Shaping the European Mindset: A Governance Design and Policy Innovation Agenda

Half a decade after the financial crisis that imploded from within the United States (Knyght et al., 2011), the sluggish economic growth of advanced countries remains a concern (World Economic Forum, 2013). In this regard, compared with the quantitative easing by the Federal Reserve Bank in America, the Bank of England in the United Kingdom and the Bank of Japan in the Far East, it is the European Central Bank (ECB) that is distinct in terms of structure and markets. The establishment of the European Stability Mechanism (ESM) facilitated by the ratified Lisbon Treaty (2007) has enabled the ECB to preserve financial stability and indirectly act as a lender of last resorts to Member States (Buiter and Rahbari, 2012). However, the manner of this facility’s establishment may violate the essence of Articles 123, 124, 125 and 126 of the Treaty of the European Union (2008) and the Treaty of the Functioning of the European Union (2008). Further, unique to European markets is the domino-effect of sovereign sustainability fractures (Cottarelli, 2012). These euro-area fiscal (Greece/Portugal) banking (Ireland/Cyprus/Spain) and competitiveness (Italy/Romania) crises go beyond financial market impacts and protecting the single European currency (Maastricht Treaty, 1992) to reflect deeper incomplete governance design and political policy formation weaknesses (Bergsten and Kirkegaard, 2012). Consequently, the reacting weakened governments (bail-fund recipients — Southern Europe) are forced into compliance with the more powerful and dominant member nations (bail-fund providers — Northern Europe).