The Contemporary Issues in International Political Economy

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In accordance with captured political government bureaucracy, political and economic conditions have been coordinating between corporate interests and officially elected and designated custodians of public interests. For decades, the interface between economics and politics on a global scale has been focused on ties scholars have been focusing on political issues. Practitioners have also focused on the many contexts in which economics and politics are intertwined in order to comprehend patterns of relationships and shifts at the global level. This has enabled them to provide an introduction to international political economy by discussing issues of trade, production, development, finance, and environment engaging with states and non-states ideas and literature on the consequences of increasing density of international political and economic relations (Peters, Pierre & Randma 2011, p. 13). This dissertation will therefore determine the interaction between international politics and economics as sources of change and challenges being faced by states in global political and economic integration and fragmentation.

The world is interdependent. As a result, a focus on international politics should also discuss economic factors influencing international agendas determining how security, development, and climate change are interfering with explicit and implicit economic dimensions. Security encompasses military defense and factors determining supply of natural resources including human and food security. Poor nations such as Asian and African countries often depend on domestic political reforms required to create supportive international trade and investment environments. Combating environmental threats such as climatic changes requires international political cooperation as well as changes in socio-economic basis of the global industrial systems. Thus, economic and political fates of the countries should not be discussed in isolation as the global web of economic exchanges and political relations ought to be considered (Falkner 2011, p. 117).

More so, technological changes and the global scale with multinational companies maintaining industrial manufacturing facilities among diverse nations have brought states together. Consequently, businesses have been conducted on a global scale by ensuring goods and services are traded across the world markets. Capital markets have also been responding to market signals in other continents. Conversely, international communication, travel, and electronic media have enabled unprecedented levels of social and cultural exchanges to occur. Ultimately, global politics have been responding to dramatic changes to social and economic interconnections creating threats and opportunities for societies and governments being represented (Peters, Pierre & Randma 2011, p. 15).

Globalization has been a term commonly used in contemporary debates related to global issues. It is therefore a term applied in relation discussing diverse aspects of global social, political, and economic integrations to affirm the world is growing due to increasing dense network interactions. For example, the economic logic at work across Asia points to internationalizing production and division of labor as well as migratory movements creating competitive environments accelerating political and economic growth and development. Thus, globalization is a process driving socio-economic and socio-political growth among societies, states, and continents. It affirms global economy has been dramatically rising in levels of trade across boundaries to increase global production among multinational firms and industrial sectors. Consequently, governments have been responding to fiscal crises differently depending on the measures being applied by public administrators and politicians in charge of international political and economic growth and development (Peters, Pierre & Randma 2011, p. 25).

Currently, global economic, financial, and fiscal crises are the most urgent and important challenges being faced by states on an international platform. Past crises that ended in 1970s led to major reforms. For example, they bluntly formulated oil crisis of 1974 leading to economic challenges prompting governments to evaluate economic recovery measures. Consequently, large public budget deficits necessitated drastic budget cutbacks to be applied. This pattern is currently developing. For example, the banking system needs rescuing due to the adverse effects of the 2008 financial. This has led to public investments to increase state debts prompting governments to take economic recovery measures which increased budget and debt deficits. These effects led to the 2009 and 2010 economic and fiscal crises respectively. States however, continued to respond to the financial, fiscal, and economic crises while focusing on financial-economic and political-administrative explanatory factors (Katsimi & Moutos 2010, p. 569).

International political influences are potentially capable of causing swift and fundamental decision making changes as the current centre-right political ideologies do not perform well during an economic crisis. Consequently, consensus democracy and coalition is often large vital in leading monetary and financial problem solving procedure. The size and composition of government responses to political, financial, and economic crises vary among nations. This is because it depends on the severity of the crises on the fiscal position of each state. Initial circumstances namely state debt, budget deficit and economy have often been defined as bad by researchers evaluating financial and economic crises (Swan 2009, p. 124).

For example, economic and financial crises were severely experienced by Britain and Germany. This led to a severe economic decline in both nations. Germany however was able to recover faster than Britain as it recorded lower unemployment figures in comparison to its counterpart. In 2008, governments implemented measures in attempts to support their banking systems. The measures were also believed of being capable to restore confidence in various financial sectors through capital injections. Guaranteed state debts, nationalizations, and isolated purchase of bad assets as well as increased deposit assurances were measures highly applied to respond to the crisis in the banking system. International pressure to undertake more actions during economic and financial crises has been experienced by various governments including Germany, Portugal, United States, Greece, and Ireland. For example, the euro crisis led to major pressure on national domestic budgets further influencing high political aspects determining financial, social, and economic growth and development (Fleischer & Parrado 2010, p. 361).

The decision making procedure during a financial crisis emerging from the banking system has been a form of political crisis management. Key players such as finance ministers and prime ministers often formulate and implement significant decisions at very short time lengths. External financial consultants and experts including accountants, investment bankers, and lawyers are required to assist in recovering from any form of crisis. For example, they should check bank balances and books in order to determine bad debts attributing to a financial crisis. Consequently, politicians and parliamentarians should play the role of formulating and implementing ultimate policies of nationalism of failing banks coinciding with social, political, and economic growth and development (Carmen & Kenneth 2011, p. 1702).

Notions such as global fiscal, financial, banking, sovereign debt, economic, and social crises are often hand in hand and interchangeably. Kickert however attempts to solve the issues leading the definition of the notions to be confusing by focusing on global crises separately or through sequent phases. Foremost, Kickert focuses on banking crisis by defining it as the initial phase through which banks and financial institutions face difficulties prompting governments to undertake diverse roles in order to support, rescue, and save the institutions. Consequently, economic crisis is defined as difficulties emerging after the financial crisis commences affecting the real economy and leading to drastic fall of Gross Domestic Production and employment. Economic crisis therefore forces governments to undertake economic recovery measures such as economic stimulus packages (Kickert 2012, p. 303).

According to Kickert, fiscal crisis emerges after budget deficits have led governments to accumulate gross state debts excessively. This often prompts governments to consolidate their budgets and undertake cutback management. The European Sovereign debt crisis is also known as the Euro-zone crisis. Nations with excessive national debt levels and budget deficits coupled with increased interest rates such as on state bonds as attributed by lenders often face sovereign debt crisis. This is because the nations face difficulties in further financing their deficits and debts especially during low economic growth and debts being in the hands of foreign creditors. Portugal and Greece are some of the nations that have faced the sovereign debt crisis. They faced the sovereign debt crisis in 2010. Greece experienced the sovereign debt crisis in April 2010 after it lost the regional elections despite over-spending on the procedure. Thus, both Greece and Portugal, after facing the sovereign debt crisis, needed to be bailed out (Kickert 2012, p. 303).

Kickert asserts that a focus on phases of the crises have provided contextual information indicating how national governments have handles their domestic crises. For example, characteristics of decision making procedures among nations in various stages of a crisis differ. This is because some nations facing fiscal stress rely on spending cuts as they essentially deny and delay the cuts before implementing the actual cuts. This is forms the coping cycle or a reaction pattern resembling social-psychological resistance to change by first denying then defending advantages of situation. Consequently, the need for the change is recognized prompting governments to adapt and internalize the needs and agreements in taking the actions to change (Kickert 2012, p. 306).

Causes of Political and Economic Crises

The depth and breadth of international political and economic crises has been unprecedented in post war history. The features are often common and similar to the financial stresses that hinder economic and political growth and development. For example, crises as such as credit growth, strong leveraging, low risk premiums, development of bubbles in real estate, and abundant liquidity have been faced by financial institutions for a long period of time. They deteriorate and mismatch the stretched leveraged positions guarantying maturity and growth in financial institutions leading to poor loan performances. In 2007, banks were uncertain about creditworthiness despite having invested in complex, overpriced, and opaque financial products. This led interbank markets closed and risk premiums on the interbank loans soared. Consequently, banks faced serious liquidity issues as they could not rollover short-term debts. This led policy and decision makers to perceive the crisis as a primary liquidity issue. Concerns on solvency of financial institutions emerged (Fleischer & Parrado 2010, p. 361).

The European economy was believed to be immune to financial crisis unlike the United States economy. Both economies however experienced slowed growth of businesses and households. Stock markets panicked, valuation of financial institutions evaporated, and investors rapidly and heavily relied on safe havens such as sovereign bonds. Ultimately, financial systems melted down as the crisis was a genuine threat that was forcing banks to close down, restrain credit and cut down credits. The globe consequently experienced a downturn in asset markets with trade credits becoming scarce and expensive and sales dropping drastically (Fleischer & Parrado 2010, p. 361).

As a result, confidence levels among businesses and consumers fell at unparalleled rates. Central banks, supranational agencies and governments however continued to respond to the economic and financial crises forcefully. For example, policy interest rates were cut sharply and banks were allowed unlimited access to _x0091_lender of last resort_x0092_ facilities with central banks as the balance sheets were expanding massively granting new capital from the governments. Saving deposits were also introduced and raised while governments continued to provide substantial fiscal stimulus (Kickert 2012, p. 309).

It is believed that the proximate cause of financial crises on global levels was due to the devastating impacts arising from real estate. In United States and Europe, there were excessive leveraged positions in macroeconomic and development of functional financial markets. Buoyant credit growth and low risk premiums were therefore the main factors preceding major economic and financial crises. Persistent global financial imbalances also played a major role contributing to macroeconomic instabilities that were characterized with low sustained growth (Peters, Pierre & Randma 2011, p. 13).

Economists and political historians have often and broadly agreed that macroeconomic policies were implemented to respond to contributing factors leading to social, economic, and political depression. For example, the monetary systems were evaluated to ensure policies guarantying high economic growth, low inflation rates, and large movements of labor and capital were implemented. The policies also played a major role in ensuring exchange rates are stable. The primary goal of the policies was therefore to manipulate domestic economic, political, and social growth and development. For example, their ideologies were focused on ensuring external stability by governments promoting policies guarantying political stability in order to promote socioeconomic growth and development (Fleischer & Parrado 2010, p. 363).

Consequences of Economic and Political Crises

Financial crisis pervasively impact real economic status of a country leading to adverse effects on asset valuations and credit supply. Consequently, the country becomes vulnerable as it is exposed to political, social, and economic bubbles ensuring policies and decisions with the potential to attain and sustain growth and development are adversely affected. For example, increase in economic output relies on full utilization of production factors such as technology, labor, and capital. Financial crisis however hinder banks to promote market growth as they are forced to close their credit lines and repatriate capital. More so, funding processes are restrained hindering emerging markets from either growing or expanding. Consequently, wealth and confidence effects on demand leads to stiffened lending standards as well as declining households_x0092_ savings and asset prices. Demand for consumer durables and residential investments also decrease coupled with production cuts. Ultimately, the adverse effects neither sustain nor promote financial markets (Kickert 2012, p. 310).

Consequently, global trade collapses as businesses investments and demand levels for consumer durables such as credit and trade plummet. Historical relations among nations are then destroyed leading to political crisis as the countries do not have the ability to promote and sustain globalization and global supply chains. For example, various states that have experienced financial crisis in the past such as Germany and Hungary have experienced constrained political relations with European Union as they feel economically and politically vulnerable. Thus, financial, economic, and political crises can potentially weaken investment opportunities, credit supplies, and employment rates. Output losses attributed to financial distresses can also adversely affect structural reforms aimed at promoting economic and political recovery, resilience, and growth. Restoring fiscal, financial, and political soundness, resilience, and resistance to crises should therefore be encouraged in order to restore and sustain growth in political capital (Kickert 2012, p. 311).

Principally, trading activities should be protected in order to increase tradable industries and sustain fair international competition to prevent loss in economic and political outputs. Employment rates should also be enhanced by ensuring measures reducing participations in labor markets are addressed. This will encourage younger workers to gain entry. Consequently, policy and decision makers pursuing sustainable fiscal policies can encourage governments to increase sovereign political and economic stability (Falkner 2011, p. 127).

Decision Making: Cutbacks

During the 2008 banking crisis, its magnitude, severity, and urgency prompted governments to implement rapid and highly centralized managerial decisions. Prime ministers, presidents of national banks, and finance ministers were the few actors required to assist in formulating and implementing the decisions under enormous time pressure. Thus, the decision making procedure was not only quick but also highly centralized. Conversely, the 2009 economic crisis prompted governments especially in Europe to devise economic recovery plans. The economic crisis however, was neither sever nor urgent. As a result, the decision making procedure followed the parliamentary and political paths while including extensive consultations with employers, employees, and corporations. Nations that did not regard the economic crisis as severe therefore did not justify large extra expenditures. Consequently, decision making was neither swift nor fundamental. More so, it was not centralized, systematic, or based on long-term basis (Fleischer & Parrado 2010, p. 362).

The Euro-zone crisis that erupted in 2010 however provided a different type decision making pattern. This is because the pattern was not restricted to domestic government decisions. Instead, the decision making pattern was highly complex and multi-layered cooperative involving all Euro-zone states. After the states and governments agreed on budget deficits which were exceeding the EU ceiling of the GDP, they required fiscal consolidation measures. Initially, social and political actors were not convinced on the need for expenditure cutbacks. For example, they debated on the strictness of European deficit limits. This slowed down the decision making procedure. The need for more radical cutbacks however continued to grow with governments centralizing their decision making procedures by laying ground for actual cutbacks (Fleischer & Parrado 2010, p. 363).

Importance of International Political and Economic Coordination

Global coordination especially in line with European Union has been evolving as a driving rationale to promote political and economic growth and stability. The coordination is beneficial as common interests are appropriately served on political and economic scale and scopes. Vertical coordination on various economic policies such as financial, fiscal, and structural promotes internationalism. It respects independence of monetary policies which are effectively essential in promoting a nation_x0092_s credibility. Conversely, horizontal coordination deals with cross border economic effects benefiting economic policies drawing benefits from external leverage to sustain international relations. Policy instruments should therefore be applied to manage policy interactions and financial rescue packages promoting economic and political recovery, growth and development. More so, they ensure crisis resolution measure aimed at financial systems such as capital injections guarantee healthy and stable economic and political growth. Consequences, policies preventing repetition of the crises can be formulated and implemented geared towards political and economic sustainability (Peters, Pierre & Randma 2011, p. 26).

It is evident that decision making processes leading to fiscal consolidation measures indicate that governments have been able to formulate and implement drastic policies. The decisions and policies are slowly and gradually applied to the extent ensuring national governments are able to reach fundamental political priorities in cutback management or incremental pragmatic compromises. Decisions and policies addressing economic, financial, and political crises are also primarily related to fiscal and banking policies in a state. During the worst predicaments such as economic and budgetary crises, drastic and far reaching measures ought to be undertaken by the government. Economic, financial and banking indicators however should be considered in order for political and administrative explanatory factors to be evaluated and ensure the government systems are radical as well as either swift or drastic (Swan 2009, p. 132).

Recommendations to Sustain Political Economic Growth and Development

Foremost, governments ought to avoid financial meltdowns in order to maintain growth of financial systems. In the past, financial crisis has occurred when government actions fail to prevent collapse of mechanisms determining credit allocation and maintenance of public confidence in banking systems. The crisis should therefore be prevented to ensure it does not spread and contribute towards high unemployment rates and increasing inflation rates. In order to avoid deflation, aggregate demands should be supported and maintained by expanding monetary and fiscal policies. Monetary policies often provide ample liquidity to political and government systems striving to lower interest rates and support aggregate demand. Thus, aggregate demand should be maintained to avoid inefficient allocation of resources, inflationary pressures, and financial losses (Katsimi & Moutos 2010, p. 569).

International trade should also be maintained to avoid protectionism on a global scale in line with modern trade. Consequently, the fall in world trade can be prevented. More so, international finance can be maintained by avoiding capital account restrictions. This is because in the past the great depression led to breakdown on flow of capital globally. This led Europe and United States financial systems to lack international cooperation due to introduced controls over cross border flow of capital and labor. Thus, free flow of labor and capital should be maintained to prevent financial, economic and political crises (Katsimi & Moutos 2010, p. 569).

In order to avoid nationalism, internationalism should be maintained in order to support globalization. Global wars have always erupted due to lack political cooperation among nations. In the past, global wars led to close of borders and destruction of international agreements facilitating free flow of capital and labor. Consequently, all the nations experienced political, financial, and economic instabilities due to slowed growth and development rates. Openness and internationalism can therefore guarantee that decisions and policies promoting economic and political growth and development are not nationally biased (Katsimi & Moutos 2010, p. 571).

Persistent global financial, economic, and political crises are believed to contribute to global imbalances. For example, emerging Asian and oil producing economies have often financed United States at quasi fixed exchange rates and added to lax financial conditions. The emerging Asian economies mainly China which is recognized as a major creditor to United States due to its large national saving surpluses as well as open and deep financial markets attracting large capital inflows. Thus, financial and economic growths have continued to ensure global imbalances are either prevented or reduced especially across the United States economy. Major sources of global imbalances are the persistent account deficits with surpluses in emerging economies as they cannot be sustained. Disorderly unwinding of global finances especially in real estate has also led to risks in economic and political growth. Combining low household savings and macroeconomic policies leads to exorbitant privilege encouraging international securities to dominate domestic currencies with liquidity premiums and affordable and sustainable creditors who are inclined to keep claims on output on balance sheets. Ultimately, monetary policies play the accommodative role of creating liquidity in order to appreciate financial markets to promote economic and political growth and stability (Katsimi & Moutos 2010, p. 574).

In conclusion, international coordination should be straightforward for a high degree of financial, economic and political integration to occur. Consequently, policies, decisions, and reforms to prevent and reduce any form of crisis and leading to arbitrage can influence flow of international capital and labor. This will ensure financial markets and systems continue to operate across international borders with clear and free flow of information which can also be exchanged internationally to promote burden sharing in case of financial, economic, and political crisis. Thus, powerful rationale promoting stronger multilateral economic, financial, and political policies internationally can resist emergence of global crises and imbalances. Consequently, it can promote and enhance allocation of resources, capital, and assets fostering international policy leverage, saving surpluses, and enhanced financial transfers. Thus, international economic and political relations concentrate on matters interlinked on both disciples. International economic relations allied to finance, trade, environment, production, and development should therefore engage with economic concepts, ideas, and relations among states and non-states on a global level. This will ensure political and economic issues arising and affecting economic relations are addressed.


Carmen, M. R & Kenneth, S. R 2011, From Financial Crash to Debt Crisis: American Economic Review. American Economic Association, 101(5), 1676-1706.

Falkner, R 2011, International Political Economy: Economics, Management, Finance, and the Social Sciences. University of London.

Fleischer, J & Parrado, S 2010, Power Distribution in Ambiguous Times: The Effects of the Financial Crisis on Executive Decision-Making in Spain and Germany. Der Moderne Staat, 2(1), 361-376.

Katsimi, M & Moutos, T 2010, EMU and the Greek Crises: The Political-Economy Perspective. European Journal of Political Economy, 26(4), 568-576.

Kickert, W 2012, State Responses to the Fiscal Crisis in Britain, Germany and the Netherlands. Public Management Review 14(3), 299-309.

Peters, B. G., Pierre, J & Randma, T 2011, Global Financial Crisis, Public Administration and Governance: Do New Problems Require New Solutions? Public Organization Review, 11(1), 13-27.

Swan, P. L 2009, The Political Economy of the Subprime Crisis: Why Subprime was so Attractive to its Creators. European Journal of Political Economy, 25(1), 124-132.

November 09, 2022

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