The mayor in the casino(?): Municipal governments engagement in the derivatives market

Local politics and global finance often appear as completely distinct and opposed spheres. Nonetheless, we can witness a wide range of relations between these two worlds. For instance, in the years prior to financial crisis, many municipalities all over Europe, mostly consulted by financial service firms, have set up active debt management policies including the purchasing of interest rate derivatives like swaps, swaptions, collars and forward rate agreements. Thereby, city budgets and local politics in general have become much more connected with rules, performances, and rationalities of global financial markets. This extends and transforms traditional debt relations of subnational public entities and contributes to the seemingly boundless expansion of finance. This development, often, is connected to reforms of local governance under the umbrella of New Public Management and can, at least partly, be interpreted as reaction of local governments to budgetary constraints and rising levels of indebtedness. Since municipal derivative purchases can be witnessed in different countries including Germany, Austria, Italy, Belgium, and Portugal, local political and institutional conditions cannot sufficiently explain the observable convergence and spread of these practices. However, the local paths of municipal engagement in the derivatives markets need to be mapped out thoroughly and compared internationally. In order to understand the evolution, consolidation, and spreading of this entanglement of local politics and global finance, a focus on local administrative practices and particular public-private networks on the one hand, and a broader political economy perspective concerning processes of financialization and the transformation of business models on the other hand need to be combined. Such a perspective is much more promising than the common blaming of mayors, city treasurers and bureaucrats that prevails in both the media and local public debates. The paper, focusing on preliminary empirical findings of the respective dissertation project, will discuss commonalities and differences in municipal derivatives purchases, their performance and the implications for local democracy.