Academic journal article Global Governance

Putting the Pieces Together: International and EU Institutions after the Economic Crisis

Academic journal article Global Governance

Putting the Pieces Together: International and EU Institutions after the Economic Crisis

Article excerpt

This article examines the role of global financial institutions, the World Bank, and the International Monetary Fund, as well as the Group of 20 and the main European financial institution, the European Central Bank, in the aftermath of the 2008 financial crisis. The central question is whether these institutions are helping or hindering Europe's recovery. Looking at the activities of these institutions from 2008 to 2014, the article concludes that they have had little impact on the recovery itself. Instead, their focus has been on preventing further damage and eliminating the possibility of such a crisis in the future. Keywords: 2008 financial crisis, European Union, financial governance, International Monetary Fund, World Bank.

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THE BASIC PREMISE OF INSTITUTIONALISM IS THAT INSTITUTIONS MATTER. IT seems to us, given the persistent global financial crisis and worldwide recession combined with the potential collapse of regional institutions in Europe, that it is worth examining some of the major financial institutions to see if they did and do matter--either in exacerbating the financial downturn or ameliorating its effects. Hence, in what follows, we examine two major groups of financial institutions that play key roles in managing financial issues in global and regional regimes--the international group created after Bretton Woods (1944), and those of the European Union (EU) created largely by the Maastricht Treaty (1992) and since modified--and ask the question, what effects have these institutions had and what effects are they still having on financial outcomes after 2008?

To be clear, numerous studies have dealt with the question of how the financial crisis came about. We are not adding to this literature. Instead, our focus is on the aftermath, the ongoing attempts to put the world back together--financially. It is possible that these institutions have had one or more of the following effects: (1) they might have intensified the financial crisis; (2) they might have alleviated the crisis; or (3) they might have had no discernible impact.

The consequences of the financial crisis that began with the United States' subprime mortgage crisis and the bankruptcy of Lehman Brothers persist as of this writing. Its focus has moved across the Atlantic to Europe, which remains threatened by financial contagion in a globalizing world much like that which swept across Asia in 1997-1998. Debt burdens, the threat of sovereign default, and recurrent liquidity issues reveal the difficulty in achieving cooperation among the loosely joined states of the EU. The world remains mesmerized by the ongoing financial problems of Europe, notably the eurozone with its single currency but lacking a unified macroeconomic vision. Bailouts have been provided for Greece, Ireland, Portugal, Spain, and, most recently, Cyprus. Achieving stability and stimulating growth in the face of austerity are difficult. Nevertheless, the impediments to interstate cooperation are not insurmountable, and "international cooperation during this sharp economic contraction has been more sustained and stable" (1) than it was during either the Great Depression or the 1981-1982 recession. (2)

Financial Governance

"Financial governance"--defined by Canadian political scientist Randall Germain as "the broad fabric of rules and procedures by which internationally active financial institutions are governed" (3)--in a globalizing world and the ways in which the "public mechanisms by which authoritative decisions about these rules and procedures are made" (4) have evolved since the global financial crisis began. We begin by briefly addressing the concept of "governance" and then describe the evolution of financial governance and the key actors involved in coordinating and regulating the contemporary global financial system both globally and within the EU. Finally, we focus attention on these actors' behavior since the crash of 2007-2008, evaluating their performance with comments on the utility of institutionalist logic. …

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