The 'Output' Legitimacy of Financial Stability in EU Law: Beyond Economic Functionalism

Abstract

The objective of financial stability emerged as a core element of EU law following the financial crisis to guide unprecedented reform in financial regulation and supervision, bank recovery and resolution, fiscal policy, and other fields. This thesis explores the elusive concept of financial stability and the legitimacy of EU law measures pursued on this basis. With view to delineating the boundaries of the objective, a teleology is developed around the non-economic utility and the ideological underpinnings of financial stability as a shift away from laissez-faire liberalism in the European financial market. Owing to the lack of traditional democratic ‘inputs’ in financial stability policy, this teleology is used to assess the extent to which post-crisis reforms impact positively or negatively on the ‘output’ legitimacy of EU law. Accordingly, the concept of ‘output’ legitimacy is defined as extending beyond performance in the functionalist sense. Three case studies are presented: substantive tools in prudential and resolution policy (CRR II/CRD V and BRRD II), the institutional reforms of the European System of Financial Supervision and the Banking Union, and the special case of fiscal reform and financing assistance in the euro area. While the regulatory side is aligned with the teleology of financial stability, inconsistencies can be observed in relation to institutional and financing measures, which therefore threaten the output legitimacy of EU law. Finally, this thesis challenges the view that judicial review should remain deferential in expert policy fields and argues that review of financial stability could serve the purpose of minimising the social costs of policy.