Chapter 14 The Global Financial Crisis

Global Financial Crisis

A crisis that occurred in 2008 with roots in the real estate bubble, Lehman Brothers default, and a crisis in confidence affecting banks, firms, and families. Interpretations differ on its nature, causes, responsible actors, and required political strategies for recovery.

Structural Interdependence

Refers to the interconnectedness of global capitalism, highlighting the unregulated growth of financial markets, inequalities, and imbalances at a global level. The 2008 crisis was the first major crisis of contemporary globalization with deep structural roots.

Systemic Crisis

Describes a crisis that does not imply the collapse of global capitalism but signifies a transformational phase. Capitalism, as argued by various social science theorists, undergoes periodic transformations through processes of 'creative destruction'.

Intergovernmental Regime

The predominant decision-making method in the EU, especially during the financial-economic crisis. It involves coordination among member states' governments, leading to slower and more complex negotiations and decision-making processes.

Fiscal Austerity

A core aspect of EU economic governance during and after the crisis, focusing on reducing public debt/GDP ratios. It has been criticized for hindering growth, employment, and making debt reduction more challenging for highly indebted member states.

Stability and Growth Pact (SGP)

Established between July 1998 and January 1999, reformed in 2005, and finalized by the Lisbon Treaty, it sets rules for member states to avoid excessive government deficits, with parameters including a budget deficit not exceeding 3% of GDP and a debt-GDP ratio not exceeding 60%.

European Semester

A crisis prevention measure approved in the Ecofin Council in September 2010, aiming at coordinating economic and budgetary policies of EU member states in line with the Stability and Growth Pact and the Europe 2020 strategy.

European Stability Mechanism (ESM)

Established in 2012 as a new treaty among eurozone member states, it provides financial assistance with a lending capacity of €500 billion, replacing the EFSM and EFSF.

Fiscal Compact

An intergovernmental treaty signed by eurozone member states (except the UK and Czech Republic) to make Stability and Growth Pact parameters more rigid, requiring balanced budgets, introducing fines for non-compliance, and mandating a constitutional rule for a balanced budget.

Banking Union

Initiated in 2013-2014 to prevent the connection between national banks and sovereign debt, it consists of three mechanisms:Single Supervisory Mechanism (SSM), Single Resolution Mechanism (SRM), and Deposit Guarantee Mechanism.

Single Resolution Mechanism (SRM)

The SRM highlights the conflict between the Council and Parliament regarding the community method versus the intergovernmental method of governance. It consists of a regulation and an intergovernmental agreement, establishing uniform rules for liquidity injection and recapitalization under Council supervision.

Single Resolution Fund (SRF)

The SRF, created through an intergovernmental agreement, is situated outside the EU legal order. It facilitates the transfer and mutualization of funds from national authorities to a distinct organization, the Single Resolution Board, for medium-term funding to banks.

European Central Bank (ECB) Measures

The ECB played a crucial role in managing the crisis through measures like loans to banks, QE, and asset purchase programs. The ECB aimed to support economic growth and maintain inflation levels close to 2% through non-standard monetary policy measures.

Fiscal Compact

The fiscal compact, along with ECB strategies, prevented the failure of the euro and supported EU economic growth. However, it led to increased social inequalities and disparities among member states, emphasizing the need for complementary policies to achieve sustained economic growth.

Europe 2020 Strategy

Europe 2020, a ten-year strategy for growth and employment, aimed to achieve smart, sustainable, and inclusive growth. It focused on goals like employment, research, climate, education, and social inclusion, but faced challenges in implementation and achieving pre-crisis growth rates.

European Fund for Strategic Investments (EFSI)

Created by the European Commission and the European Investment Bank with a €16 billion guarantee from the EU to mobilize investments and benefit small and medium-sized companies.

Fiscal Shock

Belief by the Commission that a fiscal shock was necessary to support structural investments and enhance competition in the single market.

Debt Mutualization

Proposal for a large-scale mutualization of debt among EU member states to address economic challenges, but faces resistance due to redistributive effects.

European Integration Crisis

The crisis characterized by a renationalization of solidarity, fiscal austerity on weaker states, and the need for a new strategy to stimulate growth and jobs.

Ursula von der Leyen's Programme

Aims to revitalize the European economy, accelerate digitalization, implement a green deal, enhance social rights, and strengthen European democracy through greater powers to Parliament and citizens.