Financial Interventionism and Liberalization in Southern Europe: State, Bankers, and the Politics of Disinflation

Abstract

The article provides a structural and political account of financial intervention in Spain, Portugal and Greece and examines competing explanations for financial liberalization. It focuses on the economic and political objectives underlying financial reform, and the costs and benefits for government, central bank, and the banking sector. It argues that financial liberalization was, to a significant extent a necessary prerequisite for the central banks' programmatic effort to achieve effective disinflation. This challenges the dominant arguments viewing financial liberalization exclusively within the framework of the European financial integration program or as a result of interest group pressure. At a subsequent stage, a stabilization strategy based on monetary austerity entailed the significant political advantage of allowing governments to avoid a more radical pace of fiscal adjustment. Both financial interventionism and liberalization displayed a state-driven policy pattern.

Monetary facts revisited

“…Their coincidence may re ‡ect the retreat of policies using a combination of high in ‡ation and …nancial repression to liquidate government debt (Reinhart and Sbrancia (2011)). It may also re ‡ect that …nancial deregulation strengthening the transmission of monetary policy was in many countries an important element of disin ‡ation strategies (Pagoulatos (2003)).…”

Southern European Public Bureaucracies in Comparative Perspective

“…Exceptions have been studies looking at the state structures of Southern Europe indirectly, i.e., in regard to specific policy areas (e.g., Pridham 1996;Bermeo 1999). There is a general understanding that the four bureaucracies share some empirical parallels or similarities (Goetz 2001(Goetz : 1042 and even that one may speak of the 'state in Southern Europe' (Giner 1985;Pagoulatos 2003 The traits of South European bureaucracies have not been clearly formulated either in the literature on democratic consolidation in Southern Europe (Pridham 1990;Linz et al 1995;Morlino 1998;Diamandouros and Gunther 2001;Magone 2003) or in the literature on the common features of South European welfare states (Ferrera 1996). On the other hand, research based on induction from empirical data is inconclusive: research on comparative public policy for the period 1960-95 assigns Greece, Portugal and Spain (but not Italy) to a southern family (Castles 1999).…”

State-driven in Boom and in Bust: Structural Limitations of Financial Power in Greece

“…Several measures had cleared the ground, but the year 1987, when the short-term lending rate ceiling was abolished, can be taken as the symbolic initiation of credit deregulation, implementing the European single market programme. It has been argued (Pagoulatos 2003b) that financial liberalization in Greece (and Spain and Portugal) was, to a significant extent, state driven, being a necessary prerequisite for the central banks’ programmatic effort to achieve effective disinflation. The central bank’s effort to disinflate from the second half of the 1980s and especially into the 1990s drove liberalization; financial reform was a precondition for monetary austerity.…”