Cooperation between central banks has been crucial for stabilising the international financial system during the Global Financial Crisis in 2008 and the COVID-19 crisis in 2020. For students of... Show moreCooperation between central banks has been crucial for stabilising the international financial system during the Global Financial Crisis in 2008 and the COVID-19 crisis in 2020. For students of international political economy, understanding why and how central banks cooperate is thus a highly relevant concern. This doctoral dissertation studies central bank cooperation in Europe during and after the Global Financial Crisis. It is based on 25 elite interviews, original archival material and other primary and secondary sources. It reconstructs how central banks came to the decision to conclude credit lines with one another, engaged in Balance-of-Payments assistance programmes, and built new regional institutions to coordinate crisis management and macroprudential policy measures. It finds that central banks motivated their decisions to cooperate not merely on the expected consequences of their actions, but also on their perceptions of appropriateness. Bilateral cooperation was often motivated by norms, such as solidarity, rather than being based predominantly on self-interest; regional financial governance takes the form of inclusive deliberations and consensus-building, rather than clashing national interests. These findings support the conclusions that central banks’ agency, and the ideas that guide their behaviour, need to be better understood to grasp the dynamics of international monetary cooperation. Show less
Is the European Central Bank (ECB) increasingly acting on political – rather than technocratic – considerations? This question is of a central concern to students of European Union (EU) political... Show moreIs the European Central Bank (ECB) increasingly acting on political – rather than technocratic – considerations? This question is of a central concern to students of European Union (EU) political economy. This article contributes to this debate by studying the ECB’s credit lines to the central banks of EU member states outside the Euro Area during the Global Financial Crisis and the COVID-19 crisis. Both times the ECB accorded selectively better borrowing conditions to some central banks. The article finds that its selection of who gets favourable borrowing terms has indeed become more political. In 2008, the ECB decided the credit terms based on technocratic criteria, but twelve years later, it granted better lending conditions to countries that were close to adopting the euro. How the ECB balances its mandate for price stability in the Euro Area and its role as a supranational EU institution decides whether it will become more politicised. Show less
Credit lines between central banks can be a powerful instrument to restore international financial stability during a crisis. Yet, so far, few political scientists have ventured to study central... Show moreCredit lines between central banks can be a powerful instrument to restore international financial stability during a crisis. Yet, so far, few political scientists have ventured to study central bank cooperation in the context of European macroeconomic governance and the implications for the international role of the euro. This paper closes this gap in our knowledge by looking at the European Central Bank’s (ECB) cooperation with non-Euro Area central banks during the Global Financial Crisis 2008/09 and the COVID-19-crisis 2020. Based on recently declassified policy documents and eight insider interviews I find that the ECB’s handling of the international role of the euro has changed over time. In 2008, the ECB had decided the credit terms largely based on perceived sovereign credit risk. In 2020, the ECB granted better lending conditions to countries that were institutionally closer to the Euro Area. Based on this I argue that the ECB has redefined its interests during international crises from limiting financial risks to promoting the institutional objectives of the Euro Area. This indicates not just that the ECB has in 2020 acted more proactively as international lender of last resort, but also that it has done so largely in line with political considerations. Show less
Credit lines between central banks can be a powerful instrument to restore international financial stability during a crisis. Yet, so far, few political scientists have ventured to study central... Show moreCredit lines between central banks can be a powerful instrument to restore international financial stability during a crisis. Yet, so far, few political scientists have ventured to study central bank cooperation in the context of European macroeconomic governance and the implications for the international role of the euro. This paper closes this gap in our knowledge by looking at the European Central Bank’s (ECB) cooperation with non-Euro Area central banks during the Global Financial Crisis 2008/09 and the COVID-19-crisis 2020. Based on recently declassified policy documents and eight insider interviews I find that the ECB’s handling of the international role of the euro has changed over time. In 2008, the ECB had decided the credit terms largely based on perceived sovereign credit risk. In 2020, the ECB granted better lending conditions to countries that were institutionally closer to the Euro Area. Based on this I argue that the ECB has redefined its interests during international crises from limiting financial risks to promoting the institutional objectives of the Euro Area. This indicates not just that the ECB has in 2020 acted more proactively as international lender of last resort, but also that it has done so largely in line with political considerations. Show less
During the financial crisis of 2008–2010, governments have had varying success in containing the fiscal costs of stabilizing their financial sectors. This article challenges the existing literature... Show moreDuring the financial crisis of 2008–2010, governments have had varying success in containing the fiscal costs of stabilizing their financial sectors. This article challenges the existing literature that attributes these differences purely to national factors and contends that the international dimension affects a government’s capacity to share the costs across borders. Specifically, if a country shares a leveraged creditor with other countries, concerns about regional contagion will drive decisions by outside actors to participate in or prevent external burden sharing. A comparison of the role of the Swedish government during the financial crisis in Latvia and the ECB’s influence on Ireland shows that these decisions can both facilitate or prevent international burden-sharing. While Latvia benefited both from maintained exposure by Swedish banks and an internationally coordinated response to its crisis, the Irish government accumulated losses because foreign banks reduced their exposure and the European Central Bank vetoed “bailing in” bondholders of bankrupt banks. Future research on financial stabilization should therefore more explicitly consider possible contagion effects from bailing in foreign creditors. Show less
The widespread presence of foreign banks in Central and Eastern Europe (CEE) was seen as a potential source of instability during the financial crisis of 2008/09. However, foreign banks acted... Show moreThe widespread presence of foreign banks in Central and Eastern Europe (CEE) was seen as a potential source of instability during the financial crisis of 2008/09. However, foreign banks acted primarily as a stabilizing force by supporting their subsidiaries and forwarding liquidity, rather than cutting and running. In doing so they closed a significant gap in the EU’s financial stability framework and prevented both a worse financial crisis and currency crises in the new member states. In this paper, I argue that the expectation that foreign banks would step in as private lenders-of-last-resort was exactly the reason why CEE policymakers had encouraged foreign bank entry around the year 2000. Their policy frameworks looked unsuitable for withstanding a financial crisis, but this was the result of rule and policy transfers from the EU which did not take these unique market structures into account. Indeed, already by 2004 it was clear that foreign banks would manage liquidity conditions in CEE and that monetary policy would, at best, accommodate that. The theoretical contribution based on this is that financial market structures developed to be a pillar of the regional financial system in their own right. Although they emerged without central guidance, high levels of foreign bank ownership had the effect of aligning expectations and resulted in material support during the financial crisis. Balance-of-Payments support, it follows, is not just the result of official cooperation; private actors may wield more control over liquidity conditions than central banks. Show less
