Introduction

It is difficult to find an account of the ‘neo-liberal’ decades since 1980 that does not reserve a special place for unshackled financial markets. This is true not only for the United States but also for the European economies that are the focus of this volume and chapter. Critics commonly portray globalized and deregulated finance as the lynchpin of the neo-liberal economic order. International capital mobility has shifted the balance of power in favour of capital at the expense of labour, so the argument goes. Furthermore, credit institutions let loose have eased the pain of growing income inequality by showering unsustainable credit on households across the OECD world. These policies have been inspired or, at least, justified by neo-liberal ideas about financial markets and their regulation: that markets can ensure an efficient distribution of capital and financial services and that governments should either promote such efficiency through market-enhancing regulation and the enforcement of competition or take a hands-off approach altogether.

In the panoply of ideas about state–market relations, ideas about finance occupy a special place. Textbooks in the field emphasize individual rationality and efficiency and portray wholesale finance as quintessential markets: liquidity is high, information asymmetries and transaction costs are low, and equal assets have equal prices around the world. Because of their virtual character, contemporary financial markets have lent themselves to the practical application of abstract economic ideas more than other societal domains. That makes neo-liberal ideas powerful in contemporary finance but also vulnerable: in the event of a crisis, we can expect these ideas to attract much of the blame rather than exogenous material factors, such as adverse weather conditions in case of a famine or demographic change causing strains in pension systems.