Financial Safety Nets in East Asia and Europe: A Political Economy Assessment

Abstract

This article aims to measure and compare the voting power of the member states of two financial nets: the ASEAN Plus Three Macroeconomic Research Office (AMRO) - Chiang Mai Initiative Multilateralized (CMIM) and the European Stability Mechanism (ESM). Furthermore, the study observes the changes to the CMIM before and after the increase of its resources in 2012. The literature on the comparison between regional safety nets lacks proper evaluations from a political economy perspective. This work fills the gap in the literature by placing two of the most important and recent regional financial safety nets under scrutiny. The article employs empirical analyses using two typical measurements of voting systems such as the Shapley-Shubik and Banzhaf indices. The article shows that the small ASEAN countries, contrary to assumptions in the literature, have been penalized after changes in 2012. By observing simple voting weights only, these effects are not visible. However, based on the results obtained from Shapley-Shubik and the Banzhaf power measurements, we argue that the voting powers of big countries, such as Japan and China, have increased after the changes in the system in 2012. In contrast to the ASEAN example, results in the case of the ESM show that there are no substantial differences in the voting powers of member states based on the Banzhaf index and Shapley-Shubik Index. Based on the empirical results of the article, the authors suggest that AMRO-CMIM should take into account the ESM experience regarding the voting mechanism.