Authors Iain Begg | Gabriel Glöckler | Anke Hassel ... - The Europaeum

emained relatively contained to specific segments of financial markets,
notably the markets for specific structured finance products, and, more
importantly, interbank money markets.
This meant that the first responses from European governments were
very limited. The crisis initially seemed to be felt mainly in the United
States, and its fall-out had so far only affected certain specific financial
institutions in Europe, and these were isolated cases. Essentially, the
matter was viewed as a private sector issue. If government intervention
was deemed necessary, then only in a national framework (e.g. SachsenLB,
IKB, Northern Rock), and the extent of the expected macroeconomic
impact was highly uncertain, and perceived to be limited.
That said, in seeking to investigate the causes of the turmoil which, via
the integrated financial markets, was affecting all EU member states, and
to explore possible remedial action, the ECOFIN Council became active
and developed a set of “roadmaps” aimed at reinforcing the regulatory
framework, financial stability arrangements and crisis coordination as
well as supervisory convergence. 9 In addition, an updated Memorandum
of Understanding between Finance Ministries, Banking Supervisors and
Central Banks (this update had been in the pipeline anyway) was agreed
upon to structure crisis cooperation. However, at that stage, furtherreaching
proposals for an EU mechanism for burden-sharing in the event
of a cross-border banking group insolvency were rejected. 10
All in all, however, these were incremental steps on the way to marginal
improvements in EU coordination; towards the establishment of a
common understanding of the root causes of the crisis; and towards the
design of appropriate policy responses, all very much in keeping with the
existing framework of institutions and practices, and without “thinking
big” about possible institutional consequences or innovations.
On 14 September 2008, the collapse of the US investment bank Lehman
Brothers ushered in a new phase in the crisis. The fact that such a
large institution with systemically important links to other financial
institutions across the globe was allowed to go bust led to a dramatic
collapse in international equity markets, with investor confidence all
but disappearing and entire segments of the financial markets becoming
completely dysfunctional. The spectre of an imminent meltdown of the
entire financial system became a real possibility. This spurred government
action of unprecedented scale in the United States, with Congress agreeing
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After the crisis: A new socio-economic settlement for the EU