The global economic crisis has sapped support for the euro and lowered trust in the European Central Bank (ECB). In doing so, it has also exposed a weakness in the 'output-oriented legitimation' of Europe's economic and monetary union. The common monetary policy and single currency have to be perceived as working if they are to maintain popular acceptance. Whether they actually work is less important than this perception. This raises the prospect that no matter how successful the ECB is in responding to moments of crisis, public opinion may begin to reflect the perception that it has failed. Indeed, the greater the uncertainty experienced during the crisis, the more likely it is that such negative perceptions will predominate. Worse, there is very little that the ECB can do to change popular perceptions or to create new channels for input-oriented legitimation without jeopardizing the credibility of its commitment to price stability or its reputation for political independence.

The financial crisis has reopened debate on the architecture of financial regulation and prudential supervision in the EU, calling into question the home country control principle that has prevailed since the mid-1980s. This article discusses how the growth of cross-border financial intermediation can best be regulated to limit the ensuing risks of financial contagion. It argues that a supranational supervisory system is now needed for some intermediaries, but that proximity to market actors at national level remains important. This points to a quasi-federal system as the way forward, but in constructing such a system account has to be taken of the diversity of Member State structures and preferences. The article concludes that even if a much more extensive EU-level competence is theoretically the optimal way forward, political considerations make it unlikely, suggesting that the crisis has broader implications for European integration.

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This article examines to what extent the British banking rescue plan announced in late 2008 set the pace for the adoption of similar banking rescue plans across the European Union. This case study can be seen a 'horizontal' type of Europeanization, whereby a (perceived successful) policy template adopted in one country is subsequently implicitly endorsed (hence, 'uploaded') at the EU level and then adopted (hence, 'downloaded') in other countries, albeit with considerable national variations. The two main caveats are that the British plan was not particularly innovative [ndash] it provided a functional solution to the problem at hand [ndash] and the adoption of similar measures across Europe was politically feasible because this did not envisage any substantial EU-level intervention as it proposed parallel national solutions to a common problem.

The global financial crisis of 2007[ndash]08 produced a sudden change in the economic policy of the United Kingdom (UK). Prior to the crisis, the government preached the gospel of price stability, fiscal prudence and light-touch financial regulation. In the wake of the crisis, the government countenanced unconventional monetary policies, a surge in public-sector borrowing and the need for a rethink of financial supervision. This article seeks to understand the significance of these changes using Peter Hall's theory of policy paradigms. Its central argument is that, contrary to appearances, the UK has not yet experienced a fundamental reordering of the instruments, institutions and aims of economic policy. Third-order change cannot be ruled out as the crisis unfolds but the economic ideas underpinning UK economic policy have, for better or worse, demonstrated remarkable resilience thus far.

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The cross-border financial crisis that began in the United States in the summer of 2007 tested a 30-year experiment in international integration. In the background were expanding macroeconomic imbalances that leading states had neglected to address. Spawned by imprudence and regulatory failures, the crisis soon deepened and the collaborative impulse that might have prompted earlier and more fundamental macro-policy action became focused on emergency management. Ad hoc policy co-ordination ensued as liquidity was injected into turbulent markets and troubled financial intermediaries were recapitalized or reorganized. The collective performance was inelegant, not least inside the European Union. The crisis shed a harsh spotlight on the weak fiscal foundations of the Union and on the now-pressing need for collaborative adjustments in national macroeconomic policies. Since overt political innovation on such matters remains difficult, both within Europe and globally, the crisis underlined the crucial importance of much better collaborative instruments for the oversight and stabilization of integrating financial markets.

The massive financial instability of 2007[ndash]08 was, in the main, the result of lax monetary policy. Regulation compounded this error by allowing and encouraging excessive leverage and maturity transformation by banks. Innovation did contribute to reckless credit expansion and investments, but without lax money and excessive leverage, reckless bets on asset price increases would not have been possible. Therefore, a repeat of this instability could be avoided by correcting these two policy faults. There is no need for intrusive rules constraining non-bank intermediaries and financial innovation. The main message is: keep it simple.

This article considers the lessons learned from the Nordic crises of the 1980s and 1990s and how far problems incurred during the present crisis stem from a failure to act on those lessons. Iceland, which was little affected on the first occasion, has had the worst crisis of any country round the world while Finland, which was worst affected last time, has come through almost unscathed. The ways of avoiding problems caused by having cross-border banks, a feature that did not exist on the previous occasion, were known but it has taken a second crisis to get governments to act.

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