From Great Moderation to Great Macroprudence: The Macroprudential Ideational Shift in International Economic Policy Coordination

Events from 2008 onwards have bought the old consensus on the sound money and finance paradigm (the Great Moderation paradigm) into bold relief. Faced with its limitations in explaining, let alone preventing, the Global Economic and Financial Crisis and subsequently the European Sovereign Debt Crisis, the international policy community was urgently debating more nuanced guidelines on macroeconomic management. This paradigm contestation has found its institutional reflection in the creation of the Mutual Assessment Process (MAP) at the G20 level and subsequently the Macroeconomic Imbalances Procedure (MIP) at the European Union (EU) level. Comparing both newcomers to international macroeconomic policy coordination, this paper analyses four features that shape the process of paradigm contestation: presence, position, promotion and plausibility (Baker 2013). We argue that although initially the G20‘s MAP scored higher in terms of position and promotion, it is the EU’s MIP which heralds a substantial ideational shift in macroeconomic management. Key in explaining the different fates of both procedures is the role of the Eurozone Sovereign Debt Crisis, which inadvertently contributed to the demise of the G20’s MAP but was instrumental in bringing about the rise of macroprudential ideas that now strengthen the EU’s MIP. The institution of the MIP is thus set in the broader context of the EU's place in the global economy, and considers the strategies it seeks to employ to successfully manage internal cohesion in the face of exogenous challenges.