International Relations

C01(a) - The Politics of International Finance: Navigating Influence and Integration

Date: Jun 12 | Time: 08:30am to 10:00am | Location: McGill College 2001 1552

Chair/Président/Présidente : Juliet Johnson (McGill University)

Discussant/Commentateur/Commentatrice : Juliet Johnson (McGill University)

Discussant/Commentateur/Commentatrice : Patrick Leblond (University of Ottawa)

Translating Politics into Technocracy: The European Banking Union in a Global Perspective: William D. O’Connell (University of Toronto)
Abstract: Much of the research on the EU Banking Union sits within a comparative political economy tradition which does not adequately account for the global context in which the Union has developed. Yet two of the “three pillars” of the Banking Union – the Single Resolution Mechanism and the failed European Deposit Insurance Scheme – were shaped not only by intra-EU politics, but by the need to comply with a set of global standards on cross-border bank resolutions which were negotiated after the 2008 crisis. Paradoxically, the result is a Banking Union where the deepest cross-border financial integration is paired with a patchwork of rigid, incompatible, and often incoherent national and EU-level resolution frameworks. This paper argues that the EU bank resolution regime has developed through a process of translating the political issues inherent in crisis management into a series of technical puzzles: once at the global level, and then again through EU institutions. As with all translations, key elements are lost. The shortcomings of the Banking Union are therefore not simply a function of uniquely European politics, but rather a product of larger issues stemming from the delegation of complex and deeply political global governance problems to transnational technocratic authorities.

Financial Discipline and Sovereign Debt: The Influence of Private Creditors in Emerging Market Debt: Andrew Kaufman (Queen's University)
Abstract: Sovereign debt in low-and-middle-income countries has grown significantly over the last 50 years, accompanied by a shift in the creditor landscape from official lenders to private creditors. These creditors often employ financial discipline through interventions in domestic policies aimed at enhancing the creditworthiness of these nations, a practice that has seen significant evolution over this period. While official lenders have historically influenced policy through direct leverage, the proliferation of private creditors introduced new dimensions of market discipline. Owing to investors' ability to rapidly withdraw capital in response to unfavourable government policies, market actors wield considerable influence, thereby impacting the policy-making spaces of debtor nations. Although previous research has broadly mapped the implications of private creditors in sovereign debt markets, less is known about their evolving practices, policy preferences, and perceptions of borrowing countries. Consequently, this paper asks how private financial entities’ discourses and market preferences influence the conceptualization and enactment of financial discipline. To answer this question, I discursively analyzed 28 investor meetings held between June 2020 and May 2023, which brought together portfolio managers, fixed-income analysts, bond traders, lawyers, and credit rating professionals. Documenting market actors’ views and strategies reveals the evolving discourses, practices, and structural power dynamics in contemporary sovereign bond markets Ultimately, this study illustrates the tactics that market actors employ to influence the policies of borrowing nations, advocating for austerity and privatization to mitigate their financial risk while seeking to maximize investment returns.

Do Central Banks Constrain or Inform? Contrasting Two Perspectives on Sovereign Credible Commitments: Michael A. Gavin (University of Queensland)
Abstract: Lending to governments involves a certain leap of faith, as creditors may have little recourse in the event of default. Research finds that central banks enhance government repayment credibility and reduce borrowing costs, but the reasons behind this are debated. A “constraints” view argues that central banks raise default costs while an “information” view argues that central banks facilitate costly signaling. Since both views agree that central banks enhance sovereign credibility, a test to distinguish between them needs to find aspects of central banking on which these theories disagree. I examine the historical lending functions of central banks between 1800-1914 to conduct such a test. Using a formal model, I find that the constraints view predicts reduced borrowing costs when central banks lend to governments, while the information view predicts lower borrowing costs when central banks lend to the private sector. Empirical results on sovereign borrowing costs and follow-through effects to the rate of inflation unequivocally support the information view.

Informal Global Governance and Sovereign Debt: The G20 Common Framework and Debt Crises: Isabel Rodriguez-Toribio (Concordia University), Alexandra O. Zeitz (Concordia University)
Abstract: Much of the global governance of international finance relies on informal or soft law instruments. This paper analyzes the impact of one such institution, the Common Framework for Debt Treatments, agreed under the auspices of the G20 in November 2020. The Common Framework defines procedures for the restructuring of countries’ bilateral debts, but is only available to 73 low-income countries. To examine whether the Common Framework improved coordination among bilateral creditors and enabled debt crisis resolution, I compare the experiences of Ghana, Zambia, and Sri Lanka in negotiating with their creditors. All three countries were highly exposed to both Chinese and private creditors, but only Ghana and Zambia are eligible for the Common Framework, with Sri Lanka above the income eligibility threshold. The comparison suggests the Common Framework introduced new institutional mechanisms for coordination, but did not resolve fundamental differences between major bilateral creditors that would have allowed them to respond more quickly to debt crises.