This article studies recent governance dynamics in the euro area under the pressure of the sovereign debt crisis from 2009 to the end of 2011 from an institutionalist perspective. It investigates five cases of implicit or explicit institutional change which reveal the pace and the scope of explicit and implicit institutional change in the monetary union under crisis conditions. It argues that key steps of crisis management have actually created path dependencies for further institutional change. It also argues that incoherent responses from multiple actors in the face of immediate crisis management needs, new policy challenges and coordination difficulties in the crisis have strengthened the case for more substantial institutional change. An institutional set-up that continues to adapt only incrementally to the inner and outer challenges by not impacting more strongly on national sovereignty and by not strengthening supranational policy-making based on its own sources of legitimacy will not be able to solve the collective action problems inherent in the European Monetary Union (EMU)'s architecture with a centralized monetary policy and insufficient integration in the fields of economic, budgetary and financial policy coordination.
Policy Implications• The adaptability of the institutional framework of the euro area should not be underestimated.• Substantial adjustment to its governance have occured and will happen below the level of Treaty change.• In the medium-term, a more fundamental reform may be required in order to account for problems of governance efficiency and, increasingly, problems of legitimacy.• An institutional set-up that continues to adapt only incrementally to the inner and outer challenges by not impacting more strongly on national sovereignty and by not strengthening supranational policy-making based on its own sources of legitimacy will not be able to solve the collective action problems inherent in the Euro area's asymmetry; namely, a centralized monetary policy and insufficient integration in the fields of economic, budgetary and financial policy coordination.
The EMU has been designed without an instrument for automatic fiscal stabilization on the European level. This article highlights the seriousness of this lacuna by new empirical data, which suggest that fiscal stabilization at the national level has also worked insufficiently. This situation will hamper the EU's efforts to achieve the targets set by the Lisbon Agenda: recent theoretical contributions suggest that a positive macroeconomic environment is a prerequisite for productivity growth and structural reform which form the centrepiece of the Agenda. There are thus strong economic arguments for rethinking the set-up for fiscal stabilization policies in the EMU. We suggest three remedies for the underperformance of the automatic stabilizers: making EU expenditure sensitive to the cyclical situation of the recipient country, introducing an EU corporate tax upon the upcoming revision of the EU budget before 2013 and/or setting up a European unemployment scheme.
Relative economic, political, and military power is undoubtedly shifting away from the West, most notably to Asia, but also to other world regions. Moreover, non‐state actors and cross‐border flows increasingly pose challenges to Western states’ capacity for crisis management. Consequently, the liberal world order and its governance structures have come under pressure. Even more fundamental is the emerging challenge to the notion of the ‘West’ as a group of countries led by the United States and unified around core values and principles. The 2016 US election results raise serious doubts about the future US administration's resolve to abide by liberal democratic norms both internally and in their international relations. Whether deliberately or indirectly in the pursuit of other goals, the US may undermine the already weakened rules‐based international system and thereby accelerate the decline of the West's material and ideological hegemony. In light of these potential conflicts, European governments must take immediate action to prepare for a new global order. They must first strengthen their own countries and enhance the internal coherence of the Union. Second, they must improve the crisis management facilities and strategic capacities within their borders as well as within the euro area and the EU.
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