Between Austerity and Countercyclical Lending: The Europe's New Financial Institutions

Since 2013 the Eurozone (albeit not the EU as a whole) has a full-fledged lender of last resort function for sovereigns (European Stability Mechanism) and since 2015 it also acquired a Keynesian face in the form of a countercyclical lending fund (European Fund for Strategic Investments). However, the first function comes at the cost of imposing further pressures for pro-cyclical fiscal policies on countries facing sovereign debt issues while the second has had a patchy record at delivering demand-side support to the countries that needed it the most. Today, Europe finds itself in an interregnum that rediscovers the virtues of development banking for rich countries just as old pro-cyclical institutions push back against change. The paper theorizes and analyzes these contradictory dynamics of European economic governance while proposing a new methodological toolkit unpacking its internal mechanisms.