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Two-level games and market constraints on politics in Europe
McMenamin, Iain; Breen, Michael; Muñoz-Portillo, Juan
Financial markets understood the euro crisis as a two-level game. They monitored national politics as a source of both national and European policy. The incentives to conform to the market’s preference were weaker for creditor countries than for debtor countries because debtors were providers of their own macroeconomic policy, but each creditor was one of several contributing to bailouts. Worries about default caused investors to sell the bonds of debtors and thereby constrained debtors by raising interest rates. By contrast, if creditor behaviour reduced the probability of a bailout of debtors, the response again would be to sell assets linked to the debtor. The implication is that market responses to creditor elections should have been larger and more turbulent than reactions to debtor elections. We test this theory by analyzing credit default swaps of eleven countries around fifteen elections and conducting a content analysis of 3,126 reports from Bloomberg terminals.
Keyword(s): Economics; International relations; Political science; elections; international political economy; financial markets; Germany; euro crisis
Publication Date:
Type: Other
Peer-Reviewed: Unknown
Language(s): English
Institution: Dublin City University
Citation(s): McMenamin, Iain ORCID: 0000-0002-1704-390X <>, Breen, Michael ORCID: 0000-0002-5857-9938 <> and Muñoz-Portillo, Juan (2020) Two-level games and market constraints on politics in Europe. International Political Science Review/ Revue internationale de science politique . ISSN 0192-5121
Publisher(s): SAGE Publications
File Format(s): application/pdf
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First Indexed: 2020-07-11 06:50:14 Last Updated: 2020-07-11 06:50:14