Over the last five years the European Union has faced financial crises, acute imbalances, problems of macro-economic coordination, structural reform, questions of long-term fiscal sustainability and ‘rule of law’ crises. These complex and interconnected problems have pushed the limits of existing European modes of governance. As a result the efficiency and legitimacy of European integration mechanisms are being questioned just as the EU faces an unprecedented array of political challenges. In order to deal with these difficulties, the EU has both created new modes of governance and restructured existing ones. Assessing the need for ‘more or less Europe’ becomes increasingly challenging as the architecture of these modes of governance becomes more complicated.
The ENLIGHTEN project is concerned with the legitimacy of European governance in dealing with what we call fast and slow-burning crises. Fast burning crises are readily identified – they are the political and economic shocks of recent years. In slow-burning crises the political, social, and economic challenges are long-term and widespread, but do not generate immediate political attention. In these ‘crises’, such as the sustainability of our fiscal systems, the ageing of our populations, and lack of public investment in areas like housing, expert networks are important in defining problems and how they should be treated.
The ENLIGHTEN research team are investigating both fast- and slow-burning crises in the following areas: Banking Crises and Fiscal Sustainability, Deficit Reduction and Continuity of Public Services and Youth Employment and Inclusive Growth.
Banking Crisis and Financial Sustainability
This research analyses the governance of the fast-burning crisis of the banking system and the slow-burning crisis of financial sustainability. It aims to identify the modes of governance and institutional assemblages that condition it and establish which and how expert networks are positioned to drive policy innovation (or reinforce policy inertia) and generate increased legitimacy, as well as which ideas have become dominant in these networks. As the crisis experience has made amply clear, financial stability and fiscal viability of member states are closely – even dangerously – connected. Because of this link, they are together defined here as ‘financial sustainability’. In the European response to this twin banking and sovereign debt crises, including the European Semester, Banking Union, the European Stability Mechanism, Macroeconomic Imbalance Procedure and the Fiscal Compact, issues of financial sector design, governance and supervision and fiscal policies are tightly linked and coordinated. The institutional architecture that has been erected to support these policies is complex, including the establishment of the European Stability Mechanism and the Fiscal Compact outside the legal framework of the EU. That has made governing the intersection between financial services policy (regulation and supervision of financial institutions) and monetary and fiscal policy for EU members highly complicated. Besides, policymakers and members of civil society overestimate the ability of regulation to banish financial instability by itself in an adverse macroeconomic context. In consequence, this research will investigate what institutional reforms (with their tensions and complementarities) are likely to pay a combined legitimacy and efficiency dividend in governing fast- and slow-burning crises.
For non-academic partners, this research is also the occasion to take a step back and explore the bigger conceptual framework defining the environment in which they operate. They expect the project to give them arguments for policy-makers (also at national level e.g. in the UK context) to tackle the root causes of the last crisis instead of fighting symptoms.