Mediating the Markets: Structural Power and the Political Role of the Institute of International Finance in the Greek Debt Crisis

This paper articulates a novel dimension to the ‘structural power of finance’ - a concept undergoing a renaissance of scholarly interest since the 2007 global financial crash. It argues that under certain circumstances financial actors are compelled to mobilise politically in order to ‘mediate’ the disruptive forces of financial markets. Such a scenario occurred during the 2010-2012 Greek debt crisis which laid bare the complex interactions between the automatic and impersonal forces of financial market sentiment, and the conscious and intentional engagement of financial sector elites. Throughout the crisis, EU authorities had resisted debt restructuring for fear of destabilising financial markets and setting off a chain reaction of capital flight across the continent. Paradoxically, while individual banks were the prime beneficiaries of this policy, they were also substantially threatened by the prospect of disorderly Greek default and a potentially cataclysmic regional banking collapse. In this context, industry representatives from the Institute of International Finance mobilised to facilitate concerted private sector action and negotiate a voluntary debt restructuring acceptable to the majority of Greek creditors. In order to ensure relative financial market stability, the IIF successfully negotiated a substantial creditor write-down, while also agreeing to coercive legal action by the Greek government in order to side-line a minority of ‘rogue’ financial actors threatening to scupper the deal. The case provides evidence of significant divisions between regulated (major European banks) and non-regulated (‘vulture’ hedge funds) elements of the financial industry and their competing perspectives over the long-term stability of financial markets.