Causes of the Financial Crisis and Causes of Citizen Resentment in Europe: What Law Has to Do with It
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Description
The structure of financial flows in Europe, organised as inter-state transfers tied to demanding austerity conditions through the ESM mechanism, are in part responsible for resentment and backlash against the European Union by citizens. Such a structure also helps to sustain a misguided narrative about the nature of the crisis, wrongly suggesting that virtuous states are bailing out profligate ones. The central cause for the crisis in Europe is not an undisciplined spending by profligate states, but the asymmetric structural symbiosis between states and banks. Even after the reforms undertaken, states remain lenders of last resort for banks and banks remain lenders of last resort for states. Even though Draghi's daring policies have contributed significantly to loosening that link, that symbiotic relationship must be further loosened. Banks must be regulated in a way that ensures that the financial sector does not depend on massive tax-payer financed transfers in times of crisis. The reforms undertaken in the past years gesture in the right direction but often remain ineffectual or cosmetic at best. Furthermore, the public costs of bank-bailouts are to a significant extent the result of genuinely European risks, for which it would be appropriate to hold the European Union as a whole accountable. The mechanism through which to organise this European responsibility should not be inter-state transfer mechanisms, such as those foreseen by the ESM. Particularly after the establishment of a Banking Union with the ECB playing a significant supervisory role this money should be paid for by genuinely European funds, raised by European taxes or levies.
Source Publication
Legitimacy Issues of the European Union in the Face of Crisis: Dimitris Tsatsos in Memoriam
Source Editors/Authors
Lina Papadopoulou, Ingolf Pernice; Joseph H.H. Weiler
Publication Date
2017
Recommended Citation
Kumm, Mattias, "Causes of the Financial Crisis and Causes of Citizen Resentment in Europe: What Law Has to Do with It" (2017). Faculty Chapters. 1056.
https://gretchen.law.nyu.edu/fac-chapt/1056
