European Financial Governance after the Global Crisis: Explaining the Creation of the Banking Union through the Lens of Neofunctionalism

Abstract

This paper argues that the deepening of financial (banking) governance in the European Union (EU) after the Global Recession is best explained through the lens of neofunctionalism. The financial crisis of 2008-2009 was an exogenous shock that triggered the Eurozone crisis and revealed latent weaknesses and shortcomings of European economic governance (EEG). Fearing the high costs of a potential collapse, the Member States decided to restructure and strengthen the EEG system. Crisis management, however, produced a complex pattern of solutions. While state-centred integration theories help explain fiscal policy reforms, they cannot account for the supranational shift in financial governance. This paper examines the background and creation of the banking union based on a renewed neofunctionalist framework, centred on the revision of spillover dynamics to capture the complex interdependence of today’s global economy and regional integration.