Union Bank, and Bank One, it is argued that a history of success heightened the sense of winning and increased managerial optimism, hubris, and feelings of invulnerability, which all ultimately led to the winner’s curse. Particular attention is given to cases of intense competition, i.e., mergers involving hostile takeovers and instances where two firms competed with each other to acquire a third firm.

This chapter begins by expanding the discussion of creativity, collaboration, and communication processes introduced in Chapter 3 by adding two foundational elements: culture and technology. These are briefly discussed as components of the COIN-driven innovation process as a lead-in to the case studies of real COINs, in which the author has participated and from which lessons about collaborative innovation are derived. The cases are presented in a way that ties them to the specific aspects of COINs that were introduced and discussed in earlier chapters. Four cases are presented in detail. The first is DaimlerChrysler's e-extended Enterprise, which stemmed from the need to streamline procurement and supply after the merger of the two firms and resulted in an innovation that greatly reduced transaction costs and generated significant revenue. Next, the chapter presents Deloitte Consulting's e.Xperts, a virtual e-business consulting practice that emerged from a trans-national COIN that was instrumental in successfully acquiring and delivering projects for the firm well in excess of $100 million. This is followed by the example of e-banking for a private Swiss bank, in which a COIN was able to deliver electronic solutions for a financial institution that greatly enhanced its business profile with its customers. Another bank-related case is presented: software development at Union Bank of Switzerland, where a COIN demonstrated how creative collaboration could address several IT-related issues and lead to innovations of value beyond what would have otherwise been expected had the process unfolded in the typical manner. A side-bar case discusses the Trade Point Program that functions as a global COIN, acting locally to assist small- and medium-size enterprises (particularly in the developing world) in participating in worldwide markets.

The EMU by contrast is a dubious candidate for an optimal currency area because although it too trades intensively within the region, national work restrictions greatly impair intra-European labor mobility, and supranational fiscal power is feeble because rich members don’t want to assume heavy financing burdens during turbulent times. The Eurozone borrowers, known as the GIIPS countries can extricate themselves from their plight with a “internal depreciation” or “internal devaluation,” but this is little consolation because it places an immense burden on prices, wages, and productivity growth in an adverse financial environment The maxim that the rich should pay at the supranational level means that the ECB, perhaps supplemented with new institutions, will grudgingly provide loans to prevent the GIIPS countries from defaulting on their sovereign debt. They also could provide “solidarity” grants by analogy with foreign catastrophe aid.

If post-communist countries realized marketized bank–state ties through transition and international pressure to privatize their banks with foreign capital, western Eurozone states have more recently come under pressure to follow suit. European Banking Union centralized bank supervision and introduced a single resolution board at the expense of national authority. Thus under banking union, national regulatory and supervisory forbearance was curbed; barriers to banking market entry were no longer the purview of national authorities; disproportionate bank lending to one’s own sovereign would be discouraged; and bank bondholders, creditors and depositors—i.e. market actors—paid the price for bank failures first, before governments and taxpayers. While European Banking Union put the euro on stronger foundations, it also curbed national economic policy discretion and limited tools for adjustment. Taking Italy, Portugal, Spain and Germany as examples, this chapter explains why and in what policy areas Eurozone states’ sovereignty clashed with banking union.

This chapter examines the formalization of creditor-debtor state relations in post-1945 Europe within the early framework of the Bretton Woods system. It looks in depth at the European Payments Union; the first decade of the EEC; the process and the substance of EMU, particularly from the Werner Group to the Delors Committee and the Maastricht Treaty. The chapter considers the post-2007 economic and financial crisis; its strategic management within a shrinking ‘hard core’ of creditor states; the rise and eclipse of the ‘stand-alone’ model of European monetary union and the process of beginning to build banking and fiscal union in Europe. It examines the Franco-German relationship, the European Council, the European Commission, and the ECB. The chapter concludes by considering the boundaries of creditor-state power and the unresolved tension between endogenous preference formation, in particular learning by doing, and conditional cooperation, in which ‘red lines’ continue to be drawn.

European states have a long history of banking sector nationalism. Control over credit allocation is believed to contribute to economic development and competitiveness, insulation from external economic shocks, and control over monetary policy. We demonstrate the dramatic loss in domestic control over banks created by European Banking Union and explain the sudden shift from national to supranational banking supervision as follows. In the background, ongoing economic liberalization has made banking sector protectionism more costly, and because many large banks have internationalized, they now prefer centralized European regulation and supervision. In the foreground, we find it is primarily the European Commission and the European Central Bank that have pushed European Banking Union (EBU) ahead. Contrary to accepted wisdom, Germany has not been able to limit EBU to a great extent. Moreover, the Commission and the ECB have managed at critical junctures to isolate Germany to secure that country’s assent to controversial measures.

The study’s findings from Europe have implications for other major powers, including that: (1) banking sector protectionism became increasingly costly given other liberalizing trends; (2) foreign-owned bank subsidiaries can provide more stable funding in crises than alternative foreign or even domestic bank activity; (3) foreign domination in finance limited catching up in the global economy, but in fact few states showed the capacity to exploit domestic banks for national goals; and (4) centralized bank governance through European Banking Union weakened bank–state ties in Europe, and elevated the role of markets there. This chapter analyzes the relevance of the findings for the BRICS (Brazil, Russia, India, China, and South Africa). China is perhaps the clearest case of a country struggling to both liberalize and retain the economic policy autonomy associated with a largely state-controlled financial system. The conclusion specifies the broader transformation in bank–state ties, but also its limits.

The crisis evolved in six policy steps, each of which, except for the first, seemed to follow on with compelling logic from prior decisions. (1) The euro encouraged excessive capital flows, creating an inflationary credit bubble. (2) When the bubble burst, a lowering of collateral requirements for refinancing credit made it possible to replace private capital with the printing press (Target). (3) To preserve the value of the government bonds used as collateral, the ECB bought them (SMP). (4) To bail out the ECB, parliaments set up fiscal rescue funds (EFSF, EFSM, ESM). (5) As the funds threatened to be too small, the ECB announced unlimited government bond purchases (OMT). (6) Policy makers now plan to open up the ESM rescue fund to enable bank recapitalization (banking union). This process undermined both the market economy and democracy, demoting parliaments to vicarious agents of the ECB’s governing council.

This chapter looks at the division of power and accountability structures in the European Banking Union, the principal emphasis being on political accountability. Other types of accountability are also examined where appropriate (e.g. budgetary, administrative, or legal accountability). The discussion begins with the division of competence between the national and EU authorities in the Banking Union. This is followed by examination of the role of the European and national parliaments, as well as the Council and Eurogroup, in holding the European Central Bank, the Single Resolution Board, and the national supervisory and resolution authorities to account for their actions in this area. The focus then shifts to the intra-institutional balance of power and the emerging patterns of geographical fragmentation. The penultimate section of the chapter focuses on access to information, which is crucial for all forms of accountability. The final section of this chapter offers a snapshot of some of the features of the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM) which may hamper the effectiveness of the Banking Union and place its output legitimacy in jeopardy. The chapter concludes with proposals on how to strengthen accountability and transparency in the Banking Union.

This chapter begins by reviewing the literature on the politics and economics of EMU, asking to what extent the explanations put forward regarding the establishment and the design of EMU might have explanatory power with reference to the establishment and the design of Banking Union. The chapter then reviews the literature on Banking Union, which, with some notable exceptions, so far has mainly focused on the economic and legal aspects of the Union’s main components. The chapter elucidates the two-step analytical framework underpinning our study—namely, the concept of the trilemma, which explains the functional drive towards Banking Union; the main features of national financial systems, which, together with the concern for moral hazard, account for the preferences of the member states on the Union’s main components and the asymmetric distribution of bargaining power—which resulted in an asymmetric design of Banking Union.

The chapter discusses the intensification of the Eurozone crisis in the aftermath of the Greek election of May 2012, particularly as concerns over the health of the Spanish economy put pressure on the value of the Euro. The ECB warned that the very design of EMU was no longer sustainable, but the building of consensus over the reform of the Eurozone's architecture proved elusive.

The introduction explains the relevance of our study, whereby the establishment of Banking Union represents a major development in European economic governance and European integration history more generally. The introduction teases out the empirical questions that inform the study, namely: why has the move to Banking Union been undertaken only now, over twenty years after the agreement on (E)MU? And why has a certain design for Banking Union been agreed and some elements of this design prioritized over others? The chapter also outlines the analytical framework of the book, its overall argument, and its limitations. Finally, it summaries the structure of the volume and provides a short chapter-by-chapter synopsis.

This chapter discusses the various combinations of regulatory capacity in the EU and the US, as well as the sequencing effects in the development of domestic regulatory capacity (at the national or regional level) and international standard-setting. Alternative or complementary explanations for the politics of international standard-setting are examined, in particular market size and lobbying from the financial industry. It explains the development of regulatory capacity in the EU, pointing out the role of the Commission, which often acted as policy entrepreneur, and the preferences of the member states, whose support was needed for the adoption of new regulatory templates. In turn, member states’ preferences were mostly rooted in their domestic political economy. The last section discusses the proposal for Banking Union, elaborating its implications for the EU and international financial regulation.

This chapter examines the causes and consequence of two interconnected crises—the international financial crisis (2007–9) and the euro area’s sovereign debt crisis (from 2010)—which formed the background to the intergovernmental negotiations on Banking Union, and which largely explain its timing. The chapter also outlines the framework for financial stability in the EU before and after the crises. It is argued that the sovereign debt crisis created a doom loop between the instability of national banking systems, which needed to be bailed out in many countries, and the fragility of public finances, which were becoming unsustainable in some countries. Moreover, the crisis brought to the fore the financial trilemma between financial stability, financial market integration, and national regulation, supervision, and resolution—this trilemma was made particularly acute by Economic and Monetary Union (EMU) and became untenable in the euro area.

Financial market policy is an area in which the EU has significantly increased the scope of its activities in the post-Maastricht period. This chapter sees policy-making in this domain as a combination of old and new intergovernmentalism. Deliberation between national authorities played a key role both before and after the global financial crisis of 2007–8 but the pursuit of consensus tended to oil the wheels of intergovernmental bargaining along traditional lines. That said, member states remain reluctant to empower the European Commission in this domain even in the context of plans for European Banking Union.

This chapter provides an analysis of the measures adopted to address the euro area crisis. First, a quick intervention was necessary in order to stabilize the situation of certain euro countries. To this end, several loan facilities were created, and the European Central Bank (ECB) also played an important role in calming down the markets. Second, several measures have been adopted in order to improve budgetary surveillance and economic coordination. Third, inadequate financial regulation was one of the causes at the heart of the global financial crisis that started in 2007, and which is connected to the euro area crisis. Accordingly, the EU has undertaken, and is still in the process of undertaking, important reforms aimed at the creation of a stronger financial framework, and a so-called banking union for the euro area.