From Pragmatism to Dogmatism: European Union Governance, Policy Paradigms and Financial Meltdown

Abstract

Contemporary analyses commonly attribute the global credit crisis to faulty regulation. What have been the roots of these deficient rules, particularly in Europe, where rapid spill-over from US markets took policy makers and observers by surprise? This article focuses on regulatory liberalism as the paradigm guiding European Union (EU) regulation. It has dominated regulatory thinking for decades, but it has been implemented throughout Europe only since the mid-1990s. This shift can be traced to political institutions that have filtered policy ideas. EU financial reforms have pushed policy from pragmatism, under which it was adapted to political contingencies, to dogmatism, which adapts it to the intellectual exigencies of rigid policy paradigms. Inadvertently, reforms had created an epistemic community in which 'professional' rule setters systematically ignored external criticisms. The institutionalised ambition to craft 'intellectually sound' policy-rather than policy that simply 'works' -generated rules that persistently ignored the financial markets' self-reflexivity and thereby aggravated the crisis.

The Comparative Political Economy Basel III in Europe

“…Feeding into the literature on economic constructivism, some authors have pointed out the rise, prior to the international financial crisis, of the 'neoliberal' paradigm (Best, 2003;Gamble, 2009), that is a 'governance light' approach, which favoured 'market-based governance', based on a benign view of financial markets and grounded in efficient market theories (Mügge, 2011;Underhill et al, 2010, p. 10). In Europe, the UK was the main promoter of 'light touch' regulation (Hodson and Mabbett, 2009;Macartney, 2010), which was discredited by the financial crisis.…”

Why and How Supranational Institutions Became Central Stakeholders in the Eurozone Debt Crisis 2008–2012?

“…From a broader perspective, different success criteria and values concerning the Eurozone have been discussed by Daniel Mugge (2011) who distinguishes the pragmatic and the dogmatic models of policymaking, claiming that there is a shift from pragmatism to dogmatism in the recent years, and the changed rules may be partly traced to the financial sector lobbying in the 1990s when large European banks identified cross-border capital markets as the key source of future profitability.…”

“…Problems appear during a recession when it is hard to find simultaneously a winning scenario in terms of political popularity, social stability, and economic sustainability. This dilemma can lead to a situation in which the actual policy implementation may play a secondary role since economic and political circumstances offer no quick fix and public popularity for political stakeholders (Schmidt 2010;Mugge 2011).…”

Global governance in crisis? Fragmentation, risk and world order

“…While the buildup of these risks can be traced back to particularities of the Anglo-American economies, it is notable that the existing institutions of global financial governance did not restrain them, but rather amplified the regulatory model from these countries and made them models for the global standard. 7 Furthermore, as Mu¨gge (2011) has recently pointed out, at crucial junctures during the financial crisis policy responses followed the logic of 'dogmatism' over 'pragmatism', as entrenched ideas about financial market regulation limited and conditioned the policy responses during the crisis. Pagliari (2012) has documented the shift in consolidating more authority to regulate financial markets since the crisis -a shift which has come with surprisingly strong continuity with the pre-crisis regulatory model.…”