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Fiscal Policy in Financialized Times: Investor Loyalty, Financialization and the Varieties of Capitalism

28 Pages Posted: 17 Jan 2013 Last revised: 16 May 2013

Daniela Gabor

University of the West of England (UWE)

Cornel Ban

Boston University, Department of International Relations

Date Written: January 16, 2013


This paper argues that scholarship on the varieties of capitalism could provide a more complete understanding of fiscal policy convergence in the Eurozone after 2010 if it better examined the interdependencies between banks and sovereigns. Recently, this scholarship has explained fiscal convergence through a global imbalances framework. While the interaction between coordinated and liberal capitalisms, and their distinctive macroeconomic policy preferences, generates global imbalances, rebalancing can only occur if the incentives governing national polities change dramatically. In Europe’s case, sudden stops in capital inflows from coordinated capitalisms triggered an asymmetric response, forcing deficit (liberal and mixed) economies to address such imbalances. As wage-setting institutions could not restore exchange rate competitiveness a la Germany, governments were compelled to adopt the conservative macroeconomics of the coordinated economies in an institutional setting ill adapted to such policies. In contrast, our account highlights the constraints that financial actors in sovereign bond markets place on the conduct of fiscal policy. Drawing on recent contributions in the literature on financialization, we introduce the concept of the ‘collateral motive’ – investors’ demand for government bonds to meet their funding needs – and link it to the shift to transnational, market-based, collateral-intensive banking models. We show how this becomes a pivotal mechanism for fiscal consolidations as the singular response to the ongoing Eurozone crisis. The implication of our argument is that recent fiscal policy in the Eurozone cannot be adequately understood without analyzing the process through which the collateral motive ignited a run on peripheral sovereign bond markets which in turn compelled states to stabilize these markets through austerity.

Keywords: comfiscal policy, financialization, austerity, varieties of capitalism, banking models, government bond markets, impatient finance, Eurozone, collateral management, collateral markets, safe assets, shadow banking

JEL Classification: E44, E58, E61, E62, F32, F34, G18, G21, H30, H63

Suggested Citation

Gabor, Daniela and Ban, Cornel, Fiscal Policy in Financialized Times: Investor Loyalty, Financialization and the Varieties of Capitalism (January 16, 2013). Available at SSRN: or

Daniela Gabor (Contact Author)

University of the West of England (UWE) ( email )

Blackberry Hill Bristol
Bristol, Avon BS16 1QY
United Kingdom

Cornel Ban

Boston University, Department of International Relations ( email )

154 Bay State Road
Boston, MA 02215
United States

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