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

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 crisis management in the United States and in the European Union shows that the amount of fiscal stimulus and monetary easing engineered is surprisingly similar. Yet good governance institutions are in crisis in the US while it has been a good crisis for governance in the EU (until the Greek turmoil). To interpret this as politicization of macroeconomic policy in the US and successful depoliticization in the EU is misleading, however. The boundaries between economic stabilization and distributive politics have been wiped out in the US exactly because the authorities prioritized economic stabilization. In the EU, the boundaries as drawn are inimical to joint stabilization efforts but this is exactly why they are politically self-enforcing, even though they are economically costly. They are not the embodiment of economic rationality that their proponents once thought. (updated May 2010)A revised version of this working paper is forthcoming in the Review of International Political Economy (RIPE).