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Having banks ‘play along’ state-bank coordination and state-guaranteed credit programs during the COVID-19 crisis in France and Germany

Elsa Clara Massoc (Goethe University Frankfurt)

How do governments convince profit-oriented banks to provide liquidity to firms in need? To shed light on that question, Elsa Clara Massoc analyzes the elaboration and implementation of state-guaranteed credit programs (SGCPs) during the COVID-19 crisis in her article “Having banks ‘play along’ state-bank coordination and state-guaranteed credit programs during the COVID-19 crisis in France and Germany”. The COVID-19 crisis constitutes a particularly puzzling case as no bank would, from a commercial point of view, willfully grant cheap and copious credit to struggling firms in the context of a global pandemic. SGCPs were specifically designed to make banks do so, nevertheless. Building on a comparative process analysis of SGCPs in France and Germany, Elsa shows that it has been less costly for the French government to convince their banks to provide liquidity as German banks obtained better terms for their participation in their national SCGP. The variation stems from differences in the institutionalized state-bank modes of coordination: In France, state-bank coordination is characterized by mutual trust among a small number of socially homogeneous groups used to close cooperation. By contrast, state-bank coordination is weaker in Germany. As a consequence, state officials have to resort to monetary incentives to persuade banks. State-led credit allocation may prove an essential tool in maintaining modern states’ capacity to govern in economic crises, and different modes of coordination between states and banks are instructive for how states are able to meet that challenge.