Learning By Doing in the Eurocrisis

Conventional approaches to the politics of the European sovereign debt crisis see “muddling through” as the standard procedure to detect the best and most politically feasible approaches to the crisis. They also paint the EU as the "tough cop" and the IMF as the "bad cop" in the design of bailout packages in Greece, Portugal and Ireland. This paper questions this conventional wisdom by uncovering patterns of “learning by doing” at the level of the European Commission and the ECB. Over time, these institutions calibrated their responses by creating more fiscal space for the bailout countries than is conventionally thought by dramatically extending the maturities of the loans and cutting interest rates. In contrast, despite its criticism of the European approach to austerity, the IMF has cut fiscal space in these countries by maintaining its traditionally short-term maturities and much higher interest rates. The paper attempts to address this outcome by exploring learning routines in these institutions and the different institutional constraints faced by them throughout the crisis. It does so my assessing to what extent routines for expert and peer review were developed within the institutions to learn from past mistakes and create search mechanisms to anticipate future errors. This assessment, developed through a series of focus groups, allows us to comment on learning mechanisms within the Troika.