Institutional perspective of EMU economies

A nice paper on the topic from ECB econs.

It divided the institutional developments (and deterioration) from 1999 0nwards. It divides the phases as pre-crisis, post-crisis and way ahead:

This Occasional Paper examines how and why the institutional framework governing EMU has evolved since the creation of the euro. Building on theories of institutionalism, the paper in particular investigates to what extent functional spillovers from the single currency into other policy domains, like macroeconomic policies or financial regulation, met with an adequate  institutional response, and to what extent the existing institutional framework conditioned the response to the financial crisis.

The interaction between policy requirements and institutional capabilities is examined both in “ordinary times” (1999-2007) and under “crisis conditions” (2007-10). The paper uses a typology of change which helps to put into perspective both the resilience of the institutional framework of EMU and its capacity to adapt. In this respect, it allows for a better understanding and framing of the current reforms of EMU economic governance. It concludes that even though the crisis will accelerate institutional development, it will do so only gradually, as path dependence and an inbuilt bias towards incremental change will prevent policy-makers from pursuing a “clean slate” strategy.

It says instis are developed in following ways. It gives a nice typology:

  • Layering is an institutional change which happens when new institutional elements are added to existing ones.Applied to the context of EMU, this process can be seen in the successive addition of institutions (such as the EFSM/EFSF or the “codifi cation” of the Eurogroup in the Lisbon Treaty), processes (creation of the Lisbon agenda and related process) and policy instruments.
  • Displacement takes place when an element of the institutional structure becomes more salient over time. The ECB provides an interesting instance of “displacement”:
  • Redirection occurs when an institution has its parameters changed and its objectives reorientated, be it in a fundamental way or in a marginal manner. One example of such a change is the Stability and Growth Pact which has gone beyond being a mere disciplinarian device
  • Drift happens when institutional structures are overwhelmed by external developments. Such a case can be found in the discrepancy between fi nancial integration
  • Depletion can be identifi ed when institutions experience a gradual breakdown over time. Clearly, this variety of gradual change  hardly applies to EMU since it is still a relatively young “institution”.

 

Superb stuff. The paper details on this typology and helps you understand how one should analyse things from an insti perspective…One can use this to analyse many such instis…

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