Writing the rules of global finance: France, Europe, and capital liberalization

Abstract

Why were capital controls orthodox in 1944, but heretical in 1997? The scholarly literature, following the conventional wisdom, focuses on the role of the United States in promoting capital liberalization. Although the United States encouraged capital liberalization bilaterally, US policy makers never embraced multilateral rules that codified the norm of capital mobility. Rather, European policy makers wrote the most important rules in favour of the free movement of capital. Paradoxically, French policy makers in particular played decisive roles. For the debates that mattered most-in the EU, OECD, and IMF-the United States was, respectively, irrelevant, inconsequential and indifferent. Europe did not capitulate to global capital. Rather, French and other European policy makers created today's liberal international financial regime. French and European policy makers have promoted a rule-based, 'managed' globalization of finance, whereas US policy makers have tended to embrace an ad hoc globalization based on the accumulation of bilateral bargains. Once liberal rules were codified in the EU and OECD, they constituted the policy practices of 'European' and 'developed' states, for which capital controls are no longer considered a legitimate policy tool. During the middle of the 1990s, the IMF debated new, universal rules in favour of capital freedom, but the proposal was defeated, primarily by the US Congress, after the financial crises of 1997-98. By then the vast majority of the world's capital flows were already governed by the liberal rules of the EU and OECD.

The resurgence of German capital in Europe: EU integration and the restructuring of Atlantic networks of interlocking directorates after 1991

“…As the prior experience with the European Monetary System had shown, France's chances of staying in an exchange rate mechanism were premised on following German stabilisation policy; but it lacked the powerful investment goods sector that insulated the Federal Republic from currency and capital volatility to a considerable extent (Szász, 2001: 97-103;Marsh, 2009: 99-113). Economic and Monetary Union (EMU), a European Central Bank, and the euro were meant to Europeanise the evolution towards a unilaterally managed deutschmark zone (Marsh, 2009: 8;Abdelal, 2006). However, as it coincided with German reunification and the collapse of the Soviet Union, this particular achievement also marked the end of the route described here.…”

The International Monetary Fund: A review of the recent evidence

“…Another implication is that international institutions seek ways of expanding their authority. Rawi Abdelal argues provocatively that the EU Commission, the OECD Secretariat and the IMF senior management played key roles in promoting the liberalization of capital controls, in part because they were competing with each other to control the issue area (Abdelal 2006(Abdelal , 2007. From this perspective, international institutions will generally be overprovided, and their activities should generally reduce the welfare of the relevant principals, while allowing agents to collect rents.…”

Joined at the hip, but pulling apart? Franco-German relations, the Eurozone crisis and the politics of austerity

“…Clift 2003Clift , 2006. Paradoxically, this served some French Ordo-liberal elites very well, as it allowed them to play an active role in construction of neoliberal multilateralism on the European and global level (Abdelal 2006(Abdelal , 2007. (Blanchard & Cottarelli 2011).…”