forthcoming in New Political Economy

When Do Banks Do What Governments Tell Them to Do? A Comparative Study of Greek Bonds’ Management in France and Germany at the Onset of the Euro-Crisis'

At the onset of the Greek sovereign debt crisis in early 2010, the French government asked French banks to retain plummeting Greek bonds on their balance sheets. And the French banks did exactly that. At around the same time, the German government also asked German banks to retain plummeting Greek bonds on their balance sheets. Yet German banks sold the bonds abundantly. Both governments depended on profit-oriented banks to fulfil a mission of public interest, but neither had formal levers to ensure that banks would do as they were told. Why did the French banks comply with their government’s request while their German counterparts did not? Taking advantage of an opportunistic design and building on data gathered in newspapers and through 20 in-depth interviews, this paper argues that banks’ decisions are the result of long-term institutionalized state-bank modes of coordination in France and Germany. In France, bankers understood the government’s request as being embedded within a long-term relationship of reciprocal favours, which led them to comply. In Germany, state officials resorted to straightforward pressures such as naming and shaming banks. But as soon as the pressure died down, the banks sold out.