The Euro Crisis, Institutional Change and Political Constraints

In response to the financial crisis, the European Union (EU) moved towards increased (albeit not sufficient) coordinated financial supervision. As a response to the second and more important crisis, the sovereign debt crisis, new economic governance and stronger fiscal and macroeconomic surveillance mechanisms have been established in an incremental way in an attempt to sustain Economic and Monetary Union (EMU) and, eventually, prepare a leap forward in terms of fiscal and political integration. This chapter analyses those initiatives as EMU endogenous political institutions, designed to address the negative (systemic) spillovers that run from the economic side to the monetary side of the union, which had been insufficiently accounted for. EMU’s legitimacy and sustainability are examined in the context of the new strategic role of the ECB and of the impact of those endogenous legitimising mechanisms on the delivery of its narrow and wider goals. The modes of governance that characterise mostly the economic side of EMU (under construction to complete EMU) interact continuously with the (normal) functioning but also with the developing roles of the existing supranational institutions. Such a multi-level process and continuous interaction allow for a better internalisation at the domestic level of various common objectives, which were accepted by all Eurozone member states but whose implementation tends to be hindered by national political systems.