Preparedness, Crisis Management and Policy Change: The Euro Area at the Critical Juncture of 2008–2013
| Author | Benjamin Braun |
| DOI | 10.1111/1467-856X.12026 |
| Published date | 01 August 2015 |
| Date | 01 August 2015 |
| Subject Matter | Article |
Preparedness, Crisis Management and
Policy Change: The Euro Area at the
Critical Juncture of 2008–2013
Benjamin Braun
Research Highlights and Abstract
• This article contributes to the literature on ideational and institutional change at
critical junctures more generally, and in the context of economic crises in particular.
• In the context of explosive economic crises critical junctures should be conceptual-
ised as consisting of two distinct phases—a phase of emergency crisis management
and a subsequent phase of purposeful institution building.
• The analytical significance of the crisis management phase lies in its tendency to
create path dependencies for subsequent ideational entrepreneurs and institution
building efforts.
• Crisis management is always ‘bricolage’. However, in order to understand why
certain tools are ‘at hand’ during a crisis, one needs to take into account the variable
of crisis preparedness. Contingency planning for non-normal times is a constitutive
aspect of any economic policy paradigm.
• The empirical analysis shows that the euro area’s lack of preparedness caused the
ECB to assume a dominant position during the emergency phase of the crisis. This
windfall gain in power for the ECB has already begun to shape the future institu-
tional architecture of the EMU.
Focusing on the experience of the euro area in general, and the ECB in particular,this article argues
that in the context of explosive financial crises a phase of emergency crisis management precedes the
phase of purposeful institution building. Importantly for our understanding of policy change, crisis
management measures create their own path dependencies. However, albeit often improvised, crisis
management decisions are not entirely contingent. The article therefore introduces the notion of
preparedness, which measures the extent to which the pre-crisis policy paradigm was prepared for
the joint occurrence of, in this case, a systemic banking crisis and a sovereign debt crisis. The
analysis shows that the Euro area’s lack of preparedness caused the ECB to assume a dominant
position in the euro area during the emergency phase of the crisis. This windfall gain in power for
the ECB has already begun to shape the future institutional architecture of the EMU.
Keywords: policy paradigm; critical junctures; European Central Bank; crisis
management
1. Introduction
In recent years, the literatures on critical junctures in general (Pierson 2004;
Capoccia and Kelemen 2007), and on political change in the context of economic
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doi: 10.1111/1467-856X.12026 BJPIR: 2015 VOL 17, 419–441
© 2013 The Author.British Journal of Politics and International Relations © 2013
Political Studies Association
crises in particular (Blyth 2002, 35; Chwieroth 2010, 497; Helleiner 2010, 620),
have put increasing emphasis on the temporal dynamics of such processes of
change. The present article shares this concern, but argues that the sequencing in
the literature is incomplete in that it understates the importance of the ‘emergency’
phase of an economic crisis, which occurs before actors begin to intentionally devise
new institutions. Although Blyth (2002, 35), for instance, distinguishes ‘between
the reduction of uncertainty by ideas and the subsequent creation of institutions’,
he does not integrate the phase of emergency crisis management into his theory of
‘great transformations’.
The argument that emergency crisis management matters is of particular relevance
in the case of what Baker (forthcoming) has aptly called ‘explosive crises’. While
Baker talks about varieties of economic crisis more generally, financial crises are by
definition explosive. The recent upheaval in the euro area is a prime example. Most
observers agree that the emergency phase of the crisis in the euro area lasted from
the failure of Lehman Brothers in September 2008 to the announcement of the
ECB’s Outright Monetary Transactions (OMT) programme in August 2012, which
almost immediately stabilised interest rates in sovereign debt markets (Financial
Times, 13 December 2013). During this emergency phase, policy decisions were not
necessarily guided by either the old or a potential future policy paradigm. By acting
the way they did, crisis managers, without necessarily intending to do so, set several
precedents that have left their imprint on the ideational and institutional landscape.
In other words, emergency crisis management actions create new path dependen-
cies, which purposeful institutional entrepreneurs may later find it difficult to
escape from. By neglecting emergency crisis management, the critical juncture
literature tends to have an overly strategic or voluntaristic understanding of insti-
tutional change.
However, the argument that the actions of crisis managers affect the likelihood as
well as the direction of ideational and institutional change raises the question of
why crisis managers act the way they do. This calls for an extension of the analysis
of crisis management into the past in order to assess the degree to which the
pre-crisis policy paradigm was prepared—both ideationally and institutionally—for
the crisis that materialised. Such preparedness, it is argued, is a crucial variable for
paradigm resilience. An economic policy paradigm is not necessarily undermined by
economic instability. If it accounts for the occurrence of certain events and offers
guidance on how to deal with them, it is less likely to be displaced by their actual
occurrence than a policy paradigm that lacks such preparedness. It follows that
crisis management policies should not be compared to pre-crisis policy routines for
normal times, but to pre-crisis contingency planning for non-normal times. Again,
the case of the role of the ECB is instructive in this respect, since central bankers
traditionally draw a sharp line between normal times and periods of financial crisis.
The structure of the article is as follows. Beginning with a brief review of the
literature on critical junctures and policy paradigms, the second section then goes
on to elaborate the theoretical argument about the importance of the phase of
emergency crisis management for the process of ideational and institutional change.
The third section reviews the conceptions of the normal and the non-normal, as
well as the contingency plans that were embedded in the pre-crisis macroeconomic
420 BENJAMIN BRAUN
© 2013 The Author.British Journal of Politics and International Relations © 2013 Political Studies Association
BJPIR, 2015, 17(3)
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