The Policy Imaginary of Financial Stability in the Twin Crises of the EU

If the immediate aftermath of the Lehman Brothers collapse in the fall of 2008 placed the US political economy at the center of renewed sociological interest in the dynamics and mechanisms of financial crises, the actual resolution of the ensuing ‘Great Recession’ has raised equally challenging analytical questions vis-à-vis the hybrid polity of the European Union. Besides confirming Reinhart and Rogoff’s (2010, 2013) thesis about the strong link between financial crises and sovereign debt crises, the transition from the aftershock of the banking crisis in Europe to the impending threat of a potential meltdown of the Eurozone offers an unparalleled opportunity for bringing together conventionally compartmentalized research programs and theoretical frameworks from cultural, political, and economic sociology. The legal-regulatory management of the twin crises of finance and sovereign debt at the EU level presents a puzzle aptly described by Schmidt and Thatcher as the “ideational resilience” of (neo)liberalism in Europe: the adaptive survival of a discourse which continues to dominate key policy-making processes, whereby even “problems of low growth, banking crises, excessive ‘financialization’, private-sector debt” are successfully reframed as problems of “profligate governments needing to radically cut their deficits and debt, institute ‘structural reforms’ to radically modify the welfare state, and extend the ‘rigour’ of competitive markets” (2013:13). As I shall argue in this paper, the sequence in Europe from the contagion of the banking crisis in 2008-2009 to the far more formidable fear of Euro area sovereign bond yields spiraling out of control in 2009-2012 has generated a number of fiercely contested supranational political economic regulatory reforms aimed at restoring financial and fiscal stability by any means. Not only does the single-minded pursuit of these goals raise important questions about the conjunctural matrix of institutional-legal mechanisms and legislative-deliberative processes behind such new regulations, directives, and binding pacts, but ultimately it also draws attention to path-dependent institutional dynamics and reified policy imaginaries. In other words, I want to ask why those in charge of resolving the twofold Euro crisis have demonstrated so little willingness to search for political economic alternatives to the entrenched pre-2008 consensus about narrowly conceived public finances. Drawing on my extensive research on archival and interview data with key policymakers at the European Commission, the European Council, and the European Central Bank, I will explore in this paper the structural tensions arising from concerted EU-level efforts to provide effective immediate crisis-resolution strategies and crisis-prevention frameworks oriented towards the longer term. Through an implicit comparison of two, temporally interconnected, empirical cases (the successive round of measures to ensure strict fiscal discipline even at the cost of austerity and the steps taken in the direction of banking union), I want to show how and why the highly selective diagnoses of the banking and sovereign-debt crises led to a potentially counterproductive sequencing of emergency reforms, whereby the separation of public and private finance has both reinforced and recast the stereotypical divide between ‘state’ and ‘market’ within the regulatory regime of the European Union.