Financial Restraints and Liberalization in Postwar Europe

Charles Wyplosz

No 2253, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In the real world of less than perfect markets, balancing the benefits and costs of financial liberalization is usually impossible ex ante. Having been slow to liberalize, postwar Europe offers a possible testing ground. Looking at the experience in Belgium, France and Italy, a number of interesting lessons can be learnt. There is no discernible growth effect of financial repression in the sample studied here. Credit ceilings do not reduce the volatility or the level of nominal interest rates but they succeed in lowering the average real interest rate level. Capital controls keep interest rates down but increase their volatility. Financial restraints have been used to provide cheap financing of public sector deficits and to support industrial policies, but have undermined fiscal discipline and monetary control. Upon liberalization, the rent created by financial repression, initially captured by the public sector, did not disappear but shifted towards the personnel .

Keywords: Banking; Capital Controls; Credit Ceilings; Financial Repression; Liberalization (search for similar items in EconPapers)
JEL-codes: E51 E6 F21 G14 G18 G28 (search for similar items in EconPapers)
Date: 1999-10
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Citations: View citations in EconPapers (20)

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