Responses to the Eurozone Crisis:The Role of Ideas in Economic Policy Formation

Abstract:     
The Eurozone crisis has created a dynamic policy environment characterised by the inability of current institutional frameworks to deal with the consequences of systemic shocks. Within such an environment, ideas have increased influence on policy outcomes. Where do these ideas come from however? The paper suggests that in times of crisis, ideas on law reform come from organised communities of experts (epistemic communities). These communities can be national or international and serve to provide a bridge between experts and policy makers. The paper presents a theoretical framework that uses the notion of epistemic communities as agents of legal change. The historical example analysed is that of central bank independence. This theoretical construct is then applied to the current European crisis in seeking to identify the provenance and dissemination of key ideas affecting policy formation, such as proposals for constitutionally embedded fiscal rules (for example a schuldenbremse — debt break). Through this analysis, the paper offers an explanation for the perseverance of pro-market ideology despite the shock inflicted by the financial crisis.

Keywords: Ideas, Ideology, Policy Formation, Financial Crisis, European Crisis

JEL Classification: A12, P26, P48

working papers series