Unhealthy Resilience? Lessons from European Financial Markets

Is resilience always a good thing? Can resilience inhibit necessary change? What if the status quo that is reverted to was flawed or artificial? Some studies in ecology suggest that in certain circumstances the capacity for an ecosystem to rebound from a catastrophe could degrade its current capabilities and make it harder to adapt to a changing environment in the long-run. Resilience can shade into rigidity. In some senses resilience could be seen as the opposite of evolutionary adaptation. Perhaps a similar dynamic is discernable in the European context. European financial markets seem to have rebounded remarkably well from the global financial and Eurozone crises. Much better, in fact, than the real EU or Eurozone economies. Healthy financial markets should stimulate real economic growth; it is hard to argue this has happened in Europe. Why not? Perhaps the very resilience of financial markets has something to do with it. By simply flowing back into well-worn channels, markets have not had to adapt to the post-crisis world. The difficulty in making significant change to financial regulation shows the resilience of financial markets, but also hints at their rigidity. Resilience can look a lot like vested interest. This paper questions the healthiness of resilience by tracing European financial market behavior and regulation from the beginning of the global financial crisis. It argues that resilience – while welcome in some ways – is not always a useful trait, and can hide problems that would best be addressed through adaptation to a changing environment.