Explaining Policy Change in the Euro Crisis: The Creation of the EU Banking Union

How do we explain the outcome of the banking union negotiations in the European Union? This study seeks to explain the outcome of the EU’s most recent grand bargain. This paper attempts to explain the policy change between the beginning of the euro zone crisis and the June 2012 Euro Summit marking the breakthrough for the idea of a banking union. The theoretical framework consists of both a material interests approach and an ideational approach. The paper shows that both public and private material interest approaches are at best inconclusive regarding why banking union was created and why at that particular time. By contrast, the ideational approach emphasises the importance of policy learning among policy-makers. The idea of the vicious circle between banks and sovereigns had not been theorised prior to the crisis but became evident after the Irish bail-out. It demonstrated the banking dimension of the euro zone crisis which was so far dealt with as mainly a fiscal and competitiveness crisis. The changing assessment of the situation led to changing policies. The paper includes interview material of 57 interviewees of the European Council, Eurogroup, Euro Working Group, European Commission, and national ministries in Germany, France, Italy, and Spain.