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

The second channel of functional spill-over derived from the specificity
of cross-border financial institutions: in situations of distress, it becomes
exceedingly difficult to determine whether financial institutions are
temporarily illiquid but fundamentally solvent, or whether liquidity
problems are a reflection of underlying insolvency. Whereas the former
can be remedied by emergency liquidity provision by central banks, the
latter is a matter for national governments: propping up ailing banks
requires taxpayers’ money, and therefore a quintessentially national task.
Bank rescues are, however, a form of state aid and hence might undermine
the level playing field in the internal market and therefore require a policy
response from the centre.
The third channel was the sheer size of the liabilities of the financial
institutions concerned, making them not only “too big to fail”, but also
“too big to rescue” for those banks’ home countries alone (the liabilities
for Fortis, for example, amount to a multiple of Belgium’s GDP). The
budgetary resources allocated to the supranational level (EU budget) were
way too small, meaning that the affected governments needed to seek a
cooperative EU-level solution as the only way out.
In recognition of these functional necessities, the ECB and the Commission
called for a coordinated response on the part of EU governments. In fact,
no matter what the precise measures were, and without judging their
specific merits, it was clear that whatever EU governments did, they had
to do it together. Or as Commission President Barroso put it, it was a
matter of “either swimming together or sinking together.” 12
The first Paris summit, convened by French President Sarkozy on 4 October
2008 and involving the European G7 countries (Germany, France, the UK
and Italy) as well as the European Commission and the ECB, sought to
devise a European position before the G7 meeting on 10 October 2008.
However, little in the way of a substantive agreement beyond declaratory
politics was achieved. 13 In fact, an earlier, more substantive Dutch proposal
for a so-called “European Stabilisation Fund” (mirroring, to some extent,
the US initiatives), which would consist of contributions of individual
Member States, and amounting to 3% of EU GDP, was explicitly rejected.
In other words, the demand for a coordinated EU-level policy response
was not seen as sufficient to engender supply.
This changed with the further intensification of the crisis in the week prior
to the G7 meetings. On 12 October 2009, a second Paris summit was called
by President Sarkozy, this time involving the heads of state of all euro area
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After the crisis: A new socio-economic settlement for the EU