European Union crisis-induced institutional evolution. The effect of institutional entrepreneurship in the formation of EFSF.

In the aftermath of the 2010 Euro-crisis, the European institutional landscape changed. The founding of the European Financial Stability Facility (EFSF) evolved the European institutional architecture through the institutionalization of economic crisis-management (Kreuder-Sonnen, 2019). However, a European crisis-response through the formation of an institution, which functioned as a lender of last resort (Strauch, 2019), seems paradoxical within the context of the era. The legality of such mechanisms within the EU was questionable (Hinarejos, 2013). At the same time, major stakeholders of the “would-be” EFSF such as Germany, had rejected a joint European response to the Greek prelude of the Eurozone crisis (Traynor, 2010). The only actor embedded in the EU framework, who had proposed a European financial stability facility, was the Greek government (Papandreou, 2021). The despite-the-odds fruition of the Greek proposal begs the question: “What explains the formation of EFSF? To answer this research question, I will conduct an in-depth case-study. I base my analysis on elite interviews I conducted with officials who participated in the EFSF negotiations (including the Greek PM Papandreou) and archival research. The combined use of theoretical elements derived from historical (HI) and sociological (SI) institutionalism literature have significant merit in tackling the question above. I argue that crises challenge the perception of structural, normative, and functional validity of a system, forcing policy-makers to make critical decisions under conditions of uncertainty and limited information (Ansell et al., 2016). Crises function as critical junctures, loosening the structural grip of path-dependency and presenting a multitude of paths forward (Mahoney, 2001). In studying the choice of a specific path, I make use of the concept of the institutional entrepreneur. According to SI, institutional entrepreneurs are agents already embedded in an organization, with access to its decision-making body and motivated to alter its structure (Dimaggio, 1988; Garud et al., 2007). In 2010 the Greek Government was such an agent with an interest to alter the EU’s institutional design, aiming to overcome Greece’s financial ordeal and possessing direct access to the EU Council, the primary decision-making body. Once the entrepreneur chooses a path-forward, this choice is further shaped by path-dependencies and organizational isomorphism (Dimaggio & Powell, 1983; Mahoney, 2001; Saurugger, 2017). The empirical data gathered verify these theoretical expectations. The answer to my research question helps to cover existing gaps of the European Integration and Institutionalism literature. On the one hand the rational assumptions of European-Integration theories such as liberal-intergovernmentalism and functionalism (Moravcsik & Schimmelfennig, 2018; Niemann & Ioannou, 2015) delimit their usefulness in times of uncertainty such as a crisis. On the other hand, the theoretical isolation of HI and SI fails to explain European crisis-induced institutional evolution, with SI lacking structure (Ackrill et al., 2013; Saurugger & Terpan, 2016) and HI being overly structural (Gocaj & Meunier, 2013; Verdun, 2015). This paper combines elements from HI and SI, sketching a European crisis-induced institutional-change mechanism and bridging the structure versus agency divide of the two institutionalisms.