Authors Iain Begg | Gabriel Glöckler | Anke Hassel ... - The Europaeum

confidence and world trade, to which Germany as the world’s leading
exporter, has been particularly exposed. The European Union emerged
ill prepared and poorly equipped with the necessary policy instruments
to tackle the crisis. Few experts had predicted what could go wrong. In
fairness, some had foreseen a looming problem in that financial market
integration in Europe had proceeded apace without an adequate parallel
development in the effectiveness of financial regulation at EU level. But,
even had better cross border supervision been in place, there is legitimate
doubt how far it would have mitigated the scale of the crisis. The problem
for supervision may have been an inability to understand the nature of
systemic risk as much as a failing of normal regulatory processes. And
when the problem became one of bank solvency the absence of any
European fiscal authority with the power to tax meant that member states
had to take responsibility for bank rescues and recapitalisation. The
essential role of the nation-state as a pragmatic necessity was confirmed –
and not just in eurosceptic eyes.
However, some decisive actions were taken in common. In addition to
the adoption by the October 2008 European Council of a broadly pitched,
common framework for national bank rescues, there was a recognition that
the sudden demand shock created by the crisis could only be countered
by government fiscal stimuli, and that it would be far more effective if
member states acted in harmony. The Commission produced a fiscal
stimulus plan – implementation of which has been both imperfect and
uneven – but nevertheless counts as a significant new move in economic
policy coordination. These are important positives.
The crisis revealed however that lack of adequate policy coordination
remains an area of serious weakness for the EU. First, there can be no
sustainable economic recovery without a cohesive EU approach to banking
sector recapitalisation, regulation and supervision. In many respects, what
is required at EU level is a Treuhand agency, which famously privatized
many East German enterprises during the process of the country’s reunification,
to overcome the innate problems of its banking sector. But
there remains a latent risk that certain member states are unwilling to
address this weakness and use as an excuse, the assertion that this is still
an Anglo-American rather than a European crisis.
Second, several member states in central and eastern Europe have run into
such severe economic difficulties that they have had to resort to the IMF
for balance of payments support. While (following the April 2009 G20
meeting in London) better placed EU member states have contributed the
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After the crisis: A new socio-economic settlement for the EU