Financialization of government debt? European government debt management approaches 1980–2007

Abstract

The aim of this article is to explore the strategies European government debt managers used in response to the growing demand for credit by governments since the 1980s and how the introduction of the common currency area influenced the nature of government debt management. The analysis indicated that in the 1980s, a paradigm shift emerged as bilateral debt relationships became negligible, while the role of financial market principles became much stronger. A financialization of the relationship with private investors took place, although still highly regulated. The introduction of the euro resulted not only in the new European rules but also in the financialization of the regulatory framework. The participating governments lost the privilege to encapsulate their markets. Because of these two processes, managing government debt in the common currency area meant developing a strategy to successfully issue in a transnational market without support from public authorities at least until the crisis.

Foreign bond investors and market discipline

“…The long maturity of borrowing is neither necessarily a sign for patient investors, nor for the strong presence of domestic investors; Japan’s average maturity (with a 2018 gross financing need of 40% of GDP) 12 remains on the lower spectrum of developed economies, below Greece, Spain and Italy (IMF Fiscal Monitor, 2018). 13 The variable Marketable accounts for the share of marketable debt and accounts for the liberalization and developments in sovereign bond markets beginning in the mid-1970s (Preunkert, 2017). To capture capital account liberalization, I include Karcher and Steinberg’s (2013) updated measure of capital account openness, CAO .…”

“…Financial innovation and globalization during the Great Accumulation period (1975–2005) 2 heralded substantial changes in the sovereign debt composition of advanced economies and notably an expansion in foreign bond investor (Fastenrath et al., 2017: 280; Preunkert, 2017: 38). Although important differences in the investor profiles of countries persist, there has been a clear trend towards an increased internationalization of sovereign bond holders.…”

How Financialization Undermines Democracy

“…As pointed out by Streeck (), financial investors, or the ‘market people’ to use his terminology, have gained substantial political influence as debt financing of government spending has risen across OECD countries over the past three decades. This trend has been further entrenched in Germany and across the eurozone with the emergence of so‐called debt management offices, emulating private sector financial practices (including financial innovation, accounting techniques and even pay levels) to actively promote their national government bonds, while aiming at reducing debt servicing costs (Fastenrath et al., ; Preunkert, ; Trampusch, ). These developments characterize the financialization of sovereign debt.…”

Tap og tillit – om relasjonene mellomnorske kraftkommuner og finansnæringen

“…Feltet samles gjerne under begrepet «finansialisering» eller «the increasing role of financial motives, financial markets, financial actors, and financial institutions in the operation of the domestic and international economies» (Epstein, 2005, s. 3;Van der Zwan, 2014). En mindre utforsket del av dette er stater og lokalmyndigheters inntog i finansmarkedene, enten for å håndtere voksende berg av offentlig gjeld (Fastenrath, Schwan & Trampusch, 2017;Preunkert, 2017) eller som investorer av ulike former for overskuddslikviditet i markedene for verdipapirer (Clark, Dixon & Monk, 2013). Sistnevnte inkluderer vårt eget Statens Pensjonsfond -Utland, som er verdens største statlige investeringsfond.…”