One more cue to how controversial government debt markets are in Euroland these days.

The European Commission’s progress report on Capital Markets Union, manages to make no reference whatsoever to the issue of government bond markets, their life after the ECB’s QE (bound to end someday) and their critical role in capital markets integration. It’s all about securitisation, corporate bond market liquidity and covered bonds.

Compare this with early views on what it takes to create a market-based financial system in Euroland. In May 1999, Alexandre Lamfalussy, recently appointed head of EuroMTS  and former head of the European Monetary Institute (that would become the ECB), had this to say:

 “We’ve seen an accelerated move to a market-centric system from the bank-centric system that has tended to prevail in Europe,” Lamfalussy said in London last month. “I have no doubt that a market-centric system is more efficient, but there’s a question whether it is stable.” The key to stability, he concludes – for the pricing of corporate as well as public debt – is a liquid and transparent government debt market.’

This is a story of shadow money – the ongoing struggle to define a social contract for liabilities issued against sovereign collateral.

No, this is not a blog about the impossible triangle IMF-Commission-Greece. I am skeptical anything new can be said about it.

It’s about something perhaps more fundamental: the IMF’s willingness to confront its inglorious past on the free movement of capital.

A couple of months ago, in February 2016, the Fund released a working paper by Atish Ghosh and Mahvash Qureshi, of the Research Department. That paper traces the historical processes through which capital controls became anathema to policy communities around the world, including the IMF. It doesn’t hide behind pretty memes (capital flow management) and technical language: visceral opposition to capital controls,  it argues, arose from the free market ideology of the 1980s and 1990s! It’s the politics.

The IMF Research Department, that paper shows, doesn’t need to hide behind closed doors to read Keynes, Eric Helleiner or Kevin Gallagher* . It can now do it in the open.

Skeptics of IMF’s revolutionary transformations (and I am one, as I argued here for IMF’s view of capital controls and here for global banking), would point to the institutional pathologies of the IMF. The Research Department has far greater liberty to engage in/with heterodox  alternatives, but that doesn’t always translate into profound institutional change.

What is different here: Lagarde has just nominated Atish Ghosh, together with the Princeton historian Harold James, to ‘chronicle defining moments in the Fund’s history’.

Professor James and Mr. Ghosh will write the Fund’s official history from 2000 to 2015, a period characterized by the global financial crisis, the crisis in Europe, and the growing role of emerging and developing countries in the world economy — all defining moments in the Fund’s history

This history  will include the pre-2008 near fall in oblivion (‘assisted’ by Venezuela’s oil money helping large countries pay back the IMF), the Eastern European and then Greek/Irish/Portuguese adventures, Blanchard’s reign with shifts on capital controls, on DSGE ‘supremacy’, on fiscal multipliers, on ‘we need to build analytical capacity for understanding global finance’. Cant wait to read it.

Daniela Gabor

*odd that the paper does not reference Helene Rey’s dilemma, but small miracles…