Not climate change, but still worth a look, especially if you’re pondering how ‘local money’ (sic) can be put to local use…

Thurs 24 November 2016, 1-2pm, Alliance Manchester Business School East, Room B2 [MAP]
Sebastian Möller (Bremen): When finance knocks at city hall´s door: Derivatives and municipal debt management

Sebastian Möller, Research Associate & Doctoral Student
Research Group “Transnational Political Ordering in Global Finance” (Prof. Sebastian Botzem)
Institute of Intercultural and International Studies (InIIS), University of Bremen
http://www.polfinance.uni-bremen.de | smoeller@uni-bremen.de | @smoeller84
Local budgets and global finance:
Municipal governments ́ engagement in the derivatives market and the role of transnational service firms (PhD project)

Project overview: This project explores the financialization of municipal finances through the rise of “active debt management” policies, in particular the use of interest rate derivatives and derivative loan contracts such as LOBO. All over Europe, prior to the recent financial crisis, city councils have purchased interest rate swaps, swaptions, caps, collars, and the like in order to manage their increasing debt portfolios and, in particular, to reduce their heavy interest payments. Thereby, city budgets and local politics in general have become much more connected with rules, performances, and rationalities of global financial markets. City treasurers, for example, increasingly turn into market observers, investors, and financial adventurers. This extends and transforms traditional debt relations of subnational public entities and contributes to the seemingly boundless expansion of finance. However, local governments usually lack financial market expertise and previously had hardly any direct interrelations with global finance. Therefore, the expansion of sometimes highly complex and often risky financial products to the realm of municipal finance is surprising and in need of an explanation. Arguably, local governments traditionally represented a border line of “the long arm of finance”. It ́s expansion to town halls thus is an interesting case for the overall financialization of the state.

Preliminary findings suggest that the combination of municipal over-indebtedness and pressures arising from austerity politics on the one hand and financial innovation as well as changing business models of financial service firms on the other hand have provided a favorable environment for the rise of municipal derivative deals. Moreover, the use of established social relations between councils and their principal banks and often transnationally connected service provider seem to have facilitated this trend. Therefore, the case of municipal derivative deals also sheds light on regional intermediation between global financial markets and locally embedded financial systems. Furthermore, municipal derivatives are an illustrative example of both the usage of state power as a driver of financialization and the infiltration of public administrations with financial market logics. The

project analyzes cases in the United Kingdom, Austria, Germany, and Italy. It aims at identifying mechanisms and transnational patterns of the financialization of municipal debt management using a critical political economy perspective and engaging with literature from the fields of human geography and economic sociology.