Trust and Crisis Management in the European Union: An Institutionalist Account

Description: This book addresses and explains the divergent economic and political outcomes of the financial crisis in the eight European Union member states which needed a bailout program: Cyprus, Greece, Hungary, Ireland, Latvia, Portugal, Romania and Spain. Looking at crisis management as a series of relationships where cooperation is essential, this book focuses on the essential role of trust during the process. It argues that the presence or absence of trust during the negotiation and implementation of the bailout program leads to self-reinforcing cycles of success and failure. The analysis of these eight countries also explores the institutional sources of trust - it shows that a commitment to limited government is associated with both economic success and resistance to populism. The final chapter considers the implications for the future of the EU and calls attention to the importance of strengthening domestic institutions in order to bridge the gap between concerns over moral hazard and expectations of solidarity. Dóra Gyorffy is Professor of international political economy at the Péter Pázmány Catholic University and the Corvinus University of Budapest, Hungary. She holds a BA in Government from Harvard University, an MA and PhD in International Relations from Central European University and a Doctor of Science degree in Economics from the Hungarian Academy of Sciences. Gyorffy's publications address fiscal consolidation and reforms, European monetary integration and financial crises. Her articles have appeared in English and Hungarian including in Acta Oeconomica, Hungarian Economic Review, Europe-Asia Studies, Post-Communist Economies, Society and Economy, and Zeitschrift für Staats-und Europawissenschaften. She is author of two books: Democracy and Deficits: The New Political Economy of Fiscal Management Reforms (2007) and Institutional Trust and Economic Policy: Lessons from the History of the Euro (2013). CHAPTER 1. INTRODUCTION CHAPTER 2. A THEORY OF TRUST AND COOPERATION 2.1. Defining trust: an action based on accepting uncertainty and vulnerability2.2. Forms of trust: interpersonal trust, institutional trust, systemic trust 2.3. Rational sources for trust: insights from game theory (repetition, information sharing, external enforcement) 2.4. Non-rational sources for trust: insights from sociology (routine, reflexivity, shared ideas, leap of faith) 2.5. Measuring various forms of trust: quantitative and qualitative evidence CHAPTER 3. TRUST AND CRISIS MANAGEMENT 3.1. The main actors and their objectives in crisis management (IMF, EU, national governments, public, financial market actors)3.2. Modelling interactions among actors during the various stages of bailouts: negotiation of conditions, implementation and outcomes 3.3. Applying the theory: the development of austerity spirals 3.4. Hypotheses for the case studies given various degrees of trust among actors CHAPTER 4. A BRIEF OVERVIEW OF THE EUROPEAN FINANCIAL CRISIS 4.1. A Kindlebergerian approach to understanding financial crisis 4.1.2. Development of vulnerability: postponement of structural reforms, real estate booms and current account imbalances4.1.3. Shock: the subprime crisis in the US 4.1.4. The spread of crisis from the Eastern part of the EU to the West 4.2. Managing the crisis at the European level: with missing institutions, a process of trial and error 4.3. The de-politicization of economic policy in European economic governance 4.4. The role of trust in a de-politicized setting CHAPTER 5. CRISIS MANAGEMENT WITHIN THE EUROZONE: THE CASES OF IRELAND AND GREECE 5.1. The path to crisis in Ireland and Greece 5.2. Negotiating the bailout in Greece and Ireland 5.3. Implementing the bailout 5.4. Comparing crisis outcomes in the two countries 5.5. A spiral of distrust: the case of multiple Greek bailout negotiations 5.6. Trust and austerity spirals in the eurozone CHAPTER 6. CRISIS MANAGEMENT OUTSIDE THE EUROZONE: THE CASES OF LATVIA AND HUNGARY6.1. The path to crisis in Hungary and Latvia 6.2. Negotiating the bailout in Hungary and Latvia 6.3. Implementing the bailout in Latvia 6.3. The unorthodox approach to crisis management in Hungary 6.4. Comparing crisis outcomes in the two countries 6.5. The role of trust in the outcome (vis-à-vis the Trojka, public and markets) CHAPTER 7. SUCCESS AND FAILURE IN OTHER PROGRAM COUNTRIES 7.1. A theoretical framework to explain success and failure in other program countries 7.2. Applying the theory in program countries: 7.3. Portugal 7.4. Romania 7.5 Spain 7.6. Cyprus 7.7. Summary of evidence CHAPTER 8. CONCLUSIONS

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