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DFG Project, 02/2016 - 09/2019 (Project within PP 1859, Experiences and Expectations: Historical Foundations of Economic Behaviour)

Municipalities and their Expectations on Pay-Offs of Swap Deals (MUSWAPS)

Project summary:

The project dealt with the expectations of municipal treasurers regarding the use of interest rate swaps as the most frequently employed financial innovations by municipalities. The project was conceptualised to, first, identify the expectations of local treasurers regarding these financial instruments, second, to analyse how and by whom these expectations are shaped and, third, to investigate how crises such as cities’ huge swap losses affect the process of expectation formation. To comprehensively answer the research questions, four sub-projects were intended: (1) create a cross-country database on the context of swap deals; (2) analyse the cognitive mechanisms that shape treasurers’ expectations; (3) investigate the role of professions and advisors in shaping treasurers’ expectations; and (4) examine how crises and swap losses influence the formation of expectations. A fifth project (5) emerged analysing the role of power.  The project combined political economic concepts of business power and policy change with the economic sociological literature on expectations and diffusion.
Since we found that the decision to use financial innovations is closely interrelated with the expectations formed by treasurers, data was collected on the actual use of swaps. Several original time-series datasets with information on swap transactions and LOBOs (another swap-like financial instrument used by British municipalities) as well as economic, political, and social context factors emerged from this. We additionally gathered in-depth information by conducting interviews and by analysing newspapers, and primary sources. Regarding the expectations on the use of swap deals, two categories of expectations could be identified: (1) economic expectations, describing possible material consequences of decisions and (2) social expectations that relate to the possible social consequences of decisions.
We found additional answers on how and by whom these expectations are shaped. Regarding cognitive mechanisms, a study on the use of LOBOs by English local governments found evidence for herding which indicates that imitation of proximate others plays a role in expectation formation (this matches the result of our qualitative study). One paper identified an information effect of the media in expectation formation as additional cognitive mechanism. Whether and how professions as well as financial and legal advisors were of significance was explored both quantitatively and qualitatively. These works highlight the key role of professionalization within the state and of legal and financial experts outside the state in shaping expectations and the use financial instruments. A comparative case study provided important insights regarding how expectations condition whether crises lead to incremental or transformative policy change. Lastly, another comparative case study revealed states’ fiscal interests as a major contextual determinant of business power in municipal swap policies. The consideration of power concepts is also of crucial importance for research on expectations. So far, it has not been taken into account that at its core the concept of structural power is about the expectation formation process of politicians. State regulators anticipate the actions of the regulated. Thus, a synthesis of explicit theories of expectation formation with the concept of structural power is a very fruitful enterprise.

Project duration: 02/2016 - 09/2019


Janssen, A. (2020) Financial Officers, the Municipal Swap Industry, and the Rise of Risky Innovations Among States. Socio-Economic Review;

Mertens, A., Trampusch, C., Fastenrath, F., Wangemann, R. (2019) The Political Economy of Local Government Financialization and the Role of Policy Diffusion. Regulation & Governance,

Trampusch, C. und Fastenrath, F. (2019) States’ Interests as Limits to the Power of Finance: Regulatory Reforms in Early Local Government Financialization in the US and UK. Regulation & Governance,

Daniel, V., Neubert; M. Orban, A. (2018) Fictional Expectations and the Global Media in the Greek Debt Crisis: A Topic Modeling Approach. Jahrbuch für Wirtschaftsgeschichte, 59 (2): 525–566.  

Fastenrath, F., Orban, A., Trampusch, C. (2017) From Economic Gains to Social Losses: How Stories Shape Expectations in the Case of German Municipal Finance. Kölner Zeitschrift für Soziologie und Sozialpsychologie, 70 (1): 89-116 (also published as MPIfG Discussion Paper 17/20. Cologne: Max-Planck-Institute for the Study of Societies.)

Conferences and workshops:

  • Society for the Advancement of Socio-Economics, New York (2019): “The Financialization of SOEs in Europe: Context and Firm Level Determinants”, paper presented by Agnes Janssen
  • International Conference of Europeanists, Chicago (2018): “Financialization and the State: Public Debt, Consumer Credit and Central Banking”, panel organised by Florian Fastenrath and Christine Trampusch and “States’ Interests as Limits of Finance Power in Regulatory Financial Market Reforms: The Regulation of Municipal Swaps in the U.K. and U.S.A” as well as “The Diffusion of Risky Private Capital Financing across English Municipalities”, papers presented by Armin Mertens
  • Future of Finance and Society Conference, Edinburgh (2018): “The Financialisation of English Local Governments: The Role of Party Politics, the Finance Industry and Policy Diffusion”, paper presented by Florian Fastenrath
  • International Conference of Europeanists, Glasgow (2017): “Financialization, Private Interests and the State”, panel organised by Agnes Janssen and “Noisy Politics, Resilient Expectations: The Cases of US and German City Swaps”, paper presented by Florian Fastenrath and Christine Trampusch
  • SPP 1859 Annual Conference, Mannheim (2017): “„Numbers and Fashion: How the ‚Active Debt Management Story’ Shapes Expectations in German Municipal Finance”, paper presented by Florian Fastenrath
  • SPP 1859 Workshop “Media Analysis”, Stuttgart (2016): “Local Governments’ Swap Crises from a Comparative Perspective”, paper presented by Agnes Janssen
  • Workshop “The Future in Economic Decision Making”, Max Planck Institute for the Study of Societies, Cologne (2016)

Project leader: Prof. Dr. Christine Trampusch
Postdoctoral researcher: Dr. Agnes Janssen
Doctoral researchers: Dr. Florian Fastenrath, Armin Mertens (M.A.)
Student research assistants: Hagen Kruse, Rebecca Wangemann

Further information can be retrieved via the official DFG project page