SOAS Research Online

Abstract

The objective of this thesis is to specify the monetary and financial dimensions of hierarchy and subordination in the European Monetary Union. It seems clear at first sight that the European Monetary Union is riven by such relations, despite the presumed formal equality of its members. And yet, the form and the content of these relations are hard to specify. The precise character of hierarchy and subordination in the European Monetary Union is highly elusive. The thesis draws on the current literature on International Financial Subordination, and makes a methodological, conceptual, and empirical contribution to this rapidly expanding field. It focuses on the structural mechanisms of the single and common currency and shows that subordination is integral to the conduct of both private and public actors in the European Monetary Union. Subordination is also a monetary and financial process that reproduces itself, giving rise to subordinate forms of integration for some member states. Specifically, it is shown that there are three pillars of subordination in the European Monetary Union: first, monetary hierarchies; second, a ‘hybrid’ working money; and third, fragmentation and selective integration of markets. Hierarchy and subordination result from the structural features of the Union and are shaped by selective integration across its fragmented jurisdictions. The simultaneous existence of fragmentation of markets and jurisdictions together with the integration and de facto unification of liquidity flows, collateral policies, and other financial processes generate relations of subordination among member states. Evidence for the central claim of the thesis is provided by examining the flows of liquidity across the jurisdictions of the European Monetary Union. The complete liberalisation and unification of cross-border payments against a fragmented monetary infrastructure leads to a concentration of liquidity flows from subordinated members to the apex of the hierarchy. This tendency is facilitated by the ‘hybrid’ nature of the euro, whose domestic and cross-border functions are not distinct thanks to the TARGET system. The thesis further shows that subordinate integration impacts on the domestic economies of member states and shapes their evolution. In the case of Italy, the single and common currency has resulted in monetary and financial subordination that pivots on the euro rather than the US dollar. Analysing economic fragility in Italy must take this development into account.