In addition, the longer it takes to regain economic growth, the greater are the prospects that international pressure will mount against those governments that are perceived as not carrying their share of the responsibility for stimulating their economies to an extent that is commensurate with the size of their economy. Various EU governments expended public resources to rescue failing banks, in addition to protecting depositors and utilizing monetary and fiscal tools to support banks, to unfreeze credit markets, and to stimulate economic growth. The economic recession and the financial crisis had become reinforcing events, which were forcing EU governments to forge policy responses to both crises. The differential effects of the economic downturn, however, have divided the wealthier countries of the Eurozone from the poorer countries within the EU and in East Europe and has compounded efforts to respond to the financial crisis and the economic recession. Over the long run, they likely will search for a regulatory scheme that provides for greater stability while not inadvertently offering advantages to any one country. Governments that expended considerable resources utilizing fiscal and monetary policy tools to stabilize the financial system and to provide a boost to their economies may yet be required to be more inventive in providing more stimulus to their economies and face political unrest in domestic populations. Unlike the United States, where the Federal government can implement policies that are applied systematically across all 50 States, EU-wide actions reflect compromise among national authorities. This and other issues have exposed sharp differences among the EU members over the best approach to deal with financial market reforms and economic stimulus measures. This has been especially true as the financial crisis has deepened over time and as the economic downturn and the financial crisis have become reinforcing events, compounding efforts to resolve either crisis. In this stage, EU governments generally responded on a case-by-case basis, without a role for the broader Community. The basis of this architecture involves implementing measures that EU members have announced as well as providing for: (1) continued support for the financial system from the European Central Bank and other central banks; (2) rapid and consistent implementation on the bank rescue plan that has been established by the member states; and (3) decisive measures that are designed to contain the crisis from spreading to all of the member states. The financial interdependence between the United States and the European Union means that the EU and the United States share common concerns over the global impact of the financial crisis and the economic downturn. In addition to these concerns, the United States and the EU members share common concerns over the organization of financial markets domestically and abroad and seek to improve supervision and regulation of individual institutions and of international markets. The financial crisis also has revealed extensive interdependency across financial market segments both within many of the advanced national financial markets and across national borders.
The European Union (EU) and the United States have taken unusual and extraordinary steps to resolve the financial crisis while stimulating domestic demand to stem the economic downturn. These efforts appear to have been successful, although the economic recovery remains tepid. The economic recession and the financial crisis became reinforcing events, causing EU governments to forge policy responses to both crises. In addition, both the United States and the EU have confronted the prospect of growing economic and political instability in Eastern Europe, Greece, and elsewhere over the impact of the economic recession on restive populations. In the long run, the United States and the EU likely will search for a financial regulatory scheme that provides for greater stability while not inadvertently offering advantages to any one country or group. Throughout the crisis, the European Central Bank and other central banks assumed a critical role as the primary institutions with the necessary political and economic clout to respond effectively. Within Europe, national governments, private firms, and international organizations varied their responses to the financial crisis, reflecting differing views over the proper policy course to pursue and the unequal effects of the financial crisis and the economic downturn. Initially, some EU members preferred to address the crisis on a case-by-case basis. As the crisis has ebbed, coordination among European capitals and between Europe and the United States has become more elusive and growing differences threaten the adoption of a coordinated long-term solution to regulatory reform and coordination of financial policies.
Within the United States, Congress appropriated funds to help recapitalize financial institutions, and adopted several economic stimulus measures. In addition, Congress has been involved in efforts to reshape institutions and frameworks for international cooperation and coordination in financial markets. European governments also adopted fiscal measures to stimulate their economies and wrestled with failing banks. The financial crisis has demonstrated that financial markets are highly interdependent and that extensive networks link financial markets across national borders, which has pressed EU governments to work together to find a mutually reinforcing solution. Unlike the United States, however, where the federal government can legislate policies that are consistent across all 50 states, the EU process gives each EU member a great deal of discretion to decide how they will regulate and supervise financial markets within their borders. The limits of this system have been tested as the EU and others have searched for a regulatory framework that spans a broad number of national markets. Governments that have expended considerable resources utilizing fiscal and monetary policy tools to stabilize the financial system and to provided a boost to their economies may be required to be increasingly more inventive in providing yet more stimulus to their economies and face political unrest in domestic populations. Attention likely will also focus on those governments that are viewed as not expending economic resources commensurate with the size of their economies to stimulate economic growth.