Global finance, domestic politics: Exchange rate policymaking in Britain, France, and Italy

This study analyzes how domestic politics and institutions influenced monetary and exchange-rate policies in Britain, France, and Italy from the 1970s to the 1990s. Cross-national variation in policy choice was a function of the political coalitions produced by patterns of bank-industry relations in the three countries. Where banks and industry had close relations, in France and Italy, they formed a powerful coalition preferring policies that would keep the exchange rate stable and competitive. In Britain, where bank-industry links were weak, industry preferred a competitive exchange rate but was not supported by the financial sector. These differences in the organization of industrial finance produced distinct patterns of policy choice. In France and Italy, policymakers devoted more attention to keeping their exchange rates stabile at competitive levels. British policymakers devoted much less attention maintaining a stable and competitive value for the currency. On two occasions they actively encouraged exchange-rate appreciation despite the fact that this had negative consequences for the international competitiveness of British industry. French and Italian policymakers also demonstrated greater interest in the construction of international monetary regimes that promised to stabilize their currencies. British policymakers showed little interest in such regimes.