Note: The following paper was written in mid-2010. I will revisit this topic in an upcoming post for a more up-to-date perspective.
“In this paper, I shall look at the European Union’s response to the current financial crisis and evaluate both how the crisis was addressed and the effectiveness of it’s response. I shall mainly argue that, while successful overall, this response was unnecessarily handicapped by the lack of strong economic governance on the EU level in favour of often disappointing inter-governmental cooperation. I shall first focus on the EU’s immediate response to mitigate and resolve the crisis (I) before turning to its new regulatory and supervisory proposals (II).”
Outline:
I) Mitigating and resolving the effects of the crisis
A) Supporting the financial sector
B) Macro-economic support/stimulusII) Reform and prevention of future crisis
A) Regulatory initiatives
B) Supervisory initiatives
Concluding thoughts:
“The EU was institutionally ill-prepared to manage a financial crisis, especially with regards to the assignment of competences between the Union and Member States. The EU was largely successful in coordinating the stabilisation of the banking sector, where it was able to rely on its exclusive competition competences. On the other hand, the EU’s coordination and role in macro-economic policies, with the exception of the balance of payments assistance, can only be called lackluster. A similar pattern emerges when one looks at the EU’s supervisory proposals which, as a consequence of financial stability being a national competence, represent a fragile balancing act between national and EU interests. More progress has been achieved in the regulatory arena, where the EU has a shared competence, under the purview of the common market. Soft-law instruments have shown their value in areas where the EU lacks competence or is faced with stiff resistance, these are, however, not a solution to the institutional problems facing the EU. Looking back at the EU’s response, the limitations of inter-governmental cooperation are clear. As several economists and MEPs have suggested, and I would argue, this situation would be best solved by the creation of a European economic government with control over economic and fiscal policy. Ineffective agreements such as the Stability and Growth Pact, are no substitute for real governance. Article 136 might be a good starting point for this, but a treaty change in this direction appears to be inevitable in the long term. This argument is now even stronger given the current debt crisis in Greece and its impact on all Eurozone countries.”