Ideas and interests in global financial governance: comparing German and US preference formation

Abstract

Financial crises underline the necessity for more effective global governance. Despite the creation of the Basel II Accord, no agreement has been reached on the reform of the International Monetary Fund (IMF). Why do governments only selectively agree to reform global governance? I argue that convergence and divergence of governmental positions cannot be explained solely by the logic of the international system, institutions or globalization. Instead, they strongly reflect domestic ideas and interests. Furthermore, the ability of governments to compromise internationally is influenced by the different impact of domestic ideas and interests. With regard to their prevalence in domestic preference formation, ideas prevail when governance affects lobby groups diffusely and poses fundamental questions on the role of politics in governing the economy. Interests prevail when lobby groups are affected directly and new governance concerns a specific distribution of costs. These arguments are tested on the preference formation of the United States and German governments on the IMF and Basel II.

Notes

¹ An earlier version of this paper was presented at the workshop, Germany in Global Economic Governance' at Cornell University, February 22–23, 2008. I am grateful to Laura Carsten, Robert Kaiser, Peter J Katzenstein, Daniel P Kinderman, Andreas Nölke, Hubert Zimmermann and to the anonymous reviewers for valuable comments, and to Jost Wübbeke for research assistance.

² I am grateful to an anonymous reviewer for pointing out that alternative explanations of US and German preferences in these two cases include the greater costs associated with the formal commitments (Abbott and Snidal 2000) involved in the IMF negotiations as compared to the Basel negotiations, and the closer association of the former with the overall standing in the international order of the state, a point consistent with realist theory. An exploration of these alternative explanations goes beyond the scope of this article. It can be noted, however, that one would expect evidence of these explanations to show up in the statements of officials and no such evidence was found.

³ Transnational lobby groups such as the Institute of International Finance in Washington DC are not considered here, because they essentially lobbied the Basel Committee directly, while national banking and industry associations lobbied their respective national governments.

⁴ In the US, large internationally active banks especially supported the ‘Advanced Internal Ratings Based (IRB)’ approach included in the course of the Basel II process as well as the strengthening of external rating and the ‘Foundation’ version of the IRB (Claessens, Underhill and Zhang 2008, 317).