ABSTRACT
The economic and financial crisis hit the European Union (EU) in 2007-8, with banks collapsing, the money markets drying up and severe drops in the stock exchanges throughout Europe and other advanced economies (Sorkin 2009). At this time the EU as a whole collaborated with others in the context of the G20. At the level of the EU it was difficult initially to deal with the immediate crises of the day, as individual member states were uncertain what steps had to be taken at that level, given the speed of the unfolding crisis, the limited budget of the EU and the lack of response mechanisms catering to this kind of crisis (Buti and Carnot 2012). As the sovereign debt crisis worsened during 2010-12 the question was once
again how to deal with it. The EU was heavily criticized during this time;
implementing the Stability and Growth Pact (SGP). That analysis demonstrated that by looking at a few key points, one is better able to examine the concept of EMU, the actors pushing for it, the institutional context, the role of exogenous shocks and how they affected monetary integration. One of its main findings was that there was a remarkable continuity in the concept of EMU throughout the decades: a transfer of sovereignty over monetary policy to the EU level, but regarding fiscal policy a reliance on rules (EU treaty and regulations) and leaving responsibility with the member states – even though initially, in the 1960s and 1970s, it was thought that EMU would be accompanied by deeper economic (or fiscal) integration (Verdun 2007: 208). In terms of the actors that have been influential, the findings suggest that although the European Commission has been a key player, support had been needed from heads of states or governments. The institutional context, but also the occurrence of any exogenous shocks, played an important role in the pre-crisis period. The analysis concluded that member states’ governments were unwilling to transfer sovereignty over fiscal policies to the EU level without there being a felt need (e.g., owing to a major shock). Yet it was assumed there would be some kind of crossroads, some kind of upset, that would force the matter back onto the agenda so that member state governments would have to commit there and then, under major pressure, to consider deeper integration (Verdun 2007: 209). An HI analysis of the EU responses to the EA financial crisis is attractive
because of the nature of the proble´matique that is being studied. Many saw the crisis as an existential crisis: one or more countries could find themselves having to leave the EA, with a potential domino effect in its wake, implying that the EA was at risk of falling apart (Eichengreen 2012b). The question that lay before member state governments and EU institutions was what to do next. What kind of institutional response would be given? Would there be a leap in integration or more gradual institutional change? If the latter, what kind of gradual change? Could we see more ‘displacement’, ‘layering’, ‘drift’ or ‘conversion’ of institutional structures (Mahoney and Thelen 2010: 1516; Streeck and Thelen 2005; Thelen 2009)?2 Could this period be judged as a ‘critical juncture’ as other HI scholars might do (Capoccia and Kelemen 2007)? Would we be able to understand the chosen institutional structure better by using that analytical tool? HI is an approach that seeks to understand how political struggles are
mediated by the setting in which they take place (Hall and Taylor 1998; Hay and Wincott 1998; Meunier and McNamara 2007: 4; cf. Steinmo et al. 1992; Thelen 1999; Thelen and Steinmo 1992). Institutions in this context could be either formal (EU institutional structures such as the Council of the EU or formal rules such as the SGP) or informal (norms, practices and unwritten rules), although HI scholars typically focus on formal institutions. Scholars in this tradition study through ‘empirical investigation’ whether ‘institutional structures affect political strategies, outcomes and preferences’ (Steinmo 2008: 125). Also, the EU responses to the crisis lend themselves to be examined
support for the EU observed a downward trend throughout the entire period since the start of financial crisis and through 2012 (Eurobarometer 2011: 34; Eurobarometer 2012: 85). Also, at the level of member states, support was waning (Armingeon and Ceka [2014]; Roth et al. [2011]; although Hobolt and Wratil [2015] show that support for the euro inside the euro area remained stable). Sitting national governments were not spared: in eight countries governments fell or incumbents were not re-elected in national elections (Verdun 2013a). With such economic and political pressures, the EU member states could
have chosen to support, or not, EU member states in need. If so, they could have opted to create institutions within or outside the EU framework to assist these member states in need. Furthermore, they could have decided to create new institutions or alter existing ones to deal with the crisis. Economists from the United States (US) and elsewhere uttered serious criticisms of the design of Europe’s Economic and Monetary Union (EMU) and the EU as a whole (De Grauwe 2011, 2012; De Grauwe and Ji 2012; Eichengreen 2012a, 2012b; Feldstein 2012; Krugman 2011; 2012; Sargent 2011). Eventually, in response to the crises, the EU created some remarkable new institutions such as the European Financial Stability Facility (EFSF) – later the European Stability Mechanism (ESM) – the Six-Pack, the Two-Pack, the European Semester and the Fiscal Compact (see Ioannou et al. [2015]). With all options open, and the EU criticized, the question asked in this con-
tribution is how can we explain that the EU responses to the euro area (EA) financial crisis were to create institutions that were so similar to the typical EU institutional structures? This study adopts a historical institutionalist (HI) approach to answer this question. It shows how the existence of earlier institutional structures is used to come up with new institutional structures. The structure of this contribution is the following. The next section reviews
the literature on HI and the origins of the EA financial crisis. The third section reviews the EU institutional design, and the fourth offers an overview of the crises and the responses by the member states and the EU, including an overview of four newly created institutions set up to respond to the crisis. The final section concludes.
