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The European Union is undergoing multiple crises. The UK may vote in favour of leaving the Union in June. European Union member states are in deep disagreement on various crucial issues, not only on how to handle the stream of refugees from the Near East, but also on how to combat terrorism, and how to deal with Russia. And, in each election, Eurosceptic parties garner an increasing share of the vote. Given the urgency of these issues, the Eurozone crisis has been relegated to the background of public debates.

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In many scholarly and activist circles, the International Monetary Fund (IMF, or ‘the Fund’) has a reputation as a global bully. The phrase ‘Washington consensus’ has come to invoke a rigid orthodoxy of austerity and liberalization which the Fund, along with its cousins the World Bank and the US Treasury, imposes on developing countries. As an organization, the IMF is seemingly monolithic, drawing comparison to the Vatican even amongst its own staff.

The post The IMF and global exchange rates: dissensus in Washington appeared first on OUPblog.

The Chinese New Year begins on 8 February, ushering out the year of the sheep (or goat, or ram) and bringing in the year of the monkey. People in China will enjoy a week-long vacation and will celebrate with dragon dances and fireworks. Given the financial fireworks emanating from China, this is a good time to briefly review some of the major economic news coming out of the Middle Kingdom.

The post Happy new year, China: Recent economic booms and busts appeared first on OUPblog.

In this episode of the Oxford Law Vox podcast, banking law expert Nikoletta Kleftouri talks to George Miller about banking law issues today. Together they discuss some of the major legal and policy issues that arose from the financial crisis in 2008, including assessing systemic risk and whether the notion of “too big to fail” is on the road to extinction.

The post Oxford Law Vox: deposit protection and bank resolution appeared first on OUPblog.

In a widely quoted interview with USA Today, Ben Bernanke said that ‘It would have been my preference to have more investigations of individual actions because obviously everything that went wrong or was illegal was done by some individual, not by an abstract firm.’ He makes it clear that he thought some Wall Street executives should have gone to jail.

The post Ben Bernanke and Wall Street Executives appeared first on OUPblog.

t the conclusion of the mid-September meeting of the Federal Open Market Committee (FOMC), the Federal Reserve announced its decision to leave its target interest rate unchanged through the end of this month. Although some pundits had predicted that the Fed might use the occasion of August’s decline in the unemployment rate (to 5.1 percent from 5.3 percent in July), to begin its long-awaited monetary policy tightening, those forecasts left out one crucial fact.

The post Don’t panic: it’s October appeared first on OUPblog.

In 2008 Iceland experienced one of the worst financial crises in history, which involved the collapse of all three of its major commercial banks. The causes of this collapse were numerous and complex, and included the banks’ difficulty in refinancing their short-term debt and a run on their deposits.

The post The Icelanders, the Cypriots, and the Greeks: is history repeating itself? appeared first on OUPblog.

By Mikko Salmela and Christian von Scheve

Nationalist, conservative, and anti-immigration parties as well as political movements have risen or become stronger all over Europe in the aftermath of EU’s financial crisis and its alleged solution, the politics of austerity. This development has been similar in countries like Greece, Portugal, and Spain where radical cuts to public services such as social security and health care have been implemented as a precondition for the bail out loans arranged by the European Central Bank and International Monetary Fund, and in countries such as Finland, France, and the Netherlands that have contributed to the bailout while struggling with the crisis themselves. Together, the downturn that was initiated by the crisis and its management with austerity politics have created an enormous potential of discontent, despair, and anger among Europeans. These collective emotions have fueled protests against governments held responsible for unpopular decisions.

Protests in Greece after austerity cuts in 2008

However, the financial crisis alone cannot fully explain these developments, since they have also gained momentum in countries like Britain, Denmark, Norway, and Sweden that do not belong to the Eurozone and have not directly participated in the bailout programs. Another unresolved question is why protests channel (once again) through the political right, rather than the left that has benefited from dissatisfaction for the last decades? And how is it that political debate across Europe makes increasing use of stereotypes and populist arguments, fueling nationalist resentments?

A protester with Occupy Wall Street

One way to look at these issues is through the complex affective processes intertwining with personal and collective identities as well as with fundamental social change. A particularly obvious building block consists of fear and insecurity regarding environmental, economic, cultural, or social changes. At the collective level, both are constructed and shaped in discourse with political parties and various interest groups strategically stirring the emotions of millions of citizens. At the individual level, insecurities manifest themselves as fear of not being able to live up to salient social identities and their inherent values, many of which originate from more secure and affluent times, and as shame about this anticipated or actual inability, especially in competitive market societies where responsibility for success and failure is attributed primarily to the individual. Under these conditions, many tend to emotionally distance themselves from the social identities that inflict shame and other negative feelings, instead seeking meaning and self-esteem from those aspects of identity perceived to be stable and immune to transformation, such as nationality, ethnicity, religion, language, and traditional gender roles – many of which are emphasized by populist and nationalist parties.

The urgent need to better understand the various kinds of collective emotions and their psychological and social repercussions is not only evident by looking at the European crisis and the re-emergence of nationalist movements throughout Europe. Across the globe, collective emotions have been at the center of major social movements and political transformations, Occupy Wall Street and the Arab Spring just being two further vivid examples. Unfortunately, our knowledge of the collective emotional processes underlying these developments is yet sparse. This is in part so because the social and behavioral sciences have only recently begun to systematically address collective emotions in both individual and social terms. The relevance of collective emotions in recent political developments both in Europe and around the globe suggests that it is time to expand the “emotional turn” of sciences to these affective phenomena as well.

Christian von Scheve is Assistant Professor of Sociology at Freie Universität Berlin, where he heads the Research Area Sociology of Emotion at the Institute of Sociology. Mikko Salmela is an Academy Research Fellow at the Helsinki Collegium for Advanced Studies and a member of Finnish Center of Excellence in the Philosophy of Social Sciences. Together they are the authors of Collective Emotions published by Oxford University Press.

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Image credits: (1) Protests in Greece after austerity cuts in 2008. Photo by Joanna. CC-BY-2.0 via Wikimedia Commons. (2) A protester with Occupy Wall Street. Photo by David Shankbone. CC-BY-3.0 via Wikimedia Commons)

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By Guy Rowlands

When great powers decline it is often the case that financial troubles are a key component of the slide. The vertiginous decline of a state’s financial system under extreme pressure, year after year, not only saps the strength and volume of financial activity, it also proves extremely difficult to reverse, and the great risk is that a disastrous situation is worsened by misguided and ultimately catastrophic attempts on the part of a government to dig itself out of its hole. So great does the eventual debt become that there is little hope of repaying even a majority of the capital, even with decades of peace and low spending ahead. The protracted financial and economic crisis that began in the West in 2007 provides an appropriate contemporary backdrop for a fresh examination of the decline of France’s financial system in the early eighteenth century under just such a mountain of poorly-backed debt. In the final decades of the seventeenth century France had been the leading great power in the European states system, indeed the only superpower capable of projecting significant force on multiple war fronts. Yet within a quarter of a century it had lost this comparative international advantage, as its financial strength degenerated alongside its military power.

France got into such a terrible mess in the final two decades of Louis XIV’s reign. While war was the essential cause of heightened state spending, as the largest economy in Europe France should have been able to sustain a protracted and extensive conflict, but it could not. The underlying problem was the combination of two classic, fatal ingredients: a weak fiscal base, and a precarious and expensive credit system. The tax base was chronically enfeebled by vast numbers of exemptions and privileges that the government only began to tackle in 1695. But tentative attempts to make the elites — the top 2-3% — contribute more to the costs of the state would, over the following 90 years, prove politically contentious and divisive, sapping the legitimacy of the monarchy. As for the weakness of credit, this arose not just from the problem of weak fiscal backing and the fact much of it was supplied by those entrepreneurs charged with tax collection. It also stemmed from the inherent unreliability of a government dominated by an absolute monarch, which at times was willing to threaten dealers in the foreign exchange and public debt markets with prison and professional proscription for pricing financial instruments on a realistic but unfavourable basis. Compounding these issues were huge concerns over the undependable and sclerotic legal framework for lending money at interest. France was, in short, overregulated, but capriciously so.

In the War of the Spanish Succession (1701-14) this system unravelled spectacularly. As tax yields declined the government pursued dangerous expedients, including the manipulation of the value of the coinage and the issuing of vast quantities of Mint bills: a hybrid of paper money and short-term credit notes. Furthermore, rather than relying overwhelmingly on well-organised advances on tax proceeds from leading tax collectors, the government turned the paymasters of the armed forces into state creditors on a giant scale. Louis XIV’s government became so dependent on these men and other entrepreneurs supplying the army and navy that they were able to make exorbitant demands. Some of them even penetrated the corridors of power as junior ministers, in an early form of military-industrial complex. All this came at a very high price indeed. The financiers and suppliers were rapacious, though they also needed to protect their own solvency and operations by ramping up costs as a form of insurance against arbitrary state management and the increasing number of revenue sources that were failing. These revenue failures played havoc with the system of appropriating revenue sources to expenditure, which was already being disastrously mismanaged by senior officials, and this earmarking chaos in turn threw the state even further into debt in a desperate attempt to keep the failing war effort going. This war effort was pursued much of the time beyond France’s borders, putting yet further strain on the state: Louis XIV needed vast amounts of foreign exchange to pay and supply his armies and allies in Spain, Italy, Bavaria, the Low Countries, and even Hungary. The volume of foreign currency required would naturally have pushed up its price, but the turbulent and deteriorating monetary and fiscal backdrop led international bankers to build astronomical costs into their exchange contracts for moving state money abroad. The failure to control their transactions, the separation of risky payment sources from their additional instruments of guarantee, and the short-selling of this paper precipitated a monumental crash of the exchange clearing system in early 1709 in Lyon, from which the city never really recovered.

By the time of Louis XIV’s death in 1715 French state debt had risen more than three-fold from the size it had been thirty years earlier, and much of that increase was down to a few short years between 1702 and 1708 — the early modern period may in many ways have seen a much slower pace of life than we experience, but financial crises could unfold roughly at a similar pace. The real danger is that it can take as long or far longer to effect a stabilisation and recovery, thus tempting governments into dangerous policy decisions to try to generate swift recoveries. In the years after 1715 the Regency government for the boy king Louis XV took exactly this course, seeking to liquidate much of the state debt by swallowing the snake-oil solution peddled by John Law of hitching debt to a national bank backed by vast speculation on the highly uncertain economic future of overseas trade and colonisation. The subsequent liquidation of Law’s System forced the government into inflicting enormous haircuts on creditors, further eroding confidence in the monarchy, while future generations were still saddled with levels of debt that the state machinery was not designed to cope with. It also condemned the French body politic to a series of destabilising political struggles over state finance that culminated in final breakdown and revolution.

Guy Rowlands is Director of the Centre for French History and Culture at the University of St Andrews, and author of The Financial Decline of a Great Power: War, Influence, and Money in Louis XIV’s France (Oxford, 2012). He is also the author of The Dynastic State and the Army under Louis XIV: Royal Service and Private Interest, 1661-1701 (Cambridge, 2002), for which he was co-winner of the Royal Historical Society’s Gladstone Prize (2002).

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Image credit: Louis XIV and His Family circa 1710. Wallace Collection. Public domain via Wikimedia Commons.

The post The financial decline of great powers appeared first on OUPblog.

By Colin Mayer

The corporation is the most important institution in the world – an institution that clothes, feeds and houses us; employs us and invests our savings; and is the source of economic prosperity and the growth of nations around the world. At the same time, it has been the cause of terrible poverty, deprivation and environmental degradation, and these problems are set to increase in the future.
Over the last few years alone we have endured:

• The accounting scandals in Enron and WorldCom
• The Libor scandals
• The underpayments of corporation tax
• The misselling of mortgages, payment protection insurance, and derivatives
• The financial crisis
• The environmental disasters in the Gulf of Mexico and Fukushima

Each of these is thought to have their own cause and to require their particular solution. This is fundamentally wrong: the problems are not specific and the solutions are not individual. There is a generic problem that requires a common solution. The problem is the corporation and the solution is to fix it and not everything around it.

Fixing the corporation involves addressing its failures of ownership, values, governance, regulation and taxation. This requires:

• Corporations taking responsibility for their actions and consequences, and having long-term committed shareholders;
• Corporations having clearly defined values and principles, and truly independent boards of directors responsible for their implementation;
• Tougher enforcement of public laws regarding bribery, corruption, environmental damage, fraud, insider dealing and market abuse;
• More stringent protection of our financial systems and ecosystems;
• Less intrusive regulation elsewhere and greater use of the corporate tax system to align interests of corporations with society at large.

Implementing these changes involves a reform of business education and a redefinition of the roles and responsibilities as well as rights and rewards of executives and investors.

This is not so much a reinvention as a rebirth of the corporation. Historically it was established by royal charter with a defined public purpose to undertake voyages of discovery and promote trade. The family firms that succeeded it were frequently established by founders with strong ethical principles and visions. Two corporations that illustrate that are Lehman Brothers and Barclays Bank, not today’s versions but those of the 19th and 17th centuries respectively. Mayer Lehman, the founder of Lehman Brothers, took his children every Sunday to the Mount Sinai hospital to see the plight of the less fortunate members of New York society. John Freame, the founder of Barclays Bank, wrote Scripture Instruction, a principle text used by the Quakers for more than a century. Over time those strong values have contracted into a single one of maximizing the short term earnings of shareholders.

That is not universally the case – some of the world’s most successful corporations and best performing economies have very different purposes and values. Bertlesmann one of the world’s largest media companies, Robert Bosch the automotive company, Carlsberg the brewing company, and Tata the conglomerate owner of Jaguar Land Rover are all structured as industrial foundations with boards that are responsible for the values and principles of their organizations. The Nordic and Scandinavian countries, which are currently being upheld as models for the rest of the world, emphasize a broader set of corporate principles encompassing a wider set of stakeholders than their shareholders.

This bears not only on the positive aspects of what corporations could do but also on the normative ones of what they should do. While notions of morality are well developed in relation to individuals, they are not in respect of corporations. Indeed, the idea of a moral corporation would generally be regarded as an oxymoron. It is not. What gives it substance is the ability of the corporation to establish levels of commitment to which we as individuals can only aspire. What makes it credible is the coincidence between the normative goals of doing good and the positive ones of making goods because ultimately the moral corporation is a commercially successful one and the competitiveness of nations depends on the moral fibre of its corporations.

Restoring trust in corporations is one of the most important policy issues of the 21st century. Without it economic policies will fail, environmental degradation will intensify and financial systems will collapse. With it, we can achieve levels of economic prosperity and well-being that far exceed what we have experienced to date.

Video: Colin Mayer on fixing the broken trust in corporations

Click here to view the embedded video.

Colin Mayer is the author of Firm Commitment: Why the corporation is failing us and how to restore trust in it (OUP, 2013). He is the Peter Moores Professor of Management Studies at Oxford University’s Saïd Business School, an Honorary Fellow of Oriel and St Anne’s Colleges, Oxford, and a Professorial Fellow of Wadham College, Oxford.  He is a member of the UK Competition Appeal Tribunal and the UK Government Natural Capital Committee, and a Fellow of the European Corporate Governance Institute.

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The post Why the corporation is failing us, and how to restore it appeared first on OUPblog.

By John McCormick

Few times have been worse than the present to say anything good about the European Union (EU). It has faced many crises over the years, but none have been as serious as the current problems in the eurozone. Since news first broke of the difficulties in Greece in late 2009, pundits and political leaders have been falling over themselves in their efforts to ratchet up the language of doom and gloom. Under the circumstance, euro-optimists might be well-advised to lay low, and certainly they seem hard to find at the moment.

And yet this is the very time to remind ourselves of the achievements of the EU, because if we are to make sensible choices about where we go from here, we will need to have a clear idea of both its successes and its failures. Whatever happens to the euro, the EU is obviously on the brink of some major changes, generated not just by its immediate problems but also by some broader political and philosophical questions about the meaning and purposes of the European project.

Critics have focused on numerous themes in their recent attacks on the EU, among which is the recurring question of just what it means to be European. The EU is regularly accused of lacking clear purpose, and conventional wisdom suggests that Europeans have too little in common to weather the crises. After decades of convergence, we are now often told that Europeans are moving apart, with a growing backlash against European integration and – more specifically – a right-wing reaction against immigration, and talk of the failure of multiculturalism.

In truth, however, Europeans have a great deal in common , but they are often the last to realize this because they are repeatedly told about their differences, and the EU is repeatedly castigated for its lack of leadership and its failure to make a mark as an actor in the international system. The result is that many can no longer see the wood for the trees. It is only when we compare the European experience with that of other parts of the world that the patterns begin to emerge.

One of the clearest examples of Europeanism (if we understand this term as meaning the distinctive set of values and preferences that drive choices and preferences in Europe) is its secularism. Where support for organized religion is growing in almost every other part of the world, in Europe it is declining, and this is impacting the way Europeans think about politics, science, social relations, and moral questions.

Another example is offered by the redefinition of the role of states. It was in Europe that the Westphalian state system was born, and yet Europeans since the end of the Second World War have been reviewing their association with states: more are thinking of themselves as Europeans, while identity with nations has been growing. Meanwhile, Europeans have been rejecting traditional notions of patriotism, which – thanks to its long association with nationalism – has a bad reputation in Europe.

On the international front, the Europeanist model is notable for its support of civilian over military means for dealing with threats to security, its support for multilateralism over unilateralism, a

By Vassilis Monastiriotis After fifteen years of fast growth and, by Greek standards, monumental achievements (from EMU accession in 2001 to winning the UEFA Championship in 2004), Greece has found itself at the aftermath of the global financial crisis of 2008/09 again at the epicentre of global attention. But this time the publicity is unintended and for all the wrong reasons.

by Cassie, Publicity Assistant

A. David Moody is Professor Emeritus of the University of York and the author of Ezra Pound, Poet: Volume 1: The Young Genius 1885-1920. In the following piece, Moody looks at the Pound’s opinions on democracy and the economy, showing us that Pound’s opinions in the 1930s line up fairly well with the pundits of today.  This piece is also timely since October 30th is Pound’s birthday and he died on November 1, 1972.

I am finding it hard to pin down a feeling I have these days as I read the pundits on the current financial crisis and hear echoes all the time of what Ezra Pound was writing in the 1930s. But Pound was called a crank for his beliefs.

“The provision of finance is a utility, just like the distribution of water and energy. Yet this public good is in the hands of private sector managers who have done a disastrous job.”
(Guardian (London), editorial comment, 9 Oct. ‘08)

“The City has become a ghetto where greed (never mentioned) is all but an absolute good.”
(Andrew Phillips (Lord Phillips of Sudberry), City solicitor, Guardian 16 Oct. ‘08)

“Financiers have organized themselves so that actual or potential losses are picked up by somebody else—if not their clients then the state – while profits are kept to themselves.”
(Will Hutton, Observer (London), 27 Jan. ‘08)

“There is a chance to make finance once again the servant of the public, as it should be.”
(Larry Elliot, Economics Editor, Guardian (London), 15 Oct. ‘08)

“The Bank of England can directly create sterling assets (that is, print money) if it needs to”—i.e. it does not have to “borrow” from the banks it has just had to bail out.
(Gavyn Davies, partner in Goldman Sachs, Guardian (London), 9 Oct. ‘08)

“[The government] pays interest to private organizations for the use of its own credit . . . So that actually the government is getting itself into debt to the banks for the privilege of helping them to regain their stranglehold on the economic life of the country.”
(Senator Bronson Cutting, New York Times, 20 May 1934 – from a speech Pound commended.)

Pound might have written all of those things, if in his own terms. (”Leveraging” was not a current term in the 1930s, so he used plain terms: banks were lending money they did not have, to their own profit and the public’s loss.) As early as 1919 he was trying to understand how it was that, in a democracy, power to secure to the people “life, liberty and the pursuit of happiness” was not with the people, but with those few who owned and controlled the people’s credit and who were capable of exercising it against the common interest. And he was already arguing that it is the function and responsibility of the state, that is, of the government appointed by the people, to create and to regulate the nation’s credit, and to prevent it being usurped by private interests.

Pound’s prophetic critique of anti-democratic capitalism became a major theme after the 1929 Crash and the Great Depression of the 1930s—and it led to his being falsely accused of being himself anti-democratic. But in this time of financial crisis, and with it being near to the anniversaries of his birth and death (born 30 October 1885; died 1 November 1972), it is fitting to celebrate the now undeniable fact that, while he did go wrong in some ways, Pound was fundamentally right about the damage done to the whole society by unrestrained greed in the financial system, and about it being the responsibility of governments to issue and to control credit. It would be a good moment to read and to take the point of his cantos 31-51, particularly those about the American bank wars of 1829-35 and 1863.

employing means at the bank’s disposal
in deranging the country’s credits, obtaining by panic
control over public mind” said Van Buren
(Ezra Pound, Canto 37)

Further quotations:

“Banking should be treated as a utility.”
(Martin Wolf, Financial Times)

“The reckless greed of the few harms the future of the many.”
(Will Hutton, Observer (London), 27 Jan. ‘08)

“The sin of usury, diluted in the 1500s, should be brought back—usury, reaping that which one did not sow.”
(Ann Pettifor, political economist, Guardian (London), 11 Oct. ‘08)

“It is not money that is the root of the evil. The root is greed.”
(Ezra Pound, Gold and Work, 1944)

“Hopefully our democracies are strong enough to overcome the power of money and special interests.”
(Joseph Stiglitz, formerly Chief Economist of the World Bank, Guardian (London), 16 Oct. ‘08)

“The state can lend money.”
(Ezra Pound, Canto 78)

“It is an infamy that the STATE in, and by reason of, the very act of creating material wealth should run into debt to individuals.”
(Ezra Pound, New English Weekly, 5 July 1934)

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