The Political Power of Finance: The Institute of International Finance in the Greek Debt Crisis

Abstract

Through empirical investigation of the Eurozone and Greek debt crisis 2010–12, this article demonstrates how a peak organization of financial firms—the Institute of International Finance (IIF)—was able to mobilize its members transnationally to secure several key political and economic objectives. At the height of the crisis, large European banking firms were threatened by the prospect of a disorderly Greek default, coercive intervention by governments, and, potentially, a regional banking collapse. In this context, representatives from the IIF entered the policymaking process to facilitate concerted private sector action, assisting EU officials with the negotiation of a substantial and orderly creditor writedown, and cooperating with legal action by the Greek government to sideline a minority of financial firms hostile to the deal. The article shows that the IIF’s disproportionate influence over policymaking was a result of their technical expertise, their ability to recruit individuals with long-standing experience of sovereign debt restructuring from the public and private sector, and the operation of elite revolving-door processes. In contrast to recent studies showing that financial actors are able to exercise more power at the national level by remaining collectively inactive, these findings suggest that, at the transnational level, financial actors can be most effective at securing their preferences when they are well organized and when they coordinate politically on the basis of collective interests.

Tangling with the Troika: ‘domestic ownership’ as political and administrative engagement in Greece, Ireland, and Portugal

“…Firstly, the IMF's views did not prevail on the matter of restructuring the Greek debt, the imposition of high interest rates on the loan programmes, and the terms of bank recapitalisation. The ECB (bolstered by the US Treasury Secretary and by the European finance industry) resisted imposing losses on senior bank bondholders, and required that national public finances assume the burden of full restitution, the better to protect the fragile balances of banks in Germany and France (Kalaitzake 2017;Kyriakidis 2016;Porzecanski 2013;Whelan 2014). And even though a later renegotiation yielded some relief on the costs of bank recapitalisation for Ireland, the damaging perception that it had been a punishing deal persisted (Whelan 2012).…”

The New Intergovernmentalism and the Euro Crisis: A Painful Case?

“…That the combined exposure of France and Germany to the eurozone periphery fell from $1.9 trillion in 2008 to $800 billion in 2012 (Minenna 2018) helps explain why economic interest groups became more relaxed about the idea that the eurozone, in its existing form, might not survive. Five years after the Institute of International Finance campaigned actively for financial assistance to Greece (Kalaitzake 2017), this powerful industry group was sanguine, in 2015, about the prospects for Grexit (Atkins and Slater 2015).…”

Finance beyond function: Three causal explanations for financialization

“…Scholars who examine EU policies and practices find that its bureaucratic structure relies on revolving doors with financial institutions (Tsingou 2015). Sharing the same milieu as Eurocrats, financiers can shape macropolitical decisions (Kalaitzake 2017) and can benefit from benevolent oversight on crucial issues such as mergers and acquisitions (Wigger 2012) or taxation (Fernandez and Wigger 2016).…”