Taking Europe seriously: European financialization and US monetary power

Abstract

This article considers the link between the financialization of European banks and US monetary power. We focus first on the Global Financial Crisis of 2008-09 (GFC), arguing that crisis origins should largely be located in European banks’ financialization and their becoming a banker to both the US and the global US dollar-based offshore banking system. The interdependence between this system and the US economy constrained US monetary policy before the crisis, and forced the Federal Reserve to assume the Lender of Last Resort (LOLR) function for the entire offshore system, despite much of this system involving lending between non-US counterparties. European financialization caused reduced US monetary autonomy and therefore power. This article argues for greater attention in IPE to European financial developments in the GFC’s implications. The importance of European banking has been maintained post-crisis and Europe has moved to a substantial surplus position, suggesting Europe’s continued importance.