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Good Governance in Crisis or a Good Crisis for Governance? A Comparison of the EU and the US

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  • Waltraud Schelkle
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    Abstract

    The crisis since August 2007 provides an opportunity to observe the workings of good governance institutions under an extreme stress test and in radically different political settings. Institutions such as independent central banks, fiscal rules and regulatory oversight of public finances were meant to depoliticize macroeconomic stabilization. The comparison of responses to the crisis in the United States and in the European Union shows that good governance institutions are in crisis in the US while it has been a good crisis for governance so far in the EU. Levels of fiscal stimulus and monetary easing are surprisingly similar between the EU and the US, yet the ECB has maintained its independence and member states have been restrained from inserting protectionist elements in their stimulus measures. By contrast, the boundaries between economic stabilization and distributive politics have been wiped out in the US because neither the political forces in the states nor the economic forces in the financial sector erected many defences. In the EU, the boundaries as drawn are inimical to joint stabilization efforts but this is exactly why they are politically self-enforcing.

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    File URL: http://www.lse.ac.uk/europeanInstitute/LEQS/LEQSPaper16.pdf
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    Bibliographic Info

    Paper provided by European Institute, LSE in its series LEQS – LSE 'Europe in Question' Discussion Paper Series with number 16.

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    Date of creation: Jan 2010
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    Handle: RePEc:eiq:eileqs:16

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    Keywords: central bank independence; crisis; depoliticization; European Union; fiscal rules; United States;

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    1. Deborah Mabbett & Waltraud Schelkle, 2007. "Bringing Macroeconomics Back into the Political Economy of Reform: the Lisbon Agenda and the 'Fiscal Philosophy' of EMU," Journal of Common Market Studies, Wiley Blackwell, vol. 45, pages 81-103, 03.
    2. Henning Bohn & Robert P. Inman, . "Balanced Budget Rules and Public Deficits: Evidence from the U.S. States (Reprint 060)," Rodney L. White Center for Financial Research Working Papers 10-96, Wharton School Rodney L. White Center for Financial Research.
    3. Bohn, Henning & Inman, Robert P., 1996. "Balanced-budget rules and public deficits: evidence from the U.S. states," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 13-76, December.
    4. Waltraud Schelkle, 2006. "The Theory and Practice of Economic Governance in EMU Revisited: What Have we Learnt About Commitment and Credibility?," Journal of Common Market Studies, Wiley Blackwell, vol. 44, pages 669-685, November.
    5. Jón R. Blöndal & Dirk-Jan Kraan & Michael Ruffner, 2003. "Budgeting in the United States," OECD Journal on Budgeting, OECD Publishing, vol. 3(2), pages 7-53.
    6. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
    7. Waltraud Schelkle, 2005. "The Political Economy of Fiscal Policy Co-ordination in EMU: From Disciplinarian Device to Insurance Arrangement," Journal of Common Market Studies, Wiley Blackwell, vol. 43(2), pages 371-391, 06.
    8. Glenn Follette & Andrea Kusko & Byron Lutz, 2009. "State and local finances and the macroeconomy: the high-employment budget and fiscal impetus," Finance and Economics Discussion Series 2009-05, Board of Governors of the Federal Reserve System (U.S.).
    9. Barry Eichengreen & Jürgen Hagen, 1996. "Fiscal restrictions and monetary union: Rationales, repercussions, reforms," Empirica, Springer, vol. 23(1), pages 3-23, February.
    10. Charles Wyplosz, 2005. "Fiscal Policy: Institutions versus Rules," National Institute Economic Review, National Institute of Economic and Social Research, vol. 191(1), pages 64-78, January.
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