Table of Contents
The European Union is a curious and constantly evolving political institution and the way in which EU leaders have managed their responses to the global financial crisis draws out its unusual and at times opaque approach to crisis management. Economic decision-making power is divided between the leaders and finance ministers of the European member states through the European Council and the Council of Ministers, the European Commission (the central executive bureaucracy), the European Central Bank (ECB, which administers the common monetary policy) and the increasingly powerful European Parliament (McCormick 2005:79–91). It is often impossible to divorce the coordinated crisis-management response of the European Union from the actions of its constituent member states. It is also easy to underplay the significance of EU institutions and their actions once a common position has been adopted. As the global financial crisis struck Europe, its leaders eventually managed to overcome their initial paralysis and weld a stronger, more systematic Europe-wide response.
The EU member states initially dealt with the crisis on an individual basis, but by the end of 2008, the European Union’s complex array of leaders was manoeuvring to adopt a common approach to the management of the crisis and coordinate a strong Europe-wide response through the commission and the Central Bank. By the end of October 2008, a ‘European Framework for Action’ had been adopted. By the end of November, a substantial multi-billion-euro stimulus plan had been announced. A record-breaking cut was made to interest rates in early December; and, at the G20 meeting of leading global economies in March 2009, coordinated EU pressure had provided much of the momentum for global agreements on new financial and banking regulation and economic stimuli. The crisis had demonstrated the combined power of the European institutions and provided an opportunity for Europe to develop a stronger common economic approach.
It is in that context that this chapter assesses the meaning making of three key actors in the European Union: the Commission President José Manuel Durão Barroso, the Commissioner for Economic and Financial Affairs Joaquín Almunia, and the President of the ECB Jean-Claude Trichet. Each of these actors was a significant decision maker and leader within the European Union’s institutional framework vested with significant responsibility to respond to the economic changes across the European Union as a whole. Until the end of 2008, the Presidency of the European Council (often described as the EU Presidency) was held by France and exercised by French President, Nicolas Sarkozy. Despite the leadership potential of this latter office (Tallberg 2006), this chapter sets to one side the deliberations of member state and ‘intergovernmental’ (that is, the presidency) leaders and focuses on the roles of the ‘supranational’ leaders. The Commission President is a significant, influential and vocal EU leader in his own right (McCormick 2005:82–6; Verbeek forthcoming). This chapter found that the European Union’s key leaders sought to frame the crisis in such a way as to avoid harmful political blame and achieve effective economic cooperation, substantial structural reforms in banking and finance regulation and a heightened sense of European unity. In the process, the institutional leaders of the European Union helped to drive a significant shift in macroeconomic ideology and policy to a more interventionist style.
Box 8.1 The European Union’s financial crisis trajectory, July 2008 – March 2009
1 July 2008: French Presidency of the European Union begins.
3 September: The ECB cuts the growth forecast for 2009 from 1.5 per cent to 1.2 per cent.
8 October: Central banks around the world coordinate an interest rate cut in response to the credit crunch. The ECB cuts rates from 4.25 per cent to 3.75 per cent.
12 October: An emergency summit is held of national leaders of the eurozone countries. An agreement is reached regarding measures to repair confidence, promote cooperation among European leaders and ensure liquidity for financial institutions.
15–16 October: An EU summit is held and there are calls for reform of the international financial system.
18 October: Commission President Barroso and current EU President, Nicolas Sarkozy, meet with US President, George W. Bush, to discuss the global financial crisis. A series of meetings of international leaders to review national and international responses is established.
6 November: The ECB cuts rates from 3.75 per cent to 3.25 per cent.
7 November: EU Summit held (informal gathering of EU member state leaders) and agrees on a common set of reform principles for the International Monetary Fund (IMF).
9 November: São Paulo, Brazil, hosts G20 meeting of finance ministers and central bank governors, including EU member state representatives.
14 November: The eurozone officially enters recession after figures for the European Union show a 0.2 per cent contraction of the economy in the third quarter of 2008.
15 November: The EU-initiated G20 summit is held in Washington, DC, bringing together 19 of the largest national economies; includes EU representation as well as senior figures of the United Nations, the IMF, World Bank and the Financial Stability Forum.
19 November: Memorandum of understanding signed on financial assistance to Hungary—to provide up to €6.5 billion, with the first €2 billion instalment released before the year’s end.
26 November: The European Commission releases the European Economic Recovery Plan, worth €200 billion, with the goal of boosting confidence in the financial systems and stimulating spending throughout the European Union.
28 November: Inflation in the eurozone had been at 3.2 per cent in October 2008, but falls to 2.1 per cent.
4 December: ECB cuts interest rate from 2.75 per cent to 2.5 per cent—the greatest reduction since the euro currency was introduced.
11–12 December: The European Council approves the European Economic Recovery Plan. The plan provides a common framework across the European Union and is worth approximately €2 billion or 1.5 per cent of the European Union’s gross domestic product (GDP).
1 January 2009: Czech Presidency of the European Union begins.
15 January: The ECB cuts eurozone interest rates a further 0.5 per cent to 2 per cent.
26 January: Memorandum of understanding signed on financial assistance to Latvia—to provide up to €3.1 billion assistance.
9 February: EU Commissioner for Economic and Monetary Affairs Joaquín Almunia’s article ‘Solve the toxic asset problem’ is published in the Wall Street Journal.
1 March: EU leaders attend an informal European Council meeting and establish an agreement on measures to deal with banks’ toxic assets
5 March: ECB announces further cuts in the interest rate—to 1.5 per cent.
11 March: Supplemental memorandum of understanding with Hungary—announcing the second instalment of €2 billion (of up to €6.5 billion).
14 March: G20 finance ministers and central bank governors meet in the United Kingdom ahead of the 2 April London G20 summit.
25 March: European Union expresses its intention to provide up to €5 billion assistance to Romania.