When Technocratic Appointments Signal Credibility

Abstract

How do prime ministers manage investors’ expectations during financial crises? We take a novel approach to this question by investigating ministerial appointments. When prime ministers appoint technocrats, defined as non-partisan experts, they forgo political benefits and can credibly signal their willingness to pay down their debt obligations. This reduces bond yields, but only at times when the market is sensitive to expected repayments—that is, during crises. To examine the theory, we develop an event study analysis that employs new data on the background of finance ministers in 21 Western and Eastern European democracies. We find that investors reward technocratic appointments by reducing a country’s borrowing costs. Consistent with the theory, technocratic appointments under crises predict lower bond yields. Our findings contribute to the literature on the interplay of financial markets and domestic politics.

Do technocrats boost the acceptance of policy proposals among the citizenry? Evidence from a survey experiment in Italy

“…The technocratic cabinet led by Mario Draghi was set up as an attempt to deal with the economic crisis Italy was facing. Earlier research had shown that technocratic ministers could indeed improve financial credibility on international markets (Alexiadou, Spaniel and Gunaydin, 2021). Our findings would seem to suggest that it could also be an efficient solution in terms of policy support.…”

“…When it comes to experts in power, the literature has shown that experts are more often appointed to ministries dealing with classic economic-related issues, such as the economy, finance, labour or justice as opposed to ministries dealing with cultural issues (Vittori et al, 2022). Also, in a context of economic decline, such as those experienced by European countries, the appointment of economic and finance experts might even more desirable to citizens, as appointing technocrats in economic-related issues increase the credibility of the country vis-à-vis the market (Alexiadou, Spaniel and Gunaydin, 2021). Based on these findings it would be reasonable to expect that TPPs generate greater policy acceptance than PPP when it comes to economic issues, rather than cultural issues for which "gut responses" apparently activate partisanship-based biases and where technocrats might find more difficult to credibly claim a specific expertise.…”

Does Austerity Cause Polarization?

“…In addition, international financial markets impose constraints on fiscal policy, especially on public deficits and debt (Mosley 2000). This pushes governments towards technocratic solutions in search of economic credibility, which again favour restrictive fiscal policy (Alexiadou, Spaniel and Gunaydin 2022). In this context, a new, pro-austerity consensus emerged that was actively promoted by powerful international institutions, such as the European Central Bank (ECB) and the International Monetary Fund (IMF) (Blyth 2013).…”

Controlling Uncertainty in Coalition Governments

“…Ideally, technocrats have no political affiliation (they are not party members) and they are non-elected. This qualification as non-partisan makes it possible to implement reforms with high political costs, to signal a certain policy direction or to increase government credibility at the international level (Alexiadou et al 2022). Technicians owe their positions to their specific competences and they are concerned about their reputation in the professional community.…”