The Sovereign at Play with Financial Codes

This paper analyzes the ambiguous games of a semi-peripheral state towards the codes of financialization. Relying on unpublished archives and interviews with sovereign debt managers, investment bankers and lawyers, it draws on a sociology of law and finance focusing on public policy tools and the use of legal-financial codes ‘in action’ to shed light on a dispute between the Kingdom of Belgium and US investment bank Merrill Lynch. In the early 1990s, the Belgian Treasury was at the forefront of financial innovation on its debt, taking risky bets on European monetary convergence. It behaved as a commercial actor ‘like any other’, initially endorsing the codes of financialization – and benefiting from it. Yet, when losses loomed, the Belgian State reasserted its sovereign prerogatives to compel the bank to settle. It threatened to go to trial and to defer to domestic courts (rather than New York judges), and strategically downplayed its degree of financial sophistication to emphasize its dependence towards the bank. After a two-year-long negotiation, Merrill Lynch paid out to settle the dispute. The case was reduced to a mere ‘hiccup’ and the blame circumscribed to a ‘deluded’ senior civil servant. Far from being called into question, the financialization of the Belgian state was further consolidated and professionalized.