EU financial regulatory reforms after the euro-crisis: double down or watered down?

Until the euro crisis became the dominant topic in EU economic policy, reforming financial markets and regulation in the aftermath of the “credit crisis” topped the policy agenda. How has the euro crisis affected these reform efforts? Anecdotal evidence suggests multiple causal links: the euro crisis may have challenged policymakers to double down on their reform efforts as it called into question even more fundamentally the pre-crisis mode of European governance. And reckless bank lending and misleading credit ratings were (again) identified as having contributed to the evolving euro crisis, strengthening the rationale for reform in these areas. At the same time, the euro crisis may have detracted attention from reforming financial regulation. And the need crisis-induced fragility of the financial system may have discouraged potentially disruptive regulation reforms, and thus led to their watering down.

This paper systematizes these different forces at play and synthesizes their cumulative effect on financial regulatory reform efforts in the EU.