IDEAS home Printed from https://ideas.repec.org/a/cog/poango/v9y2021i2p173-184.html
   My bibliography  Save this article

Tug of War over Financial Assistance: Which Way Forward for Eurozone Stability Mechanisms?

Author

Listed:
  • Moritz Rehm

    (Department of Social Science, University of Luxembourg, Luxembourg)

Abstract

This article analyses the development of financial assistance in the Eurozone since 2010. It argues that reforms to instruments and bodies, notably the European Financial Stability Facility, the European Stability Mechanism, and the current Covid-19 recovery fund, are best explained by a re-occurring pattern of negotiations between potential creditors and debtors based on common Eurozone interests and national cost-benefit considerations. Building on a liberal intergovernmentalist approach, this article shows how this pattern influenced the step-by-step reform of financial assistance in the Eurozone. The threat to Eurozone stability served as a constant factor encouraging member states to expand and deepen the assistance formula. Creditors’ cost-benefit considerations were key for retaining disincentives, a limited liability for common debt, and intermediary borrowing and lending within the financing design. However, on the back of common Eurozone interests, debtors were able to push for an increase in assistance, an expansion of assistance into areas of banking sector support, and a softening of moral hazard elements in the more recent Covid-19 pandemic. Due to creditors’ continuous insistence on safeguards and limited burden-sharing, reform outcomes were repeatedly unable to resolve the difficulties at hand.

Suggested Citation

  • Moritz Rehm, 2021. "Tug of War over Financial Assistance: Which Way Forward for Eurozone Stability Mechanisms?," Politics and Governance, Cogitatio Press, vol. 9(2), pages 173-184.
    • Handle: RePEc:cog:poango:v9:y:2021:i:2:p:173-184
    DOI: 10.17645/pag.v9i2.3887
    as

    Download full text from publisher

    File URL: https://www.cogitatiopress.com/politicsandgovernance/article/view/3887
    Download Restriction: no
    File URL: https://libkey.io/10.17645/pag.v9i2.3887?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Clément Fontan & David Howarth, 2021. "The European Central Bank and the German Constitutional Court: Police Patrols and Fire Alarms," Politics and Governance, Cogitatio Press, vol. 9(2), pages 241-251.
    2. Howarth, David & Quaglia, Lucia, 2016. "The Political Economy of European Banking Union," OUP Catalogue, Oxford University Press, number 9780198727927.
    3. Blyth, Mark, 2013. "Austerity: The History of a Dangerous Idea," OUP Catalogue, Oxford University Press, number 9780199828302.
    4. Frank Schimmelfennig, 2018. "Liberal Intergovernmentalism and the Crises of the European Union," Journal of Common Market Studies, Wiley Blackwell, vol. 56(7), pages 1578-1594, November.
    5. Philipp Genschel & Markus Jachtenfuchs, 2018. "From Market Integration to Core State Powers: The Eurozone Crisis, the Refugee Crisis and Integration Theory," Journal of Common Market Studies, Wiley Blackwell, vol. 56(1), pages 178-196, January.
    6. Andrew Moravcsik, 2018. "Preferences, Power and Institutions in 21st‐century Europe," Journal of Common Market Studies, Wiley Blackwell, vol. 56(7), pages 1648-1674, November.
    7. David Howarth & Lucia Quaglia, 2014. "The Steep Road to European Banking Union: Constructing the Single Resolution Mechanism," Journal of Common Market Studies, Wiley Blackwell, vol. 52, pages 125-140, November.
    8. Clément Fontan & David Howarth, 2021. "The European Central Bank and the German Constitutional Court: Police Patrols and Fire Alarms," Politics and Governance, Cogitatio Press, vol. 9(2), pages 241-251.
    9. Christiaan Kwaak & Sweder Wijnbergen, 2017. "Sovereign debt and bank fragility in Spain," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(3), pages 511-543, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Clément Fontan & David Howarth, 2021. "The European Central Bank and the German Constitutional Court: Police Patrols and Fire Alarms," Politics and Governance, Cogitatio Press, vol. 9(2), pages 241-251.
    2. Aukje van Loon, 2021. "European Financial Governance: FTT Reform, Controversies and Governments’ Responsiveness," Politics and Governance, Cogitatio Press, vol. 9(2), pages 208-218.
    3. Sébastien Commain, 2021. "‘Don’t Crunch My Credit’: Member State Governments’ Preferences on Bank Capital Requirements," Politics and Governance, Cogitatio Press, vol. 9(2), pages 196-207.
    4. Anna-Lena Högenauer & Moritz Rehm, 2021. "Reforming the Institutions of Eurozone Governance," Politics and Governance, Cogitatio Press, vol. 9(2), pages 159-162.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Moritz Rehm, 2021. "Tug of War over Financial Assistance: Which Way Forward for Eurozone Stability Mechanisms?," Politics and Governance, Cogitatio Press, vol. 9(2), pages 173-184.
    2. Anna-Lena Högenauer & Moritz Rehm, 2021. "Reforming the Institutions of Eurozone Governance," Politics and Governance, Cogitatio Press, vol. 9(2), pages 159-162.
    3. Anna-Lena Högenauer & Moritz Rehm, 2021. "Reforming the Institutions of Eurozone Governance," Politics and Governance, Cogitatio Press, vol. 9(2), pages 159-162.
    4. Mario Tümmler, 2022. "Completing Banking Union? The Role of National Deposit Guarantee Schemes in Shifting Member States' Preferences on the European Deposit Insurance Scheme," Journal of Common Market Studies, Wiley Blackwell, vol. 60(6), pages 1556-1572, November.
    5. Sebastian Diessner & Philipp Genschel, 2025. "Monetary‐Fiscal Interactions and the Problem of Outdated Commitments: Eurozone Crisis Versus Covid‐19," Politics and Governance, Cogitatio Press, vol. 13.
    6. Diessner, Sebastian, 2024. "Monetary-Fiscal Interactions and the Problem of Outdated Commitments: Eurozone Crisis Versus Covid-19," OSF Preprints vwrgs, Center for Open Science.
    7. Björklund, Martin & von Malmborg, Fredrik & La Fleur, Lina & Nordensvärd, Johan, 2024. "Going beyond the Council as brake of EU energy policy: Analysing the internal process of the Council in the recast of the Energy Performance of Buildings Directive," Energy Policy, Elsevier, vol. 195(C).
    8. Guter-Sandu, Andrei & Murau, Steffen, 2022. "The Eurozone’s evolving fiscal ecosystem: mitigating fiscal discipline by governing through off-balance-sheet fiscal agencies," LSE Research Online Documents on Economics 109790, London School of Economics and Political Science, LSE Library.
    9. Diessner, Sebastian, 2024. "Monetary-Fiscal Interactions and the Problem of Outdated Commitments: Eurozone Crisis Versus Covid-19," OSF Preprints vwrgs_v1, Center for Open Science.
    10. David Howarth & Lucia Quaglia, 2015. "The political economy of the euro area's sovereign debt crisis: introduction to the special issue of the Review of International Political Economy," Review of International Political Economy, Taylor & Francis Journals, vol. 22(3), pages 457-484, June.
    11. Federico M Ferrara & Waltraud Schelkle & Zbigniew Truchlewski, 2023. "What difference does the framing of a crisis make to European Union solidarity?," European Union Politics, , vol. 24(4), pages 666-683, December.
    12. Johanna Speyer & Nils Stockmann, 2024. "How a Conversation Between EU Studies and Critical‐Constructivist IR Norm Research Illuminates a Union in Crisis: A Research Note," Journal of Common Market Studies, Wiley Blackwell, vol. 62(3), pages 902-913, May.
    13. Geoffrey R. D. Underhill & Erik Jones, 2023. "Optimum financial areas: Retooling the governance of global finance," The World Economy, Wiley Blackwell, vol. 46(6), pages 1582-1608, June.
    14. Dermot Hodson, 2019. "The New Intergovernmentalism and the Euro Crisis: A Painful Case?," LEQS – LSE 'Europe in Question' Discussion Paper Series 145, European Institute, LSE.
    15. Wen Pan & Madeleine O. Hosli & Michaël Lantmeeters, 2023. "Historical institutionalism and policy coordination: origins of the European semester," Evolutionary and Institutional Economics Review, Springer, vol. 20(1), pages 141-167, April.
    16. Ioannis Asimakopoulos & David Howarth, 2022. "Stillborn Banking Union: Explaining Ineffective European Union Bank Resolution Rules," Journal of Common Market Studies, Wiley Blackwell, vol. 60(2), pages 264-282, March.
    17. Steininger, Lea & Hesse, Casimir, 2024. "Buying into new ideas: The ECB’s evolving justification of unlimited liquidity," Department of Economics Working Paper Series 357, WU Vienna University of Economics and Business.
    18. Achim Truger, 2015. "Implementing the golden rule for public investment in Europe," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 138, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    19. Jörg Bibow, 2018. "How Germany’s anti-Keynesianism has brought Europe to its knees," International Review of Applied Economics, Taylor & Francis Journals, vol. 32(5), pages 569-588, September.
    20. Reto Bürgisser & Donato Di Carlo, 2023. "Blessing or Curse? The Rise of Tourism‐Led Growth in Europe's Southern Periphery," Journal of Common Market Studies, Wiley Blackwell, vol. 61(1), pages 236-258, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cog:poango:v9:y:2021:i:2:p:173-184. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: António Vieira or IT Department (email available below). General contact details of provider: https://www.cogitatiopress.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.