Crisis, learning and policy change in the European Union

Abstract:

What is the causal relationship between crisis, learning and change? How did causality unfold in the key years of 2009–2010 when the European Union had to face the most formidable attacks to the single currency and responded with substantial reforms of the euro area?

We question the conventional identification of the cause-and-effect relationship provided by theories of crisis management, integration and policy learning. Drawing on models of contingent learning developed within psychology and behavioural economics, we theorize that surprise produces behavioural change via a fast-paced associative mechanism and that policy learning follows change. We then run our exercise in causal identification through a plausibility probe. We show that our argument passes the plausibility probe.

Our conclusions on cognition and situational effects on learning during crises suggest a new research agenda, more sensitive to how individuals behave in the real world and more robust in its micro-foundations.

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