Time Will Tell: The EFSF, the ESM, and the Euro Crisis

The European Financial Stability Facility (EFSF), a slim and temporary bailout fund created by the European Union in May 2010 to quell a growing sovereign debt crisis in Europe, became the foundation for a permanent, more powerful institution, the European Stability Mechanism (ESM), adopted in March 2011. Did the creation of the EFSF constrain policy-makers and narrow down the path of options subsequently available to them? This paper assesses whether the euro crisis of 2010–2012 provides an instance of historical institutionalism in action, whereby the institutional creation decided at the critical juncture of the initial reaction to the crisis transformed the path of options available at later attempts to tackle the crisis, sometimes with unintended consequences. Through careful process tracing, we analyze the temporal sequences of reactions to the crisis and argue that the creation of the EFSF and ESM created path dependency in the subsequent management of an unrelenting crisis, enshrined intergovernmentalism as the modus operandi, and led to suboptimal solutions.