Mattias Vermeiren

Germany's Institutional Power and the EMU Regime after the Crisis: Towards a Germanized Euro Area?

In this article we examine the constraints on Germanys influence over reforms of the Economic and Monetary Unions (EMU) macroeconomic governance regime. Drawing on the insights of historical institutionalism, we show that the German governments control over the process is constrained by the increased sunk costs of European monetary integration and the unintended negative spillovers from its management of the eurozone crisis. While the German government attempted to promote the domestic societal interests underpinning its creditor preferences by deflecting the burden of macroeconomic and institutional adjustment onto the debtor countries, negative feedback loops linked to the pursuit of these preferences induced it to accept a less orthodox and increasingly accommodative central bank to make the EMU sustainable.

Power and Imbalances in the Global Monetary System

0. Introduction Power and imbalances in the global monetary system The political economy of global monetary instability: Literature review A comparative capitalism perspective on international monetary power Scope and structure of the book 1. International monetary power: A comparative capitalism perspective Introduction The political economy of international monetary power International monetary power: concepts and definitions 2. The global imbalances and the instability of US monetary hegemony Introduction The domestic purpose of US monetary power US monetary power, finance-led growth and global imbalances Conclusion 3. Rising imbalances and monetary power in the Eurozone Introduction The domestic purpose of European monetary power Diverging growth regimes and monetary power in the Eurozone Conclusion 4. Reserve accumulation and the entrapment of Chinese monetary power Introduction The domestic purpose of Chinese monetary power Investment-led growth and the entrapment of Chinese monetary power Conclusion 5. International monetary power and global macroeconomic adjustment Introduction Macroeconomic adjustment and US monetary power after the crisis Macroeconomic adjustment and European monetary power after the cri-sis Macroeconomic adjustment and Chinese monetary power after the crisis Conclusion 6. Conclusion Power and imbalances in the global monetary system A comparative capitalism perspective: Overview of main arguments The future of the global monetary system

Foreign Exchange Accumulation and the Entrapment of Chinese Monetary Power: Towards a Balanced Growth Regime?

This article criticises the notion that Chinas foreign exchange reserves have strengthened its monetary power. While some scholars have argued that Chinas international monetary influence has been ‘entrapped’ by the domestic interests of its export sector, a one-sided focus on the export sector fails to identify the significant constraints on its macroeconomic autonomy. This article proposes an extension of the concept of entrapment that draws attention to the key role of state-owned enterprises (SOEs) and their domestic fixed-asset investment in its growth regime: Chinas external monetary dependency – which is understood as both export dependency and the need to maintain foreign exchange accumulation – has been caused by a disparity between fixed-asset investment and private consumption that reflects a redistribution of income from the household sector to the SOE sector. In particular, I expose the SOE sectors rising interests in foreign exchange accumulation by uncovering a mutually reinforcing dynamic between Chinas external monetary dependence and the financial repression of its banking system. By entrenching an investment-led growth regime that provides key benefits the SOE sector, this dynamic is found to have seriously constrained the macroeconomic policy autonomy of Chinese authorities to rebalance growth away from investments and exports towards private consumption.

Neo-liberalism at a Time of Crisis: the Case of Taxation

This essay explores how the global financial crisis of 2008–2009 has affected the stability of what Stephen Gill has termed the ‘new constitutionalism of disciplinary neo-liberalism’, 1 more precisely, in the realm of international tax policy. Rather than providing an in-depth and complete empirical study of the matter, this essay will highlight certain interesting developments and touch upon a series of possibly relevant questions that could form the basis for a future research agenda. In the first section, we will examine the remarkable strength and resilience of the new constitutionalism as the institutional component of neo-liberal hegemony. Then we will proceed to an exploration of the impact of the crisis on this hegemony, also paying attention to deepening geopolitical multipolarity as an additional variable. The final, more empirical section will investigate the case of international taxation in this context, and demonstrate that new constitutionalism remains a crucial supporting pillar of neo-liberal globalisation.

Rising powers and economic crisis in the Euro area

In this book Ferdi De Ville and Mattias Vermeiren examine the linkages between the economic crisis in the euro area and the rise of Brazil, India and China (BICs) in the global monetary and trading system. It draws on the insights of the comparative capitalism literature to show that the latter development has been a key source of the escalation of trade imbalances in the euro area, which are widely seen as an important cause of the financial and economic crisis in the region. By pointing to the external sources of these imbalances and the divergent institutional capacity of the euro area countries to deal with the intensified competition associated with the rise of the BICs, De Ville and Vermeiren go beyond the focus on the divergence in unit labour costs as the driving force of these imbalances. As such, this book also offers a comprehensive policy critique of the EU’s export-led growth strategy based on declining unit labour costs.

One-size-fits-some! Capitalist diversity, sectoral interests and monetary policy in the euro area

ABSTRACT In the comparative capitalism literature, the European Central Banks (ECBs) ‘one-size-fits-none’ monetary policy played a key role in the widening of trade imbalances in the euro area (EA) by being overly restrictive for the regions coordinated market economies (CMEs) and overly expansionary for the regions mixed market economies (MMEs). According to this literature, wage setting institutions mediated how the ECBs monetary policy re-distributed resources between the traded and non-traded sectors in these varieties of capitalism. By examining three separate transmission channels of the ECBs monetary policies (wage and price setting in labor and product markets; nominal exchange rate of the euro; funding costs and bank credit), this paper goes beyond the traditional emphasis on wage setting institutions and draws attention to those institutions that underpin the non-price competitiveness of traded sectors. Overall, the paper explains how the institutional infrastructure of the CMEs bolstered the adaptability of their traded sectors to the ECBs single monetary policy and its three transmission mechanisms – both during the pre-crisis era of widening imbalances and the period of asymmetrical trade rebalancing since the outbreak of the euro crisis.

Meeting the world's demand for safe assets? Macroeconomic policy and the international status of the euro after the crisis

In this article, I engage with the chartalist literature to explore the political foundations of international currencies. Drawing on this literature as well as on recent scholarship on the shortage of safe assets in the world economy, I challenge a prevailing premise of the International Political Economy literature that international currency status needs to be based on conservative macroeconomic policy institutions and practices, which is deemed necessary to maintain foreign confidence in the stability of the real value of the international currency. I contend that international currency status in the post-crisis world economy hinges on the willingness and capacity of the currency provider to adopt accommodating monetary and fiscal policies. First, the central bank needs to offer a backstop to the market for sovereign debt securities by acting as a lender of last resort to the government, whereas fiscal policy expansion is necessary to sufficiently expand the stock of the only securities that can assume the function of genuinely safe assets: sovereign debt. Second, expansionary monetary and fiscal policies enable the international currency issuer to supply safe assets to the rest of the world by running deficits on its trade balance. This article analyses how the European Central Bank’s monetary policy decisions in the wake of the crisis ran against these two prerequisites, constraining the Eurozone to become a large net provider of safe assets in the world economy. By linking these decisions to the creditor and export interests of the Northern Eurozone countries, it disputes the European Central Bank’s ‘neutral stance’ regarding the internationalization of the euro.

Global Macroeconomic Imbalances after the Crisis: From the Great Moderation to Secular Stagnation

Abstract After the global financial crisis, economists have been downbeat about the growth prospects of the capitalist world economy, leading many to argue that we have re-entered a period of “secular stagnation”. The phenomenon of secular stagnation is intrinsically connected to the evolution of global macroeconomic imbalances. During the pre-crisis era of the “Great Moderation”, the widening of global and European trade imbalances temporarily alleviated the problem of secular stagnation by forging a symbiotic yet unsustainable relationship between debt-financed consumption-led growth models in deficit countries and export-led growth models in surplus countries. The re-surfacing of secular stagnation and the asymmetric adjustment of these imbalances after the crisis can both be traced back to the domestic political constraints experienced by many advanced market economies in trying to revive their pre-crisis growth models.

External Imbalances and Varieties of Capitalism in the Euro Area

This chapter discusses the main diagnoses of the euro crisis and the consequent remedies in the macroeconomics and comparative political economy literature. It is argued that both approaches view the euro crisis as the result of endogenous processes. The defects of the Economic and Monetary Union (EMU) leading to one-size-fits-none monetary policy at the supranational level and divergent domestic capabilities to keep wages in check are argued to have resulted in inflation differentials between the north and south of the euro area and consequent internal trade imbalances. The varieties of capitalism literature explains why certain member states (coordinated market economies) have been better equipped to retain and strenghten their competitiveness and trade balances than others (mixed-market economies) based mainly on the characteristics of domestic labor market and industrial relations institutions allowing them to excercise wage restraint. We argue that these valuable accounts are too much inward-looking and lack attention for extra-regional imbalances and how these can be explained by and interact with other domestic structural-institutional factors such as skill-formation and innovation regimes and the (resulting) economic structures (export basket, quality and market orientation).

CMEs: Profiting from the BICs’ Industrialization

This chapter discusses the impact of the rise of the BICs on the CMEs’ external trade balances. It is shown that the CMEs, and Germany in particular, have accumulated significant trade surpluses not only inside the euro area but also extra-regionally, and that they have been able to re-orient their exports after the crisis toward the rest of the world. We argue that labor cost dynamics and wage-setting institutions cannot satisfactorily explain the remarkable extra-regional trade performances of the CMEs. This success is to significant extent related to non-price competitiveness factors, more specifically their trade structures in terms of product composition and quality, rooted in the specific skill and innovation regimes of northern euro area member states. These factors have allowed the CMEs to suffer less and profit more from the rise of the BICs than the other euro area member states. Indirectly, they have managed to relatively escape the negative effects of the appreciation of the euro as a consequence of monetary policies of emerging markets. Directly, their production has confronted relatively limited export competition from and high import demand by the BICs. After the crisis, their export strength has allowed them to deflect the adjustment burden completely to the southern euro area and shape reform of the EMU in a way that further reinforces their export interests in the short term, while generating negative spillovers and contradictions in the longer term.