This chapter argues that the combination of the European economic and monetary constitution with neo-liberal ideology amounts to a straitjacket that is impeding the necessary move towards a more sustainable economy. The chapter explores the limitations on Member State fiscal spending contained in the Treaty on the Functioning of the European Union, and contrasts those limitations with the very broad discretion granted to central banks to conduct monetary policy. Central banks’ ‘quantitative easing’ policies have, as they were intended to, boosted asset prices, skewing wealth distribution in favour of the already wealthy. They have also lowered the borrowing costs facing governments and large corporations, but it is not clear that they have been successful in terms of stimulating economic growth through higher investment and spending. Finally, the chapter looks at the EUs fiscal and monetary response to the COVID-19 pandemic. Does it mark a permanent change that may lead to a more sustainable economy, or, as the pandemic recedes, will the EU return to its constitutional and ideological straitjacket? We fear it will be the latter.

In the wake of the 2008–9 global financial crisis, the G20 devised a framework for a sustainable recovery based on international cooperation. An agreement was reached to ensure that inter alia macro-prudential and regulatory policies would support sustainable economies by preventing credit and asset price cycles from becoming forces for financial destabilization. The G20 recognized the importance of striking a balance between micro- and macro-prudential regulation to control risks, and to develop tools to monitor the build-up of systemic risk in the financial system. This chapter argues that the design of the supervisory structure is instrumental in striking the appropriate balance between these regulatory disciplines. Clear mandates and supervisory judgement are necessary to control this interdependent relationship. Regulatory underlap, gaps, and arbitrage can surface when the supervisory structure does not harmonize with legal infrastructure. To mitigate these regulatory flaws causing financial instability and producing unsustainable economies, supervisors must have sufficient capacity, expertise, awareness, and discretion. Attaining financial stability and a sustainable economy requires the supervisory structure or model, and the supervisor’s capacity and expertise to be harmonized with the legal infrastructure.