Regulation and Governance of the EU Financial and Economic System

Strategic Behaviour and Crisis-Driven Change in Regulation and Governance of the European Financial and Economic System: From Networks to Hybrids (full title)

This paper asks why, despite having self-regulatory and decentralized instruments supposedly in place, regulatory gaps occurred. Secondly, the paper looks at the new regulatory governance structures that have emerged in recent years for coordination of the European financial and economic system. The argument here is that attempts to curb strategic behaviour by banks and countries have entailed the introduction of some form of hierarchy at the supranational level, yet still in combination with strong network characteristics, thus creating or strengthening hybridity in regulatory governance.

Towards an effective and legitimate European financial and economic system

A key challenge that European decision-makers struggle with today is regulating and governing the European financial and economic system in a way that is both effective and legitimate.

To help address this challenge, this paper asks why regulatory gaps occurred and European governance has been weak, and how these gaps and weaknesses allowed risky behaviour.

It then scrutinizes the regulatory governance structures that have emerged in response, particularly at the EU level, to coordinate the financial and economic system. Two illustrative cases are examined: self- regulation by and national supervision of banks and ‘decentred’ fiscal policy coordination by eurozone countries. We point to strategic behaviour as a key driver of the crisis.

We also argue that changes in regulatory governance to curb such behaviour have entailed introduction of some form of hierarchy at the supranational level, yet still combined with strong network characteristics, thus creating or strengthening hybridity in regulatory governance