Systemic Explanations, Divergent Outcomes: The Politics of FinancialLiberalization in France and Spain

This article challenges the adequacy of prevalent market-driven models of regulatory change, and more specifically, the stipulation that international market integration will lead governments undertaking financial liberalization in formerly interventionist states to carry out adequate market reforms. It does so through an analysis of financial regulation in two European countries: France and Spain. The article offers an integrated historical perspective on regulatory change which suggests that the market-driven convergence thesis does not adequately capture the political dynamic behind financial interventionism and liberalization in the two countries. The introduction of dirigisme and its later-day abandonment were driven less by the "state vs. market” dynamics emphasized in much of the literature than by macroeconomic policy choices on the part of postwar elites. Focusing on similarities and differences in the timing and pattern of reform, the article argues that dirigisme was abandoned in France and Spain not because of changing sectoral pressures or the lack of viability of external controls, but because it raised the political costs of monetary austerity for elected authorities. This link between regulatory choices and the politics of macroeconomic adjustment has implications that are likely to be critical in any country undergoing financial liberalization.