A new conversation on the sociology of the sovereign debt crisis

July 12, 2011

A panel at the recent SASE academic conference in Madrid planted the seeds of a new topic for sociological study. The current sovereign debt crisis, I believe, poses key questions at the intersection of markets and politics that only sociologists are prepared to address. The discussion focused on Spain – the host country for the conference – and tackled three different angles to the phenomenon:

1. Ideology: Jose Luis Alvarez first addressed the macro political background. How did Spain’s socialists, one of the extreme leftist governments in Europe, adopt the reforms that investors demanded? The answer, according to Alvarez, lies in ideology. The crisis left the government ideologically disoriented (leading to flawed Keynesian policies), and then ideologically withdrawn (leading to the reform). I did not hear the entire talk because of a computer problem (as his projector broke and I was in charge to fix it), but I am attaching his PowerPoint presentation The Sovereignty of the Economic Realm versus polities in Spain_A.Alvarez.

2. Narratives: David Martin analyzed a related political issue. How are people on the street making sense of the crisis? Everyone, it turns out, needs a theory for why the crisis happened — regardless of one’s own command of macroeconomics or finance. These accounts are fundamental, because they address a related question that investors are now asking: how far will people tolerate so-called economic and financial imperatives? Martin hit the bars of Madrid and recorded a remarkable set of accounts and explanations: Household Narratives is his presentation.

3. Framing: My own presentation examined a critical problem for sovereign countries in our financialized world economy: how to persuade investors? Building on sociological theories of financial valuation and on interviews with key decision-makers, my presentation examined a set of key policy reversals by the Spanish government — and especially a critical change in the communication strategy pursued by it. It concluded by outlining the principles for an effective financial communication in business as well as politics. See: 110621 Daniel Beunza – persuading the markets.

4. Interdependencies: In a lucid discussion, Bruce Carruthers raised a set of issues that should ground any sociological conversation on sovereign debt. The role of reputation — since an investor cannot make a sovereign country pay back debt. Fixing a national debt problem entails redistribution, but how far this can be done is unclear. Also, the role of the rating agencies, which in some way administer reputation but lost their own in the credit crisis. And finally, the financial interdependencies between the various European countries: French and German banks owning most of Greek and other European debt. See Carruthers – European debt network 2010 attached.

2 Responses to “A new conversation on the sociology of the sovereign debt crisis”

  1. Leon Wansleben Says:

    Dear Daniel,
    thank you for the valuable material from Madrid. I am particularly interested in your presentation and wonder whether you have a paper on that subject (even if in a draft state)? I am examining a related issue using analyst reports on the Greece debt crisis. The notion that seems key to me is “promise”; the notion obviously entails the process of defining quite specific market expectations about the value of a debtor in relation to servicing specific payment promises, but also some “background expectations” that come to the fore in the situation of crisis, namely the social position that debtors are taking towards their creditors (e.g. as deliverers binding themselves to certain “milestones”, as you write in your presentation). My idea is that it is these positionalities which create the future on the basis of which more specific evaluations and expectations can thrive. In a situation of crisis, it is the particular role of official creditors (i.e. IMF) to restore these positionalities and thereby gain “market confidence” (i.e. “repair” work on background expectations). What do you think?

  2. danielbeunza Says:

    Leon — I agree with the broad thrust of your comment. You introduce many new constructs… positionalities, promise, and I am not clear on exactly what they mean (but this is a blog, so it’s natural).

    Anyhow, the role of IMF is a crucial one and needs to be studied. My own favourite source is “The Chastening” by Blustein:

    http://www.goodreads.com/book/show/95270.The_Chastening

    As you suggest, in the book the author shows that the key role of the IMF typically is to manage impressions and restore credibility, potentially leading the fund to overly aggressive measures that harm growth.


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