Sovereignty and Legitimacy in the Economic and Monetary Union: the case of the European Stability Mechanism

Abstract

Based on an analysis of the structure of incentives inherent to the architecture of the European Stability Mechanism (ESM), the paper defends the ESM's inability to prevent, mitigate, andresolve financial crises. The paper presents the main features of the ESM, and illustrates how its governance architecture results from a model and a practice of European integration in which the pooling of sovereign powers goes along with the member states’ attempt to maintain control over the use of those powers. In the case of monetary integration, such a model produces dysfunctional results in that it impedes efficient control of systemic risks. The paper puts forward a number of suggestion as to how a restructuring of the esm’s institutional architecture could enable it to perform the role it has been designed for. The paper also shows what ought to change in the relation between national and supranational sovereignty for this to happen.