PSC 1003; Lecture 9
PSC 1003; Lecture 9 PSC 1003
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This page Class Notes was uploaded by Eleanor Parry on Friday February 12, 2016. The Class Notes belongs to PSC 1003 at George Washington University taught by Farrell, H in Fall 2015. Since its upload, it has received 25 views. For similar materials see Introduction to International Politics in Political Science at George Washington University.
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Date Created: 02/12/16
The Financial Crisis Immediate cause the collapse of a speculative bubble in securitization of the US housing market Led to international contagion and collapse as nancial institutions which were immediately exposed found themselves in dif culties Spread from nancial sector to other sectors too Had different consequences in EU and US Different Approaches Realism might look to structurelack of hegemony as a likely cause of crisis Liberalism would point to weaknesses in institutions Ground up IPE would point to interest groups Constructivists would point to ideas National Responses Differences between countries but important similarities Key states adopted a limited Keynesian approach Aimed at easing the crisis through higher spending temporarily Also some use of monetary policy Dif culties in continuing stimulus in both US and EU 0 Continued austerity and hard money policy in EU Who Paid the Costs Two key differences between this and previous crises Costs were paid more by workers than by industry in crisis 0 Bank bailouts higher unemployment lower wages This is in part of interest politics 0 Weaker unions 0 Political in uence of nance sector Different Interpretations Socio Economic Review Seminar Compares various ways to respond to crisis 0 Missing full blooded defense of capitalism to come Complex questions of blame and morality depend on who you think is responsible for the crisis Depends on theory of politics Egalitarian Critique Sees problems of nancial crisis as problems of inequality 0 Focuses on clay that bank bailouts were fundamentally unfair to underprivileged Rooted in left wing arguments about problems of markets corrosive effects for social cohesion Functional Critique Focuses on Inef ciency Asks whether chosen policy tool was the best way to reduce risk of instability at a low cost Asked whether political in uence of bankers was a bad thing Woll calls for more political in uence for banks 0 Suggests that this will make them more likely to take up burden and pay for future crises Moralization of debt critique Looks at EU response Suggests that Greece has a moral requirement to repay its debt Moralizes relationship as one between feckless Spaniards and Italians and sober hard working Germans Dutch Danes Ignores politics of lending as well as borrowing Justifies a retrograde policy in EU Freedom of Capitalism Critique Would argue that banks need to be allowed to go bankrupt to avoid moral hazard Suggests that capitalism works best when it does not support losers or intervene in marketplace Sees entire panoply of aid and response to crisis as at best mistaken and at worst seriously harmful International Responses to the Crisis Central Banks coordinated explicitly or implicitly to stop runs on weaker currencies G7 agreement not to allow systemically important institutions to fail IMF sought to stabilize various target countries in Asia EU provided very limited support to countries in E Europe International Response Preventing Future Crises Purported creation of new global financial architecture through G20 Policy coordination and peer review Potentially stronger standards for blank capital ratios in Basel III Action to correct global imbalances Substantial expansion of IMF Puzzle 1 EUUS Differences Despite initial similarities US and EU diverged Keynesian interpretation 0 Important differences in both fiscal and monetary policy quotFreshwaterquot approach 0 EU weaknesses Puzzle 2 Financial Sector Regulation Two clashing perspectives Drezner standard liberal story versus Helleiner and Kirshner bottom up IPE One suggests that system worked more or less as it was supposed to The other that it temporarily staved off disaster but did not address key problems Realism Would point to differences in state interests highlight role of Germany in EU 0 Germany most powerful state wants tight money and not to support others Expected result Germany prospering but rest of Europe lagging Constructivism Would highlight role of ideas Commitment to economic austerity rooted in strongly held ideas among Germans but also in European Central Bank Result tight monetary policy that doesn39t re ect German economic interests so much as shared ideas of German and ECB elites Liberalism Would look whether solutions worked in terms of whether they maintained international stability Key questions how major states and institutions solved collect problems during the crisis Optimistic take that institutions worked much better than pessimists would have conceived G20 Basel III Bottom Up IPE Would ask whether reforms affected power of key interest groups that precipitated crisis Likely answer no 0 Financial interests still politicly powerful Very different interpretation of G20 Basel 111 international nancial reforms
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