The subprime crisis, the sovereign debt crisis and finally the eurozone crisis have somewhat disrupted the dynamics of financial globalisation that began in the 1970s and 1980s in the United States and Europe respectively. These successive challenges have had the effect of creating a trend (a trend of financial protectionism) of “withdrawal into oneself”.
This dynamic is felt at several levels: the allocation of private savings on an international scale, the deployment of banking activities through the multinational positioning of banking groups and finally the rise of nationalist and restrictive policies. It is also legitimate to ask whether this momentum is temporary; after the years of crisis or whether it is a structural evolution; a logical cyclical transition in history.
Since the laws of financial deregulation, private capital has flowed freely and benefited from a wide range of possible investment choices based on investors’ quest for diversification returns. Under these conditions, the link between domestic savings and domestic investment is weak.
However, according to European Central Bank data, the correlation between savings and domestic investment has been steadily increasing in OECD countries since 2007, particularly in the euro area. Looking at the holding of bonds issued by governments and private companies, International Monetary Fund data show that the share of securities held by foreign residents increased from 29% at the beginning of 2007 to 26% at the end of 2012, while it had increased from 21% to 29% between 2001 and 2007.
The financial downturn can also be seen in the development of banking activity. If we take the example of European banks, after a strong internationalisation of their activities between the end of the 1990s and the beginning of the subprime crisis, their share of these activities fell at the end of 2013 to what it was at the beginning of the 2000s.
Part of the de-internationalisation of European interbank activities can be explained by the decline in international financing received by banks in crisis countries in the euro zone; Greece, Spain, Portugal and Ireland. But the movement is general, from Germany to the Netherlands, Belgium, France and Italy, all the institutions in the euro zone have received less funding and have lent less to their foreign counterparts over the past six years.
This mistrust of lending between banks in the euro zone stems from the desire to contain systemic risk, a major factor in the contagion of the American subprime crisis to the entire financial world.
Finally, we note an increase in financial protectionism towards foreign investors motivated by political powers. In the aftermath of the 2014 European elections, in addition to the 56% abstention rate, the latter were marked by a push by nationalist and Europeanist parties, which won their votes thanks to speeches advocating the raising of borders, strict control of financial markets and, more generally, the abolition of the European Community project and the single currency.
Despite the flagrant lack of unity that may exist between these different parties sitting in the European Parliament, there is cause for concern about the consideration of the expression of this electorate by the authorities in power, which could, for the purpose of capturing votes, propose laws in their favour. This is particularly the case with a Franco-German agreement proposing the taxation of financial transactions.
This agreement was largely conveyed by the new French government, which was elected, among other things, on a programme of criticism of financial markets and flow control. It will also be recalled in 2006 that the French government announced a series of measures to protect French companies from hostile takeovers.
The French government has defined a list of strategic sectors for which it wanted to be informed in the event of a threatened takeover by foreign funds. This political will is justified by the strategic importance of maintaining the skills and know-how related to the armaments, telecommunications networks and nuclear sectors.
Despite these headwinds, the globalization dynamics of the world economy continues to follow an upward trend. These wills to turn back and mistrust are symptomatic of periods of crisis. The extent of this inertia is proportional to the violence and the frequency of crises we have experienced since the fall of Lheman Brothers in 2007.
The decline in international banking activity, for example, is partly due to the desire to reduce their dependence on foreign sources of financing and investment, which are currently proving unstable. In addition, the European sovereign debt crisis and the mistrust it has caused in the eyes of American investors are structurally reducing access to the dollar resources of European banks.
Recent years have been clearly marked by a trend towards financial globalization, but the vast majority of regulatory changes in recent years continue to move towards greater liberalization of international investment.
The share of those who introduce more protectionism against foreign firms is increasing and this trend is naturally explained by the current economic downturn. It is still necessary to wait to assess whether or not the current developments are irreversible, but the profound trend of globalization remains the main economic vector of our century.