The preponderance and influence of the public sector in the financial system have long been a defining characteristic of Brazilian capitalism. While exerting control over the national credit system through targeted lending policies and other regulatory tools, the federal government also wields significant weight through its state-owned institutions. This article delves into the role of Banco do Brasil (BB), a prominent financial institution and policymaking instrument of the Brazilian government, during the zenith of the developmental state between 1964 and 1982. In contrast to the prevailing focus on financing public spending, this study investigates the international engagements of BB and unveils its participation in managing the country’s external imbalances. BB’s financing proved crucial in bypassing the IMF and reinforcing the government’s commitment to industrialization and developmentalism. The article offers new insights into the forces of Brazil’s state-led finance and the political economy shaping its current banking and regulatory landscape.

How does politics affect private international lending? This article highlights the relationship between international banks, their home governments, the International Monetary Fund (IMF), and international regulators during the years that preceded the debt crisis of 1982. Based on new archival evidence from different case studies, we find that the decisions of commercial banks to lend were largely based on the home governments’ preferences, competition, and the assumption that home governments and international organizations would provide lender of last resort functions to support borrowing governments. While previous works suggest the 1982 debt crisis was unexpected, we show that banks primarily reacted to the deteriorating macroeconomic situation in many emerging economies once the support of their home governments and the IMF became uncertain.

This article examines the relationship between international commercial banks and military regimes in South America. The focus is on how military regimes in the Southern Cone of Latin America and Brazil in the 1970s became heavily dependent on foreign capital provided by international banks based in Britain and France. It makes use of previously unavailable archival evidence to examine the interactions between international banks and South American governments, showing how these interactions intensified once military rule was established. It shows that international capital was used for a wide variety of purposes, including arms imports. When global banks cut loans once the debt crisis erupted in 1982, they aggravated the economic crisis but also fostered democratic change.

In spite of considerable attention granted to sovereign debt failures, we still have limited knowledge of the incentives which induced creditors to lend at unsustainable levels. This article looks at the French government’s policy towards Poland from 1958, when economic cooperation between the two countries started, until Poland's announcement in 1981 that it could not service its debt. Export credit guarantees supported France's financial involvement, and this implied the government's strong influence on the decision to lend. This article brings out the tension between economic and political priorities in French policymaking during the cold war. Archival evidence reveals that as early as 1975 the French finance ministry warned that French risks were excessive; that Poland’s growing economic difficulties would render the country unable to repay its debts; and recommended limiting France's financial commitments. The French government, however, decided not only to carry on but also to increase lending, in order to support its political objective of using economic and financial means to relax East–West tensions. This article illustrates how creditors play a part in sovereign debt crises by voluntarily turning a blind eye to a country’s growing inability to repay its debts, and thus reinforce a vicious circle of indebtedness.

The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, more commonly known as the Fiscal Compact, and the Treaty establishing the European Stability Mechanism (ESM) are closely linked in several ways. Both treaties are formally placed outside the European Union framework, but substantively govern Union matters. Together they are designed to combat the sovereign debt crisis which has been ravaging the European Union for years now. The Fiscal Compact does so by enhancing and sharpening budgetary discipline in the Eurozone states, the ESM Treaty by offering assistance to Eurozone states in financial distress. To receive financial aid from the ESM, states not only need to have ratified the Fiscal Compact, but also to have implemented a balanced budget rule in their national law in the way the Compact demands. Apart from combating the crisis, the Treaties also bring reforms to the Eurozone; they express the wish of the signatory parties to share their destinies in new ways.

Of the three branches of government traditionally distinguished since Montesquieu, two have received ample scholarly attention in their relation with the European Union. A plethora of books and articles have been written on the role and position of national courts and national parliaments in Europe. As to the former, the interaction of national courts with the Court of Justice of the European Union is still massively researched. As to the latter, it has been thoroughly analysed how national parliaments were sidelined from the start of the integration process, only to regain lost ground later. In particular, attempts to include the national parliaments in EU decision-making, via the renewed Subsidiarity Protocol among other ways, have attracted numerous research activities.

In between the writing of this editorial and the publication of this issue of EuConst, the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, in everyday parlance the ‘Fiscal Compact’, will have been signed by the representatives of the governments of the contracting parties — the member states of the European Union minus the United Kingdom and the Czech Republic. The Fiscal Compact is intended to foster budgetary discipline, to strengthen the coordination of economic policies and to improve the governance of the euro area.

On the way to its decision of 7 September 2011 about aid measures for Greece and the euro rescue package, the Bundesverfassungsgericht found itself in the middle of a storm. It had the option of helping the winds blow away the European currency altogether. Instead the Court showed restraint and responsibility towards both the German and the European constitutions. In doing so it gave expression not only to the limits of the law in a state of overwhelming emergency, but also to some of the creative particulars of the situation.

At the time of writing of this editorial, in the high summer of 2011, the ‘market forces” are meeting up for an attack on the first major member of the Eurozone, Italy. It begins, as has now become familiar, with a rise in the rate of interest that a country has to pay for money to service its sovereign debt. Above a critical percentage, around seven in this case, the servicing of its debt, compounded with the loss of tax income due to a slackening economy, will send the country into the downward spiral of ever-increasing debt. The perspective of a possible default in turn will send the interest rate further upward, pushing the country into a more certain default, and so on. It is a self-fulfilling perspective.