Politics Policy - 2022 - Beach - Once Bitten Twice Shy The Overgeneralization Trap and Epistemic Learning After Policy

DOI: 10.1111/polp.
12509
ORIGINAL ARTICLE
Once bitten, twice shy: The overgeneralization trap

and epistemic learning after policy failure
Derek Beach1 | Sandrino Smeets2
1
Department of Political Science, Aarhus Abstract
University, Aarhus, Denmark
Why do smart policy makers who try to learn from policy fail-
2
Department of Research Methodology, Radboud
University, Radboud, Netherlands
ure end up overgeneralizing these lessons when facing new
crises? This article focuses on the policy learning that can
Correspondence come in the wake of perceived policy failure, and the conse-
Derek Beach, Aarhus University, Bartholins Alle quences that lesson learning has for diagnosing and tackling
7, 8000 Aarhus C, Denmark. subsequent crises. We argue, in contrast to much of the exist-
Email: derek@ps.au.dk
ing literature, that failure can result in policy learning when
the policy area is highly complex and there are recognized
Funding information
Samfund og Erhverv, Det Frie Forskningsråd,
experts that have epistemic authority in the issue. At the same
Grant/Award Number: 4003-00199 time, lessons tend to become overgeneralized in which policy
makers facing a new crisis extrapolate the lessons learned from
the past failure with little consideration of whether the circum-
stances are similar enough to be applicable. Our argument is
assessed empirically using a process-tracing analysis of how
the EU responded to the Spanish banking crisis in 2012.
KEYWORDS
epistemic learning, international organizations, international relations, policy
failure, policy learning, public administration, public management, public
policy, the overgeneralization trap, theories of public policy
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BEACH and SMEETS 1181
Policies often fail to achieve their intended goals. Most cases of policy failure are not unequivocal, but
instead are subject to intense political and academic debates about whether the policy actually “failed”
(Blyth, 2013; Bovens & 't Hart, 1996; McConnell, 2017). As a result, learning is seldom triggered by
disputed cases of policy failure (Bovens & 't Hart, 1996). However, in some exceptional cases, policy
decisions made during a crisis are followed by such dramatic and visible negative consequences that
a broad consensus emerges that the policy was a failure. In the wake of failure, well-meaning experts
and policy makers try to learn lessons so they can avoid making the same mistakes (Dunlop, 2017).
Unfortunately, the lessons learned from dramatic failures tend to cast a long shadow over how policy
makers understand future crises.
We argue in this article that when policy makers face a new crisis, there is a significant risk of
falling into an “overgeneralization trap” that involves imposing the abstracted causal lessons learned
from the dramatic failure case onto the new crisis with little consideration of whether the lessons actu-
ally fit the new crisis. As a result, flawed problem diagnoses are made that do not fit the crisis at hand,
and that can increase the risk of adoption of ill-suited policy solutions.1 For example, in response to
the 2008 financial crisis and the ensuing Euro-crisis that followed in its wake, governments across
the EU adopted austerity policies at the national level in response to strict EU-level rules for national
budgets. By the late 2010s, there was widespread—though not universal—acknowledgement that
these austerity policies had been a failure that contributed to much lower growth and higher unem-
ployment than would otherwise have occurred. When EU countries faced a new economic crisis due
to COVID-19 lockdowns in March 2020, the lessons of the failure of austerity loomed large in how
experts and policy makers understood the new crisis. As a result, governments throughout the EU
chose to adopt massive fiscal stimulus at the national level (“go big, go fast”), and even more surpris-
ingly, agreed to an unprecedented EU-level stimulus package paid for through a combination of new
income and joint debt (Smeets & Beach, 2022).
The argument that experts and policy makers can neglect the importance of context when drawing
on lessons from the past is well established in the literatures on policy learning, policy transfer, and
analogical reasoning in public policy and foreign policy making (see e.g., Bardach, 2004; Brändström
et al., 2004; DiMaggio & Powell, 1983; Hood, 2010; Jervis, 1976; Stone, 2012). However, what is
less explored is how well-meaning experts and policy makers who are intent on learning lessons from
dramatic policy failures can fall prey to an overgeneralization trap by neglecting the importance of
context when using causal lessons of past failure to understand a new crisis. Our core contribution is to
develop a process explanation for how this can occur that is assessed empirically using a plausibility
probe case study.
The article proceeds in three steps. First, we present a process theory that explains why over-
generalization after policy failure can occur and under what conditions. Using recent advances in
cognitive psychology related to learning and analogical reasoning as micro-foundations, we develop
a process theory that explains how experts and policy makers can fall prey to an overgeneralization
trap. After a recognized policy failure, contextualized causal lessons of failure are drawn by experts.
However, when these causal lessons are disseminated to a broader epistemic policy community, they
become abstracted and stripped from the context in which they occurred. When policy makers then
draw on the abstracted causal lessons to understand a new crisis they face without assessing whether
the supporting factors that enabled it to work are present in the new case, they have fallen prey to an
overgeneralization trap. We also discuss the scope conditions under which the overgeneralization trap
process can be expected to occur and present the process tracing case study methods used that detail
what empirical observables we expect to find if the overgeneralization trap process was present in
the chosen case. We elaborate further on the method and discuss sources of evidence in Appendix A.
Second, we analyze whether there is empirical evidence that the overgeneralization trap process
worked as theorized. Process tracing case studies select positive cases where the cause and scope
1
Even the best designed policies can sometimes result in policy failure, but by not assessing contextual differences, the risk of failure is
significantly increased.
ONCE BITTEN, TWICE SHY: THE OVERGENERALIZATION TRAP AND
1182 EPISTEMIC LEARNING AFTER POLICY FAILURE
conditions that could allow a given process to operate are both present (Beach & Pedersen, 2019). The
case selected in this article is the learning after the Irish economic collapse in 2010 that was followed
by the Spanish banking crisis in 2012. The cause (recognized and dramatic policy failure) was present
and the scope conditions were also present (i.e., the policy area was both highly technical but also
politically sensitive). The analysis finds that while initial expert analysis of the causes of the Irish
collapse focused on factors that were specific to the Irish case, when the lessons moved to broader
economic policy-making circles they were transformed into an abstract “vicious circle” diagnosis
stripped of the particularities of the Irish case. When the Spanish banking crisis erupted in the spring
of 2012, it was quickly diagnosed based on the overgeneralized lessons of the Irish case, with little
consideration of the manifest structural differences with the Spanish banking sector. Based on this
problem diagnosis, EU policy makers decided to set in motion the creation of EU-level instruments
(banking nion) that could have fixed the causes of the Irish collapse, but that were ill-suited for the
Spanish crisis in hand. The analysis concludes with an assessment of potential alternative/additional
explanations of the problem diagnosis in the Spanish crisis.
Third, in the conclusions we discuss our contribution to the literature on policy learning. Given that
process tracing case studies require considerable evidence, we have for space reasons only analyzed
one case. However, we provide evidence in the conclusions that the overgeneralization trap process
can also be found in other cases of learning after dramatic policy failure. We then discuss what can
be done to avoid an overgeneralization trap, drawing on work on extrapolation in public policy and
policy evaluation to develop suggestions for how experts and policy makers can engage in a more
systematic assessment of potential contextual differences before they apply lessons learned from past
failures.
THEORY AND METHODS
In this section we develop the theoretical framework and process tracing case study methods used to
assess the empirical plausibility of the theory.
Process theory—Overgeneralization after policy failure
In this article, we define policy learning broadly as “the updating of beliefs based on lived or witnessed
experiences, analysis or social interaction” (Dunlop & Radaelli, 2013, p. 599). Epistemic learning is
one type of policy learning, and can occur in highly complex and technical issues such as economic
and health policy in which there are “experts” that are recognized as such by policy makers (Dunlop
& Radaelli, 2013, p. 606). When an issue is less complex and/or when there are not recognized
experts, policy learning can be shaped more by the interests and debates between politically power-
ful actors (Birkland, 2006; Boin et al., 2009; Dekker & Hansén, 2004; Dunlop & Radaelli, 2013;
Resodihardjo, 2020; Weible et al., 2012). Given that we want to understand how sincere efforts to
learn work in the wake of policy failure (Deverell, 2010), a scope condition for the process theory is
that it is only expected to operate in complex issues. Note that epistemic learning does not require the
collapse of the type of broader ideational paradigms or mental models described by some scholars of
policy change and social learning (see e.g., Blyth, 2013; Hall, 1993; Jacobs, 2009).
In building the processual model, given that there is relatively little theorization on failure as a
cause of learning (but see Birkland, 2006; Dunlop, 2017),2 and even less on the processes whereby
policy learning actually works (Dunlop & Radaelli, 2018, p. S54),3 we engaged in a broad search for
2
Much of the literature on learning and crisis focuses on intra-crisis learning, in which policy makers muddle their way through a crisis through
learning-by-doing (Dekker & Hansén, 2004; Moynihan, 2009). Hacker (2001) focuses on learning wrong lessons after the defeat of a policy
proposal, instead of learning after failure of a policy.
3
Note that there are two studies on policy learning that do disaggregate learning processes. However, both explain other types of policy learning
than what we are trying to explain. A study by Kamkhaji and Radaelli (2017) theorizes a process of contingent learning, in which surprise
Phase 3
Phase 1 Phase 2
Lesson Dissemination Applying lesson
learning in new crisis
As lesson
Cause Analysis of disseminated to Policy makers
causes of broader facing use Outcome
Recognized analogical
failure by epistemic
dramatic reasoning to Overgeneral
experts. community,
policy diagnosis -ization trap
Evidence- causal lessons
failure problem without
based lesson are abstracted
drawn (cause and stripped of assessing if
+ supporting supporting supporting
factors). factors. factors (context)
are present.
FIGURE 1 The overgeneralization trap and epistemic policy learning after policy failure
theoretical ideas from across the fields of policy failure, policy learning, policy transfer, analogical
reasoning, and cognitive psychological research on learning.
How can policy failure and the learning it triggers produce an overgeneralization trap? Figure 1
describes a multi-phase process theory that attempts to explain the causal linkage between dramatic
and recognized policy failure and the overgeneralization trap, in which abstract causal lessons are
applied in a new crisis with little consideration of whether they actually fit the new context.
The cause that is hypothesized to trigger an inter-crisis learning process that can produce an over-
generalization trap is the emergence of widespread consensus that a policy adopted during a crisis
resulted in dramatic policy failure; that is, there are high and salient costs (Howlett, 2012, p. 544).
Recognition of dramatic failure is theorized to create strong incentives to engage in expert-driven anal-
ysis of what caused the crisis and why the policies adopted resulted in policy failure (Blyth, 2013, p. 5;
McConnell, 2015, p. 221, 2017).4 While policy makers tend to be resistant to new ideas (Moyson
et al., 2017), when they are strategic and goal-oriented the shared perception of dramatic failure
creates a desire among policy makers to avoid new policy failures in future crises by trying to learn
lessons from failure (Birkland, 2006; Heikkila & Gerlak, 2013).
Recognition of failure is theorized to lead to expert authorities within an epistemic community
starting to analyze the causes of policy failure. Heikkila and Gerlak (2013) in their model of collective
policy learning distinguish between a translation phase where individuals interpret new information
(here the causal lessons of failure), and a dissemination phase during which individual-level knowl-
edge becomes shared among group members. In the following, we use the simpler term “lesson learn-
ing” for the translation phase, in which empirical research by experts attempts to identify the causal
reasons why the failure occurred in the case, including detailed analysis of the supporting factors (i.e.,
contextual information) that enabled the causes to work as they did in the failure case. When issues
are complex and technical, we should expect lesson learning to occur within an epistemic commu-
nity of experts that has a degree of control over the production of knowledge about why the policy
failed (Haas, 1992). Note that when there are strong disagreements among experts about the causes
of failure, we should not expect that a clear causal lesson can be learned. However, these types of
disagreements are most likely when experts are not part of a shared epistemic community, but instead
have different ideational policy paradigms (Hall, 1993). Therefore, an important scope condition for
drives learning during a crisis. In this article, we are trying to explain inter-crisis learning in which lessons from one crisis shape a subsequent
crisis. An article by Beach and others (2021) develops a process theory of epistemic learning (i.e., expert-driven), but focuses on solution
selection, whereas our research investigates how learning from policy failure can shape how a subsequent crisis itself is understood (i.e., the
problem).
4
It is outside of the scope of this article to also provide a theoretical explanation for why widespread consensus on policy failure emerges in
some cases but not in others. For more on this, see McConnell (2010) and Bovens and 't Hart (1996).
the overgeneralization trap process is an epistemic community exists in the policy area that shares an
overall policy paradigm.
Where the process gets interesting is during the dissemination phase, in which the causal lessons
travel to other members of a policy community (other experts and policy makers5). Based on cognitive
psychology research, we hypothesize that causal lessons are abstracted during dissemination. Gentner
and others (2009), and Sagi and others (2012) have found that when causal lessons drawn from the
particulars of a case are stored in the memory of individuals, contextual information that enabled the
causes to function as they did tends to be stripped away (Gentner et al., 2009, pp. 1344–1345; Sagi
et al., 2012). In effect, they become abstracted into more general lessons about what not to do that can
be expressed in abstract terms as “if policy choice X, then negative consequence Y.”
Due to the salience of dramatic policy failure, we should expect actors will have a strong inter-
est in understanding what not to do in future crises. Given that we restrict our theorization to issues
in which socially recognized experts exist, the movement of the lesson from the individual to the
collective level is based primarily on whether other actors accept the epistemic authority of the indi-
vidual experts that are promulgating the lesson. Epistemic authority is defined as the task-relevant
expertise that is recognized by the rest of the community (Birnbaum & Stegner, 1979; Bonaccio &
Dalal, 2006, p. 130).
As the lesson moves outside of expert circles to the broader policy-making community, we suggest
that a critical bridge for epistemic learning is played by think tanks and other policy-oriented academ-
ics who specialize in translating complex, technical expert analysis into “policy-relevant” knowledge,
which requires even further abstraction of the lessons to make them “relevant” for policy makers in
future situations (Bardach, 2004, p. 133).
The final phase of the process theory is theorized to be triggered when a new crisis occurs.
We define a crisis as discrete sets of events that threaten core values, are highly complex, and that
require some form of action (or inaction) by policy makers over a relatively short period of time
(Boin et al., 2009, pp. 83–84; Dunlop & Radaelli, 2018; Houghton, 1998, pp. 283–284; Rosenthal
et al., 1989).6 The problems triggering a complex crisis can be difficult to diagnose for policy makers
because crises do “not come with instruction sheets” (Widmaier et al., 2007, p. 748). Before a crisis
can be tackled, policy makers therefore first have to figure out what problems are causing the crisis
(Blyth, 2002).
Given that experts and policy makers are boundedly rational (Dunlop & Radaelli, 2017;
Heikkila & Gerlak, 2013, p. 489), they tend to rely on cognitive short-cuts (i.e., heuristics) to help
diagnose problems and identify solutions during crisis (Brändström et al., 2004, p. 193; Dunlop
& Radaelli, 2017; Hacker, 2001; Heikkila & Gerlak, 2013, p. 489; Houghton, 1998, pp. 283–285;
Schneider & Ingram, 1988; Vertzberger, 1990). In this article we focus on analogical reasoning as
one heuristic used by experts and policy makers. When using analogies to make sense of a crisis,
actors assess the correspondence between the current situation and the lessons from the past, focus-
ing on similarities between the cases (Gentner & Markman, 1997; Gentner et al., 2009, p. 1344;
Gentner & Maravilla, 2018, p. 194).7 Instead of drawing on a vast potential number of comparable
cases, the search for lessons tends to converge on recent and dramatic cases of failure (Brändström
et al., 2004, p. 206; Jervis, 1976, pp. 220–221, 275; Khong, 1992, p. 36; Moynihan, 2006). Failures in
the immediate past resonate particularly strongly due to the desire of actors to avoid similar failures
(Moynihan, 2006).
5
In this article, we define policy makers as the authorities that actually take decisions, which included governmental representatives in the
Council of Ministers and in the European Council, which is composed of the heads of state and governments of EU member states.
6
This means that “slow-burning” crises are not within the scope of our arguments.
7
In this article, we focus exclusively on the diagnostic tasks of analogical reasoning, putting aside other more strategic uses of analogies with
past cases (for more on this, see e.g., Brändström et al., 2004, pp. 193–194). In addition, we do not claim that analogical reasoning is the only
factor explaining why a particular problem diagnosis is chosen in a crisis.
While some ill-informed policy makers might use superficial resemblances when comparing
based on cases merely being the same type of events (e.g., banking crisis), expert actors tend to
search for similarities in the causal linkages (X → Y) between the problem and a solution in the
source and target cases (Holyoak & Thagard, 1996). Unfortunately, the assessment of similarity of
cases is based on the abstracted causal lesson from the past failure that was stored in the collective
memory. The focus on similarities without assessing contextual differences is strengthened by the
innate tendency of the human mind to be better at detecting similarities than differences across cases
(Gentner et al., 1993, pp. 525–527; Sagi et al., 2012, p. 1020).
When abstract causal lessons are applied to understand the problems causing a new crisis, policy
making can fall into an overgeneralization trap in which a new crisis is diagnosed as a “case of” the
abstract causal lessons of a prior policy failure, but important contextual differences are ignored.
As a result, erroneous inferences about why the crisis is happening and what policies might fix
it are made. Epistemic learning after policy failure is not a good thing if the lessons learned are
overgeneralized.
Note that the dynamics of the overgeneralization trap process are the opposite of what Jervis (1976)
talks about in his classic work on perceptions and misperceptions. While Jervis does talk about over-
generalization, he argues that when policy makers “learn” from past events, they fail to strip away
those facets that depend on the case-specific context (Jervis, 1976, p. 228). He then claims that the
retrieval of lessons involves a superficial search in which the most salient—but superficial—features
of past cases are used to select similar analogies (Jervis, 1976, p. 229). Based on more recent cognitive
psychological findings, we claim in our theoretical model that retrieval is more fundamentally flawed
because the lessons that are stored are stripped of the contextual conditions that conditioned how the
causal relationships produced the failure in the original failure case.
Operationalizing the overgeneralization after policy failure process
A critical element of process tracing case studies is operationalizing what empirical observables the
activities associated with the process can be expected to have left in a case (Beach & Pedersen, 2019;
Bennett & Checkel, 2015). Table 1 depicts the expected observables. More information about the
sources and justifications for the probative value of evidence can be found in Appendix A.
TA B L E 1 Expected observable implications of overgeneralization after failure process
Part 1—Lesson Part 3—Applying

Cause learning Part 2—Dissemination lesson in new crisis Outcome
• Public statement • Expert analysis that • Tracking of causal • New crisis occurs • Official
recognizing events identifies causal lesson from initial (spike in press diagnosis
as failure lessons of failure publication to coverage, increase of new
• Inquiry or case after the events broader policy in meetings amongs crisis as a
commission set up occurred community policy makers) “case of”
to study events • Abstraction of causal • Lack of clear abstracted
lesson from failure problem diagnosis in lessons
case start in discussions from
• Widespread failure
application of case
abstract lesson from
failure to new crisis
without discussion
of contextual
differences
EMPIRICAL ANALYSIS: LESSON LEARNING AFTER THE IRISH

COLLAPSE
In this section we engage in a step-by-step assessment of whether the expected evidence for each of
the phases of the theorized overgeneralization trap process was present or not in the Irish/Spanish
case.
Cause—Perceived policy failure in the Irish case
The ill-fated decision by the Irish government to guarantee major domestic banks in late September
2008 set in motion a chain of events that led to an economic collapse in November 2010 which forced
the Irish government to ask the EU and International Monetary Fund (IMF) for a rescue package. The
Irish governmental decision was taken in the immediate aftermath of the Lehman Brothers collapse.
After U.S. authorities decided not to provide federal guarantees or offer a bailout, the investment
bank collapsed, triggering a massive destabilization of global financial markets. Almost immediately,
the policy choice by the U.S. government was widely perceived to be a policy failure by experts and
policy makers (Skeel, 2018). The Irish government attempted to avoid a domestic Lehman collapse of
Irish banks by providing guarantees to several ailing banks for a two-year time period. By the time that
the initial two-year guarantees were due to expire in September 2010, markets had lost confidence in
the guarantees provided to banks by the Irish state. This spilled over into the valuation of state bonds,
with Irish ten-year bonds reaching the critical threshold of 7% at the end of September. Because the
asset portfolio of many of the guaranteed banks included large holdings of Irish state bonds, this
further weakened the position of banks, triggering an ever-worsening loss of confidence among inves-
tors. As a result, the Irish government lost access to bond markets, resulting in the Irish government
asking for an EU-IMF rescue package on November 27, 2010. The Irish decision to guarantee large
ailing banks was widely perceived as a case of policy failure by the Irish themselves, and it resulted
in a parliamentary investigation to figure out what went wrong (Houses of the Oireachtas, 2016). The
Irish decision was also widely perceived throughout the rest of the policy-making community (EU and
IMF) as a policy failure (see e.g., Mody & Sandri, 2011).
Part 1—Learning from failure
In the aftermath of the Irish collapse, many experts started research aimed at diagnosing what had
gone wrong. Based on a systematic bibliographic search in the economic literature, we have found
theoretical discussions of the potential problem of severe negative feedback loops (aka vicious circles
or doom loops) between banks and sovereigns from before the crisis (see Appendix B). An IMF
economist (Gray, 2009, p. 134) published a theoretical article that prophetically stated that a negative
feedback loop could arise
in the situation in which the financial system is large compared with the government,
and distress in the financial system triggers government financial guarantees. In some
situations, this vicious cycle can spiral out of control, resulting in the inability of the
government to provide sufficient guarantees to banks and leading to a systemic financial
crisis and a sovereign debt crisis.
Whereas other scholars identified interdependence between banks and sovereigns, the argument that
negative feedback loops of such a scale could occur had not be discussed in the literature before.
But it was only during the lesson learning phase after the Irish collapse in November 2010 that
experts coupled the theoretical problem identified by Gray with empirical evidence from the policy
failure in Ireland, turning it into an actual causal “lesson.” The first evidence-based diagnosis of the
causes of the Irish collapse that we have identified was published by two IMF research economists
in November 2011 (Mody & Sandri, 2011). In the working paper, they provide systematic empirical
evidence that demonstrates that the vicious circle problem theorized by Gray (2009) had started
manifesting itself in Ireland in the course of 2009, as the difficulties in the massive Irish bank (Anglo
Irish) triggered an increase in sovereign and banking vulnerabilities that ultimately resulted in a
mutually reinforcing vicious circle that led to the Irish collapse. Simply put, the take-home causal
lesson was that Irish government guarantees to large ailing banks (X) produced a vicious circle—aka
doom loop—that led to collapse (Y). The paper did not spend much time discussing how Ireland
could have avoided the crisis, beyond a sentence mentioning that “the crisis has shown that delays
are costly, and prompt (although deliberate) action is needed” in the form of drastic state interven-
tions to strengthen the financial sector (Gray, 2009, p. 31). Note that the article clearly delineates the
contextual conditions that were supporting factors for the vicious circle leading to the Irish collapse,
including: (1) the post-Lehman environment, (2) continuing fiscal problems in Greece that destabi-
lized the overall system (29–30), and (3) the ongoing learning in markets about the nature and size
of the crisis (21).
Part 2—Dissemination—The lesson becomes abstract as it spreads within the

policy-making community
Is there evidence that the causal lessons of the Irish collapse were abstracted and stripped of
their supporting factors (context) as they were disseminated across the economic expert commu-
nity? In our case, the expert policy community was composed of economic experts from EU
institutions (European Central Bank [ECB] and the European Commission) and experts from
the IMF, who interacted very frequently (Interviews 2, 3, 4, 5, and 9). There were also close
connections between Commission officials and economists in policy-relevant think tanks like the
Brussels-based Bruegel think tank (Interviews 2, 3, 4, 9), along with less frequent interactions
between institutional experts, academic experts, and policy makers in fora like OECD symposi-
ums and workshops.
Within two months of the publication of the Mody and Sandri (2011) article, the term vicious
circle was widely used within this epistemic community, but in the form of an abstract X → Y lesson
of the Irish failure case that was stripped of the context of the Irish case. One key indicator of this
abstraction is that authors did not use specific terms like “the Irish state guarantees that were to expire
in September 2010,” or the “solvency problems that Anglo-Irish had in paying back ECB loans,”
but instead had replaced them with abstract terms like “state” and “banks” or “financial systems.”
Véron (2012, p. 2), for example, wrote in January 2012 that, “One of the key lessons of the crisis
is the close interdependence between the detailed features of financial systems and macroeconomic
outcomes.” Pisani-Ferry (2012, p. 6) discusses the Irish case as “only an extreme case,” claiming that
“all Western European sovereigns in the euro area “are heavily exposed to the risk of having to rescue
domestic banks. Banks are exposed to their own governments through their holdings of debt secu-
rities.” In other words, the particular case of Ireland had been transformed into an abstract vicious
circle causal problem that could potentially affect other eurozone governments that guaranteed their
domestic banks.
What is particularly interesting in the dissemination process was that in think tank publications
the abstract lesson became coupled to potential solutions that could potentially fix the problem in
the future. Per definition, policy-relevant publications have to include diagnosis of a problem based
on expert analysis, but to be policy relevant, they also point to potential viable solutions for policy
makers. During 2011, many different solutions to the problem of ailing banks in eurozone countries
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F I G U R E 2 Coverage of Spanish banking crisis in Financial Times, January–August 2012. Search using Spain and
bank in Dow Jones Factiva
had been floated among think tank experts.8 Out of many potential options, one solution had come to
prominence by the start of 2012; creating a supranational banking union that moves the supervision
and resolution of banks to the EU level (later termed banking union). This is most clearly seen in the
Pisani-Ferry paper from January 2012 mentioned above, in which he suggests far-reaching reforms
as a solution to break the vicious circle, including stronger regulation and supervision of banks, and
the adoption of banking union. This solution was subsequently echoed by other Bruegel experts in
policy-relevant papers (see Appendix B). At about the same time, IMF President Lagarde also made
the same coupling in a speech on 23 January 2012,9 in which she said,
We must also break the vicious cycle of banks hurting sovereigns and sovereigns hurting
banks. To break the feedback loop between sovereigns and banks, we need more risk
sharing across borders in the banking system. Looking further ahead, monetary union
needs to be supported by financial integration in the form of unified supervision, a single
bank resolution authority with a common backstop, and a single deposit insurance fund.
(Lagarde, 2012)
By January 2012 the causal lessons of the Irish policy failure had spread throughout the economic
policy-making community, and in the process had been turned into an abstract causal lesson (vicious
circle problem) that detailed what not to do, and it had been coupled to a potential solution (banking
union). But it would take events in Spain to trigger the next phase of the process.
Part 3—Diagnosing the new banking crisis as a case of the vicious circle
In this section, we demonstrate that while there was initially considerable disagreement about the
cause of the Spanish banking crisis, by late May/early June, experts and policy makers had agreed on
the vicious circle diagnosis of the crisis.
Events in early March 2012 made it clear that Spain was facing some sort of banking crisis. The
announcement by the newly elected Rajoy government on March 2 that the economic situation was
worse than expected led to a revision of the deficit target of the government from 4.4% GDP to 5.8%
GDP. During this period, there was a sharp spike in news coverage of Spain and its banking crisis in
international media outlets widely read by policy makers (see Figure 2).
However, there was still considerable ambiguity about the diagnosis of what the crisis
was a case of. Indeed, many analysts saw it at this point as a case of an austerity trap, where
deficit-cutting measures during an economic downturn could produce an ever-worsening
8
Policy makers during 2011 discussed options such as recapitalization of banks: e.g., IMF President Lagarde in a widely cited August 2011
speech; also, Spanish Economy Minister Salgado (cited in Toyer & Wissenbach, 2011).
9
See also IMF (2012a).
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F I G U R E 3 Spanish government 10-year bond yields and Moody's credit ratings. Bond yields in gray. Source: OECD
statistics, Moody's credit ratings in black (Moody's, 2012a, 2012b)
economic crisis that would lead to more austerity (e.g., King, 2012; Smick, 2012). In broader
assessments of the crisis, many experts suggested at this point that weak economic growth was
the core challenge facing the eurozone, and thereby also Spain (e.g., Buti & Padoan, 2012). For
instance, the reason given by Moody's to downgrade the credit rating of Spanish sovereign debt
in February 2012 was that it was due to the increasing deficit and poor euro-wide macroeconomic
prospects (Moody's, 2012a).
At the same time, there were some analysts who began to diagnose the situation in Spain as a
vicious circle problem. For example, in mid-March, an analyst commenting on the rise in Span-
ish yields was quoted as saying, “That definitely concerns me. When the bonds rally, it helps the
banks' balance sheets. But when yields start rising it hurts the banks even more. It is a vicious circle”
(Milne, 2012).
As the Spanish banking crisis worsened, the situation began to be increasingly perceived to be
analogous to the Irish case. After the CEO of Bankia resigned, the Spanish government decided to
nationalize the troubled bank on May 7 and injected another €19 billion on May 25. On May 12 the
Spanish government also had adopted a package to strengthen other banks with an injection of €28
billion. On June 9, the Spanish government requested assistance from the EU to recapitalize banks,
asking for up to €100 billion. However, as this loan would increase the level of government debt, it
would also increase Spanish government exposure. The developing crisis led to Spanish government
ten-year bond rates to rise above 6% by the end of May, and to veer dangerously close to the symboli-
cally significant 7%-level during the course of June (see Figure 3). Rating agencies like Moody's also
downgraded Spanish sovereign debt in mid-June 2012.
Policy makers in the EU increasingly perceived the Spanish situation as a crisis, which can be
seen in the shift in meeting topics in the EU's Council of Ministers, both at the level of the Euro-
group (informal meetings of Eurozone Economic and Finance Ministers) and ECOFIN (Economic
and Finance Ministers). During March, some discussion of the Spanish deficit revisions occurred, but
from mid-May, the issue of the Spanish banking crisis was the focus of almost every meeting (see
Table 2).
The events in Spain in May and early June, and the increasing of market pressures, led to a rush to
causal judgment by experts inside the institutions. The widespread acceptance of the abstract vicious
circle lesson meant that there was a ready-made causal lesson that could be used to diagnose the
Spanish crisis.
TA B L E 2 Meetings of Eurogroup and ECOFIN: January–June 2012
Eurogroup meetings ECOFIN meetings

23 January 24 January
9 February (emergency—Greece) 21 February
15 February
20 February
1 March (emergency—Greece) 13 March
9 March (emergency—Greece)
12 March (Spanish deficit)
30 March (Spanish deficit) 30–31 March (Spanish deficit)
2 May
14 May (Spanish banks) 15 May (Spanish deficit)
10 June (emergency—Spanish banks)
20 June (Spanish banks) 21–22 June (Spanish banks)
27 June (Spanish banks)
Source: For topics discussed at meetings, the sources are reports in Agence Europe daily bulletins.
As early as April 20, high-level ECB officials had begun talking openly about Spain as a case of a
vicious circle and suggesting banking union as a solution.10 ECB Executive Board member Asmussen
in a speech stated that, “Several European countries face a vicious circle where weak domestic banks
cause fiscal difficulties for governments, which in turn undermines public debt sustainability and
further damages banks' balance sheets.” He then made an analogical comparison with the United
States, claiming that the problem does not exist in the United States because of financial federal-
ism (i.e., banking union) (Asmussen, 2012). In his implicit comparison between Ireland and Spain
(“several European countries”) and the explicit comparison between the EU and United States, he
does not discuss any potential contextual differences.11
The IMF in its April 2012 Global Financial Stability Report echoed these calls, writing that, “to
break the pernicious link between sovereign and banks, the facilities constituting the euro area firewall
should also be allowed to inject capital directly into banks if the situation warrants it. This ultimately
requires centralized euro area coordination of policies and a common framework in bank supervision
and resolution as well as deposit insurance” (IMF, 2012b, p. 8). In the IMF report, the abstract lessons
from the Irish case are explicitly drawn on, but there was no analysis of whether contextual differences
made the lessons less applicable for other countries.
Given the frequent interactions between ECB, Commission, and IMF experts within Article IV
consultation meetings and other fora (e.g., G20), it was not surprising that we find similar diagnoses
of the problem across institutions. According to one Commission official we interviewed, the fact that
there was another sovereign (Spain) having difficulties fueled the discussion about fixing the problem
by creating a banking union (Interview 4). Another ECB official recalled that, “Ireland could not solve
its banking problems the way Iceland did. With Spain this same problem would have been too big to
handle. This is what drove home the need for strong and direct supervision, and the other elements of
banking union” (Interview 1).
At the same time, we found a notable absence of analysis of the contextual differences in the
supporting factors for the causal lessons in Ireland and Spain in public speeches, publications,
analysis by market watchers, and in our interviews with institutional experts who participated in
10
Typically, only high-level officials in the ECB are allowed to speak publicly.
11
Other executive board members made similar pronouncements in April to June 2012, including Cæuré (2012), Praet (2012), and
González-Páramo (2012), often using analogical comparisons to the United States as a policy success case in which financial federalism means
that vicious circle problems do not exist.
behind-the-scenes policy discussions. Despite the market hype, the Spanish crisis was less severe than
the Irish case. As in Ireland, the core of the problem for banks in Spain was a burst housing bubble.
But there were several notable differences. First, Spanish banks were less predatory and speculative
than their Irish counterparts. Second, whereas the Irish banking system was dominated by several
enormous banks, in Spain there were many smaller, regional banks that were ailing (cajas). Despite
seven ailing cajas being merged into one institution in December 2010 (Bankia) and recapitalized
with €4.5 billion by the Spanish government, the scale of Spanish guarantees for banks was much
smaller than in the Irish case.
As the Spanish crisis worsened in late May, comparisons with the Irish failure case became rife
among financial media analysts. For example, analysts at the Financial Times assessed the situation
on May 29 in an article with the headline “Spain Must Avoid an Irish Turn.” In the article, there are no
discussions of potential contextual differences between the cases. They wrote,
But today Prime Minister Rojoy's governments is on a path that, unless it changes direc-
tion, leads into the trap that engulfed Ireland. "We are not going to let any bank fall,
if that happens the country will fall," Mr. Rajoy said on Monday. That is the message
Ireland's government insisted on as it piled private banks' debts on its puny sovereign
shoulders. By the end of 2010 markets had lost faith in Dublin's ability to repay and it
was strong-armed into a eurozone rescue loan. Ireland's folly made clear that the interde-
pendence of sovereigns and national banks is at the heart of the monetary union's present
dysfunction.
In a lead article from June 9, The Economist wrote, “strengthened oversight and the ability to recap-
italize banks quickly with combined euro-zone resources are essential to break the vicious spiral
linking failing banks and overindebted governments” (Economist, 2012).
Credit ratings agencies joined the fray after the Spanish government asked the EU for help with
recapitalizing its banks on June 9. For example, Moody's downgraded Spain from A3 to Baa3 (one
grade above the speculative) on June 13. In a press release, Moody's expressed grave concerns about
the links between domestic banks and sovereign debt in Spain (Moody's, 2012b). In all of our inter-
views with insiders who were privy to discussions among policy makers, there were no respondents
who recalled systematic evaluations taking place of whether the causal lessons learned from the Irish
failure were actually applicable in the Spanish case (see Appendix A for a list of interviews).
The diagnosis of the Spanish crisis was still not universally shared amongs EU policy makers
in early June. In particular, the German government—the country most likely to have to be a net
contributor to any common resolution mechanism or deposit insurance scheme—was still hesitant
about accepting the problem diagnosis (at least publicly). German Finance Minister Schäuble stated
in Handelsblatt (2012) that, “The Spanish are doing everything right, and yet they are still facing
pressure in the markets because of contagion from Greece. We must deal with that.” Instead of the
vicious circle diagnosis, he suggested the problem was the instability triggered by the ongoing Greek
debt crisis.
However, during the second half of June—as rates of Spanish ten-year bonds approached 7%
despite the EU having agreed to support a Spanish bank rescue with up to €100 billion on June 10 (see
Figure 3)—the abstract vicious circle diagnosis became dominant among policy makers. What is most
notable was that German Prime Minister Merkel, immediately prior to a European Council Summit,
indicated that she had accepted the vicious circle diagnosis. In a speech to the German Bundestag on
June 27 she stated, “The situation in Spain shows how important it is to reduce the risks of contagion
between the banks on the one hand and public finances on the other. With this in mind we need a
credible European supervisory authority which can arrive at objective decisions and which does not
allow itself to be influenced by national considerations” (quoted in Ludlow, 2012, p. 9). Although she
does not go so far as to accept full banking union as the solution, the speech is evidence that the most
skeptical veto player was willing to accept publicly the diagnosis of Spain as a case of a vicious circle.
Outcome—Overgeneralization of lessons from the Irish failure case
The culmination of the process was the acceptance of the abstract causal lesson applied to the Spanish
crisis by all of the leaders of Euro Area countries in a statement issued after their summit on June 29.
The first paragraph states that, “We affirm that it is imperative to break the vicious circle between
banks and sovereigns” (Euro Area Summit Statement 29 2012). The statement also mentions Ireland
and Spain by name, indicating diagnosis of both as cases of an abstract vicious circle problem. The
statement then asks the Commission to prepare legislative proposals for the first element of banking
union (a single supervisory mechanism). However, because creating a single supervisory mechanism
does not really make sense without also creating some form of common fund for resolving banks,
implicitly the leaders were giving the green light to the Commission to propose a much more ambi-
tious package of banking union proposals (for more, see Beach et al., 2019; Nielsen & Smeets, 2017).
We interpret this statement by the European Council as a key piece of evidence that suggests that
policy makers had fallen prey to an overgeneralization trap by diagnosing the Spanish banking crisis
as a case of a vicious circle without taking into account contextual differences between the cases. As a
consequence, EU policy makers who wanted to avoid the Irish collapse repeating itself in Spain ended
up accepting the start of far-reaching institutional reforms that were designed to fix the root causes of
the vicious circle in the Irish policy failure case, but that paradoxically did little to alleviate the imme-
diate Spanish crisis itself (Howarth & Quaglia, 2013; Nielsen & Smeets, 2017). What actually took
market pressure off the Spanish government was the unrelated decision by ECB President Draghi to
promise in July 2012 to do “whatever it takes” to save the euro. This promise convinced markets that
vulnerable countries such as Spain were not at risk of imminent collapse as the ECB would intervene.
Discussion—Are there additional explanations of the diagnosis of the Spanish

crisis?
While we have theorized a process that explains how experts and policy makers can fall prey to an
overgeneralization trap, we do not claim that this is the only reason they accepted the problem diagno-
sis. In this section we discuss several additional explanations for acceptance of the problem diagnosis
that are not mutually exclusive with our process theory.
One can argue that, in a situation where the very survival of the euro was at stake, risk-averse
policy makers would naturally gravitate toward a problem diagnosis based on the worst-case scenario
such as an Irish-style collapse. Market analysts fearful of getting it wrong would then pile on due to
fears about losing their reputation and/or large sums of money. There is evidence that in the heat of
the crisis, analysts were extremely risk-averse, a point acknowledged by the ECB in their June 2012
Financial Stability Review in which they wrote, “initiatives aimed at shedding more light on certain
areas of the financial system must be fostered to avoid unknown unknowns” (ECB, 2012, p. 10). At
the same time, a cool-headed analysis of the situation and the facts known at the time that compared
the contextual conditions present in both cases would have suggested that a relatively limited recap-
italization of Spanish banks using common EU funds that did not impact levels of Spanish state debt
could have fixed the problem. Our analysis has demonstrated that the overgeneralized causal lesson
from Ireland led analysts to overcompensate and be more fearful than the objective facts warranted.
There were also political motivations for some experts and policy makers to accept the vicious
circle problem diagnosis. Arguments about a vicious circle were used strategically by some to
counter the German “moral hazard” arguments that placed the blame for crises firmly at the feet
of governments in Greece, Ireland, Portugal, and Spain. By diagnosing Spain as a case of a vicious
circle, the problem was no longer excessive spending and lax supervision by Spanish authorities, but it
instead it was a systemic problem for the EU. For example, in an interview, a high-level Commission
official stated that,
The vicious circle argument proved particularly useful for countering the reading,
particularly dominant in the Anglo-Saxon media, that the crisis was mostly due to the
irresponsible fiscal behavior of the Southern member states [PIGS rhetoric]. The pres-
ence of a vicious circle (or doom loop) between banks and sovereigns helped to shift the
focus (and blame). (Interview 8)
However, while there were political reasons for accepting the diagnosis, this still does not explain the
rapid diffusion of the diagnosis, nor why skeptics like German policy makers decided to accept the
diagnosis in June 2012.
One could also argue that the dynamics related to a lack of discussion of contextual differences
and premature consensus being reached could also be the consequence of groupthink dynamics
(Janis, 1983). However, groupthink requires a small, homogenous group of policy makers, whereas
the policy-making community at the EU-level was much larger and quite heterogeneous. In particu-
lar, there were strong and diverging goals and interests (e.g., Germany versus Spain) that prevented
groupthink from occurring.
CONCLUSIONS
This article provided a theoretical explanation for how experts and policy makers can overgeneralize
the lessons of dramatic policy failures when facing new crises. Because the causal lessons of failure
tend to become abstracted and stripped of context when they are stored in the collective memory,
when they are retrieved to make sense of a new crisis they are applied without consideration of poten-
tial contextual differences. As a result, policy making can fall prey to an overgeneralization trap. In the
article we empirically assessed the process theory, finding considerable evidence that confirmed that
the process worked as theorized in explaining the outsize role played by the lessons of the Irish
economic collapse in diagnosing the causes of the Spanish banking crisis in the spring of 2012.
Our article makes two contributions to the literature on policy learning and failure. First, much of
the existing literature on policy learning tends to be skeptical of whether policy makers ever actually
“learn” after crisis and/or policy failure (see e.g., Bovens & 't Hart, 1996; Brändström et al., 2004;
Dekker & Hansén, 2004; Dunlop & Radaelli, 2016; Hacker, 2001; Howlett, 2012; Moyson
et al., 2017). If learning does take place, many authors contend that it is very slow and piecemeal (Boin
& 't Hart, 2003). Others suggest that significant policy learning can occur, but only after the collapse
of the broader ideational paradigm due to the combination of accumulated empirical anomalies and a
set of authority struggles that bring new leaders with new ideas to power (see e.g., Hall, 1993; Matthijs
& Blyth, 2018). In this article, we provide evidence suggesting that dramatic policy failure can trigger
significant policy learning.
Second, we contribute to the emerging literature on the nexus of failure and learning by develop-
ing an evidence-based disaggregated process model with theoretical micro-foundations drawn from
cognitive psychology that explains one pathway that can link failure and learning, and in particular
how learning can result in the overgeneralization of lessons when facing future crises.
One limitation of our analysis is that we have only analyzed one case. Naturally, we do not want to
fall into an overgeneralization trap ourselves by making generalizations from one case without assess-
ing empirically whether the process theory works in other cases. While we cannot engage in detailed
process tracing of other cases for space reasons, there is evidence that suggests that similar overgen-
eralizations after dramatic policy failure processes have taken place in other cases. The “lessons of
Lehman” are commonly cited in economic policy making (e.g., OECD, 2018), and the “lessons of
Munich” are frequently drawn on in foreign policy making (Khong, 1992). When these lessons are
drawn on, there is little recognition that these types of dramatic policy failures are usually the product
of complex circumstances (Bardach, 2004, p. 133; Peters, 2017), and that transposing them onto new
crises tends to result in erroneous problem diagnoses being made. We invite further research into
overgeneralization traps in other cases that can help assess whether similar processes were at play.
How can experts and policy makers avoid the overgeneralization trap when trying to make sense
of new crises? Some analysts suggest drawing on a wider set of source cases when diagnosing the
causes of a complex crisis (e.g., Cairney et al., 2016; Schneider & Ingram, 1988). For example,
Schneider and Ingram (1988, p. 67) write,
By drawing example of analogous or parallel policies from a wider variety of contexts,

the analyst may be able to estimate the robustness of alternative policy designs for
producing desirable effects regardless of context; or may be able to determine the types
of contexts needed if particular types of designs are to produce desirable results. It is
especially enlightening to draw examples from other countries where contextual differ-
ences are large.
However, as we know from the broader literature on generalization, how things work in complex
policy areas is critically dependent on context and the supporting factors present in a given case
(Cartwright, 2011; Khosrowi, 2019; Steel, 2008; Woolcock, 2022). In complex policy environments,
how causes work depends on the context in which they operate (Woolcock, 2022). As Cartwright and
Hardie (2012) have persuasively argued, a good lesson about why a policy did not work should not
be seen as a one-size-fits-all diagnosis. Instead, it should include the causal lesson and information
about the supporting factors that produced it (i.e., context) (Cartwright & Hardie, 2012; see also
Bardach, 2004; Barzelay, 2007).
The answer is also not to go in the other direction and contend that evidence is “fundamentally
indeterminate in its relationship to complex policy problems” (Daviter, 2019, p. 78). While policy
learning can result in actors learning the “wrong” lessons (Dunlop, 2017), there are tools that can
help policy makers avoid these dysfunctionalities by engaging in better comparisons with the past
by explicitly assessing contextual differences. At the same time, it is important to keep Hacker's
argument in mind that, “lesson-drawing is neither simple nor easy. The difficult task of the analyst is
to draw out general lessons from these particularities, while remaining aware of the limited range of
application that those lessons will necessarily have” (Hacker, 2001, pp. 74, 77).
While it can never be completely avoided, systematic analysis of contextual differences in
supporting factors can minimize the risks of an overgeneralization trap. Barzelay (2007, pp. 523–524)
helpfully suggests a two-step assessment procedure that can be used, supplemented with meth-
ods drawn from recent work on extrapolation (Khosrowi, 2019; Steel, 2008) and process-related
evaluation methods (Mayne, 2015, 2017; Wauters & Beach, 2018; Woolcock, 2022). In the first
step, a causal lesson is drawn from a source case (here a dramatic policy failure) by analyzing
the process leading to the failure (Barzelay, 2007, p. 524) using process tracing methods (e.g.,
Wauters & Beach, 2018). A by-product of tracing the activities of actors in a process is that light
is also shed on the contextual conditions that have to be present for the activities to be performed
(Khosrowi, 2019; Steel, 2008, pp. 88–92; Wauters & Beach, 2018; Woolcock, 2022). In the case
studied in this article, a processual analysis of the Irish failure would have shed more light on the
extremely volatile market conditions that magnified the impact of negative signals on confidence
in the solidity of sovereign guarantees of banks, as well as the relative magnitude of banks in rela-
tion to the Irish state. Any lessons drawn from the Irish case would then explicitly include both the
causal lesson itself and the supporting factors (context) that helped produce the failure (Cartwright
& Hardie, 2012).
Building on this, the second step of policy extrapolation should be to assess whether the contex-
tual conditions for the causal lesson to hold are present in the new crisis case, in effect assessing
whether the causal lessons could work also “here” (Bardach, 2004; Cartwright & Hardie, 2012).
While the context will never be completely similar, assessment should be done on whether the most
important supporting factors are also present or not (Cartwright & Hardie, 2012; Khosrowi, 2019;
Woolcock, 2022). In relation to the case study in this article, the assessment should focus on the
degree of market volatility in the Spanish case—which was considerably lower, especially in a context
in which the ECB had started using different instruments to support banks—and the relative size of
the banks guaranteed.
While it could be argued that crisis situations impose time constraints that can make it difficult to
engage in a comprehensive assessment of contextual differences, the case investigated in this article
illustrates that there usually is sufficient time to engage in a critical analysis of the assumptions about
the degree of contextual similarity between past and present cases. Given the stakes involved in major
crises, we should expect that experts and policy makers would have strong incentives to expend the
analytical resources required to avoid overgeneralizing by using abstracted and de-contextualized
comparisons. While there realistically will never be a “perfect” diagnosis of policy problems during
crises, governing by uncritically looking backwards means accepting the significant risk of policy
making falling prey to the overgeneralization trap.
ACKNOWLEDGEMENTS
The authors would like to thank the anonymous referees at Politics & Policy whose comments helped
to improve the final quality of the text.
ORCID
Derek Beach https://orcid.org/0000-0003-1869-0145
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How to cite this article: Beach, Derek, and Sandrino Smeets. 2022. “Once bitten, twice shy:
The overgeneralization trap and epistemic learning after policy failure.” Politics & Policy
50(6): 1180–1208. https://doi.org/10.1111/polp.12509
A P P E N D I X A : M E T H O D O L O G Y, S O U R C E S , A N D E V I D E N C I N G
In the following, we introduce our process tracing methodology, followed by a discussion of the
evidence used in the article. The section concludes with a list of interviews conducted.
The process tracing design

Process tracing is an in-depth case study method that can be used to empirically assess processual
causal claims (Beach & Pedersen, 2019; Bennett & Checkel, 2015). The method involves assess-
ing the contribution of causes working through a causal process that links causes with outcomes.
A within-case analysis cannot assess whether causes are necessary or sufficient, nor can it assess
the net effect of individual causes within a case unless we use hypothetical counterfactuals—a
move that would change the design to a most-similar-system comparison instead of tracing empir-
ically how a causal process actually played out in a case. Further, in this article we do not utilize a
counterfactual-based understanding of process tracing, in which inferences are made by comparing
what happened when a part of a process occurred in a case with either a most-similar comparison
case where everything else was similar except that the part did not occur, a hypothetical counterfac-
tual most-similar scenario to investigate the difference that parts being present or absent made for
the process and outcome (Levy, 2015; Rundhardt, 2015). Instead, in the version of process tracing
that we utilize, inferences are made by assessing whether expected empirical observables left by the
activities that provide the causal linkages in the process were present or not in the case (Beach &
Pedersen, 2019, pp. 171–181).
Process tracing methods as used in this article have two main elements: a process theory that
disaggregates the interactions between actors into distinct parts, in which the activities they engage in
are the causal linkages in the process; and an operationalization of this processual model in the form
of expected observables that can act as evidence for whether the activities in the process took place
or not.
First, a processual theoretical model is developed that serves to unpack a causal process theo-
retically into its constituent parts, by identifying the main actors (entities), their activities and inter-
actions, in a way that makes the causal logic that binds these different parts together explicit. The
process theory in this article is depicted in Figure 1 (main text). In this article, we have developed the
process theory based on existing theoretical explanations of policy learning, supplemented with work
from cognitive psychology on epistemic authority and how learning works. The resulting process
theory is an analytical simplification that provides us with a mid-range theoretical explanation that is
sufficiently general to allow for process-level comparisons across cases, yet at the same time suffi-
ciently detailed that it provides us with an analytical framework for putting forward theory-based
expectations of observables that can then be used to both test the theoretical explanation and revise it
in relation to how it worked in subsets of cases if disconfirming evidence is found.
Second, empirical evidence is used to trace whether the process played out as expected. The
process theory is operationalized by asking what empirical observables the activities associated with
each part of the process might have left in a case. Expected observables can take many different forms
(e.g., account, sequences, patterns etc.), and they can have different probative values depending on
how likely we are able to find that evidence (certainty) and whether there are alternative explanations
for finding this evidence (uniqueness). Note that the expected observables for our process theory are
not necessarily confirming or disconfirming of the whole part of a process, but instead might only be
evidence of a particular aspect of the part.
It is important to note that confirmation bias is avoided in process tracing by engaging in a trans-
parent assessment of whether the found evidence can be accounted for with other plausible alterna-
tive explanations for finding the evidence itself (aka uniqueness of evidence). This means that, in
contrast to what is sometimes claimed in the process tracing literature, alternative explanations are for
the evidence being found and not alternative explanations of the outcome. Given that for any major
policy outcome there will be multiple causes linked by multiple processes that contributed to produce
it, assessing evidence in light of alternative explanations of the outcome itself is not relevant unless
two (or more) causes and the processes they trigger are rivals that are mutually exclusive at both the
theoretical and empirical levels (Beach & Pedersen, 2019, pp. 190–191).
Expected empirical observables

What types of evidence is relevant to assess whether the process theory worked as theorized? The
following discusses the empirical material and provides justifications for why it is evidence of what
we think it is evidence of. Most of the expected observables are not specific to the selected case and
could be expected to be found in other cases.
Cause—Policy failure
Sources: Public statements by policy makers recognizing events as policy failure, inquiry or commis-
sion set up by policy makers to study causes of failure after event.
Probative value: While policy makers might have numerous competing motivations for recogniz-
ing events as policy failure (e.g., imposing political costs on incumbent politicians), multiple state-
ments across political divides would be relatively strong evidence of recognized policy failure. Even
stronger evidence would be setting up inquiries or commissions, which is quite rare and typically only
happens when policy failure is dramatic and unequivocal. It is precisely these types of situations that
are hypothesized to trigger the overgeneralization trap process.
Part 1—Lesson learning

Sources: Expert analysis that identifies the core causal lessons of the failure case found in literature
review (academic journals, working papers of expert institutions such as the IMF).
Probative value: Assessing whether experts identify the core causal lessons requires a systematic
review of relevant literature over time (before/after failure) to assess: (1) whether the “lesson” existed
prior to the failure case; (2) when analysis of the failure case took place, and in what form; and (3) how
the lesson traveled within the epistemic community. Confirming evidence would be finding that the
“lesson” was not well-established knowledge amongs experts before the failure, followed by a publi-
cation that analyzes the failure case and attempts to draw causal lessons that are contextualized in the
case. An alternative explanation for finding the evidence could be that the lesson did exist before the
crisis but was "implicit" expert knowledge. However, when dealing with economic topics that are so
important that mistakes can potentially lead to economic collapses, it is highly improbable that there
would not be experts in institutions such as the IMF who would document this knowledge—at least
in theoretical terms.
Part 2—Abstraction and the dissemination of the lessons

Sources: Systematic literature review of publications to assess whether the lessons of policy failure
become abstracted as they travel from academic/expert sources through think tank publications and
into the public expert discourse (aka common wisdom).
Probative value: The critical piece of evidence is whether the lessons that were initially context
specific become more abstract as they become internalized by more actors, resulting in an absence of
discussion of potential contextual differences. Linguistically, we should first expect that formal nouns
are replaced by abstract terms when discussing the causal lesson. For instance, instead of discussing
particular actors in the Lehman policy failure, we might expect more abstract terms like "X = large
bank in trouble and no guarantees" would result in "Y = systemic financial crisis" can be expected to
be used instead of talking about Lehman itself and the decisions by the Bush administration. Addi-
tionally, the importance of the context within which the X → Y causal relationship occurred should
relatively quickly disappear from texts. If we find that lessons discussed, but important contextual
differences (e.g., size of banking sector guaranteed) are mentioned also, this would be disconfirming
evidence. An alternative explanation of finding both abstraction and an absence of mention of contex-
tual differences could be that the publication is trying to simplify lessons for policy makers and the
general public in very short pieces (e.g., editorials). However, we should not expect this oversimpli-
fication to take place in longer expert think tank reports unless the stripping of lessons from context
is taking place.
Part 3—Making sense of a new crisis—Applying abstracted lessons

Sources: This part requires evidence that policy makers believe that a new crisis is occurring and
that policy makers and experts used analogical reasoning to diagnose it. Observables for percep-
tions of a new crisis include spikes in press coverage, and increased discussion by high-level policy
makers of the series of events, including emergency meetings being convened. As regards evidenc-
ing of analogical reasoning to make sense of the new crisis, we should expect initially to find a
lack of a clear problem diagnosis across a range of sources (speeches and public statements by
policy makers and experts), followed by discussions of the abstract causal lessons from the failure
case coupled to the new crisis in policy debates among experts that ignore potential contextual
differences.
Probative value: The lack of discussion of contextual differences is hypothesized to act as a “dog that did
not bark” piece of evidence, where absence is highly confirming for a part of a process taking place (Beach
& Pedersen, 2019, pp. 189–191, 291). Ideally, we would have been able to analyze the behind-the-scenes
debates to ascertain whether contextual differences were ignored or not when policy makers and experts
were diagnosing the problem. Unfortunately, we do not have access to hard evidence such as transcripts or
recordings of meetings. Instead, we are forced to rely on more indirect evidence in the form of interviews
with experts who were in the room. We engaged in a series of semi-structured interviews with insiders from
different EU institutions who were part of the policy-making discussions and the expert policy community,
including from the European Central Bank, the Council Secretariat, and European Commission, as well
as a central placed expert in a think tank. The list of interviews is reproduced below. In the interviews,
we asked insiders whether they recalled any serious assessment of potential contextual differences in the
policy discussions behind closed doors. An additional, even more indirect type of evidence is whether there
is any discussion of contextual differences in the public debates among experts and market analysts. Taken
together, it is highly unlikely that we would find absence in both interview data and in the public state-
ments and discussion. Using an example from another crisis, the “lessons” drawn from the initial Covid
outbreak in Northern Italy were applied throughout the rest of Europe with little consideration for whether
the context was different in a country such as Denmark where multi-generational households were rare. In
contrast, in the fall of 2021, the “lessons” from the South African Omicron outbreak were accompanied by
clear and public discussions of contextual factors that might make the lessons less applicable.
Outcome—Overgeneralization trap
Sources: Official diagnosis of new crisis as a “case of” the abstracted lesson from policy failure. In our
case, we use the European Council Summit conclusions as evidence.
Probative value: Given that European Council Summit conclusions are agreed with unanimity
and, given that they represent the general will of the highest political level in the EU (heads of state
and government of EU member states), what is included in conclusions is not merely “cheap talk.”
While it is by no means certain that skeptical governments like the Merkel government believed in the
problem diagnosis, the conclusions meant that proponents of reform had German acceptance of some
form of reform in writing.
List of Interviews
1. European Central Bank official, Frankfurt, July 17, 2015.

2. European Central Bank official, Frankfurt, September 30, 2016.
3. European Commission official, Directorate-General for Economic and Financial Affairs (DG
ECFIN), Brussels, November 16, 2018.
4. European Commission official, Directorate-General for Economic and Financial Affairs (DG
ECFIN), Brussels, November 16, 2018.
5. European Commission official, Directorate-General for Financial Stability, Financial Services
and Capital Markets Union, Brussels, November 16, 2018.
6. European Central Bank official, Frankfurt, September 29, 2016.
7. Interview with two European Central Bank officials, Frankfurt, September 29, 2015.
8. Interview with high-level European Commission officials, Brussels, March 27, 2017.
9. Interview with think tank official, Telephone interview, July 5, 2019.
10. Interview with Council Secretariat official, Brussels, January 7, 2016.
11. Interview with two European Commission officials, cabinet of Commission President, Brussels,
November 8, 2016.
12. Interview with European Commission official, DG Markt, Brussels, February 1, 2016.
13. Interview with European Commission official, cabinet of President Juncker, Brussels, July 14,
2015.
14. Interview with European Central Bank official, Brussels, September 23, 2015.
A P P E N D I X B : S Y S T E M AT I C L I T E R AT U R E R E V I E W
Expert analysis related to the linkage between banks and sovereigns.
Véron. 2007. “Is Europe Ready for a Major Banking Crisis?” Bruegel Policy Brief, Issue 2007/3, August 2007.
Problem • Large amount of cross-border banking in Europe, but national financial stability arrangements
ill-adapted → national authorities might have different priorities and rules + coordination difficulties
across jurisdictions
• Most integration in new MS
• Authorities in crisis might have incentives to hide problems, or “ring fence” subsidiaries
• Does not talk about bank-sovereign/sovereign-bank links
Solutions • Need supervisory information to flow freely and confidentially across borders
• Some cross-border crisis management at EU level, potentially EU-level regulatory and supervisory
regime focused on pan-EU banks (EU, not euro)
• Create pre-crisis sanctions and tools for specific harmonized arrangements for deposit
insurance + MS share costs of crisis resolution
Gray, Merton, and Bodie. 2007a. “Contingent Claims Approach to Measuring and Managing Sovereign Credit
Risk.” Journal of Investment Management 5(4): 1–24.
Problem • Ability of sov to pay off debt or make good on guarantees of private sector debt can play major role
in valuation and risk assessment of private sector debt instruments
Gray, Merton, and Bodie. 2007b. “New Framework for Measuring and Managing Macrofinancial Risk and
Financial Stability.” NBER Working Paper Series, Working Paper 13607, National Bureau of Economic Research.
• New approach to capture “non-linearities” of financial risks of national economy—risk-adjusted
balance sheet
Pauly. 2008. “Financial Crisis Management in Europe and Beyond.” Contributions to Political Economy 27: 73–89.
Problem • Financial and capital market integration advanced, but lack of workable arrangements for crisis
prevention, management, and resolution
Solution • Some form of common supervision and resolution
Gray. 2009. “Modeling Financial Crises and Sovereign Risks.” Annual Review of Financial Economics 1: 117–44.
(Author works at IMF)
Problem • FIRST CLEAR IDENTIFICATION OF VC (134)
• Traditional macroeconomic analyses overlook the importance of risk, which makes them ill-suited
to examine interconnectedness, risk transmission mechanisms, and contagion
• Causes of banking crises: (a) macroeconomic imbalances, (b) bubble or price collapse, (c) financial
panic, (d) moral hazard (from government guarantees), (e) disorderly debt workout, and (f)
contagion or sudden stop (lenders stop rolling over current debt and restrict new lending). (119)
• Regulators, governments, and central banks have not focused enough on interconnectedness
between financial sector risk exposures and sovereign risk exposures and their potential interactions
and spillovers to other sectors in the economy or internationally (128)
• A vicious destructive feedback loop could arise in the situation in which the financial system is
large compared with the government, and distress in the financial system triggers government
financial guarantees. Potential costs to the government, due to the guarantees, lead to a rise in
sovereign spreads. Banks’ spreads depend on (a) retained risk, which is lower given the application
of government guarantees, plus (b) the government spread because investors view the bank’s and
sovereign risk as intertwined. Concern that the government balance sheet will not be strong enough
for it to make good on guarantees could lead to deposit withdrawals or a cutoff of credit to the
financial sector, triggering a destructive feedback where both bank and sovereign spreads increase.
In some situations, this vicious cycle can spiral out of control, resulting in the inability of the
government to provide sufficient guarantees to banks and leading to a systemic financial crisis and
a sovereign debt crisis (134)
• Fiscal, banking, and other problems can cause distress for the government, which can transmit
risk to holders of government debt. Holders of foreign-currency debt have a claim on the value of
the debt minus the potential credit loss, which is dependent on the level of assets of the sovereign
(in foreign currency terms) compared with the foreign-currency default barrier. A sudden stop in
accessing foreign funding (inability to rollover short-term debt and to borrow) can dramatically
increase credit spreads for the sovereign and for banks. A vicious spiral of devaluation, high
bailout costs for banks, and inability to borrow can lead to default of both banks and the sovereign
(134)
◦ Early analysis like Krugman (1979)—Great Depression…
◦ After ERM crisis of 1992 and Mexican crisis of 1994
◦ Aftermath of unforeseen Asian crisis
- Innovation here—recognition that problems on balance sheets of banking sector, corporate
sector and government sectors separately or in combination can play fundamental role in
making country vulnerable
- Doubt about solvency of one sector can lead to capital flight (119)
- Papers on role of government bail-out guarantees that support excess borrowing and lending
(Corsetti, 1999; Schneider & Tornell, 2004) (120)
Solutions • Failure to fully understand linkages among financial institutions, new product structures, and
new markets makes it clear that a new generation of regulatory tools is needed. This includes
rethinking banking capital adequacy, cross-border banking regulation, and developing new tools
and incentives to mitigate, control, and transfer risk (138)
• Government deposit insurance and financial guarantees risk are called precisely in the states of
the world where governments find it difficult to pay them, creating destructive feedbacks between
financial sector and sovereign risk. One partial solution could be a system of reinsurance at
the international level where international bodies facilitate reinsurance for domestic deposit
insurance and financial guarantee programs (139)
Goodhart and Schoenmaker. 2009. “Fiscal Burden Sharing in Cross-Border Banking Crises.” International Journal
of Central Banking 5(1): 141–65.
Problem • Integrated European banking system emerging → appropriate level of managing financial stability
(national or federal?)
• Fiscal costs of resolving banking crisis can be large
Solution • 1. General fund to shoulder burden of recapitalization → problems (political reluctance for
cross-border transfers)
• Fx Goodhart and Schoenmaker (2006)—allow ECB to issue bonds to set up general fund and use
seigniorage of ECB to finance annual costs of fund (interest payments and write-down)
• Or use EIBB to set up general fund
• 2. Specific burden sharing → only countries in which problem bank is conducting business
contribute
Schoenmaker. 2009. “The Financial Trilemma.” Economics Letters 111(2011): 57–59.

Problem • Financial trilemma (1. Financial stability, 2. Financial integration, 3. National financial policies)
impossible
• European level of integration may lead to coordination failure
Solution • European-based system of financial supervision, but then mentions De Larosière (2009) report
Mody. 2009. “From Bear Stearns to Anglo Irish: How Eurozone Sovereign Spreads Related to Financial Sector
Vulnerability.” IMF Working Paper, WP 09/108, May 2009.
Problem • Thesis that once the global financial stress crossed a threshold [in 2008], the vulnerability of a
country's financial sector played an increasingly central role in the dynamics of that country's
sovereign spreads
• Reinhart and Rogoff (2008) document that a country's banking crisis has been followed by
a substantial run up in its public debt-to-GDP ratio. Today, with heightened financial sector
stress, markets have anticipated the rise in public debt and the spreads on sovereign debt have,
therefore, risen. The contribution of this paper is to track how this process has unfolded in the
current context (R&R argue this higher debt is due to lower growth after financial crisis—
Mody agrees)
Posen and Véron. 2009. “A Solution for Europe's Banking Problem.” Petersen Institute for International Economics,
Policy Brief, Number PB09-13, June 2009.
Problem • Significant unrealized losses on bank books that portend insolvencies
• National officials tend to drag their feet instead of making tough decisions
• Large cross-border holdings—risk of cross-border bank insolvency
Solutions • Temporary EU-level approach (Treuhand, 5 yrs)—triage to assess solidity and LR viability of
key banks—only centralized can restore trust
• Risk of cross-border insolvency → supranational approach to crisis management → otherwise
risk of treating national/non-nationals differently → EU inst would broker negotiations among
states to share the burden of resolution
Sgherri and Zoli. 2009. “Euro Area Sovereign Risk During the Crisis.” IMF Working Paper, WP/09/222, October
2009.
Problem • Since October 2008 there is evidence that markets have become progressively more
concerned about the potential fiscal implications of national financial sectors' frailty and
future debt dynamics
• Does not see VC
Castren and Kavonius. 2009. “Balance Sheet Interlinkages and Macro-Financial Risk Analysis in the Euro Area.”
ECB Working Paper, No. 1124, December 2009
Problem • DO not shed light on bank-sovereign link—focus on all types of risk linkages
Attinasi, Checherita, and Nickel. 2009. “What Explains the Surge in Euro Area Sovereign Spreads During the
Financial Crisis of 2007–09?” ECB Working Paper Series, No 1131, December 2009.
Published in Public Finance and Management (2010) 10(4): 595–645.
Problem • Announcement of bank rescue packages has led to a reassessment of sovereign credit risk
from the part of investors, through a transfer of risk from the private financial sector to the
public sector. We also find that the amount of resources committed by the governments for the
purpose of stabilizing the banking sector does not have, on average, a statistically significant
effect on sovereign bond spreads, especially when Ireland is excluded from the analysis. In
our view, this shows that investors' discrimination among sovereign borrowers was triggered
by governments' credible commitments shown the importance of preserving the public's trust
in the soundness of public finances and the need for countries to consolidate during good
economic times…commitment to extend support to the banking sector, and not by the mere
size of this support
• Literature review—does not include bank rescue packages
• Ireland (over 200% of GDP in guarantees)
IMF. 2010. Global Financial Stability Report. Washington, DC: IMF.

Problem • Close linkages sov. risk and financial system—clear description of VC (p. 5 + box on p. 12 prepared
by Gray focusing on bank → sov. link)
• BUT—writes in September 2010 that policy actions to put the bank into a resolution framework,
coupled with other actions to stabilize the Irish banking system and the fiscal balance sheet are
expected to limit the contingent liabilities faced by the government (12)
Solutions • EFSF can act as backstop to help gov with sov. Debt problems
Diekmann and Plank. 2011. “Default Risk of Advanced Economies: An Empirical Analysis of Credit Default Swaps
during the Financial Crisis.” Working Paper, January 20, 2011.
Problem • Matters whether a country is a member of the Economic and Monetary Union of the European
Union (EMU), in that their sensitivities to the health of the financial system are higher compared to
non-EMU members
• Our results suggest the presence of an important economic channel in adverse economic times: a
private-to-public risk transfer through which market participants incorporate their expectations about
financial industry bailouts and the potential burden of government intervention
• For future research it might be useful to analyze a public-to-public risk transfer, in addition to the
private-to-public risk transfer
Darvis, Pisani-Ferry, and Sapir. 2011. “A Comprehensive Approach to the Euro-Area Debt Crisis.” Bruegel Policy
Brief, February, 2011.
Problem • Talks briefly about interdependence—but not VC
• Peripheral countries face a huge challenge in adjusting their weak economies and avoiding a vicious
circle of high private and public debt and low growth. Second, banks and sovereigns throughout the
euro area are closely interdependent
• What is missing from our mapping is the exposure of peripheral banks to potentially non-performing
loans and the resulting risk for banks in the rest of the euro area, and for sovereigns in both peripheral
and non-peripheral countries, should banks need to be recapitalized with public funds. This gap was
supposed to have been filled by the European stress tests published in July 2010. Unfortunately, the
stress tests were totally discredited by subsequent developments in Irish banks, leading to market
concerns that the position of euro-area banks may be far worse than currently admitted
Solutions • Bank restructuring + national bank resolution mechanisms
• suggests European treuhand (temporary)
• Nothing less than supranational banking supervision and resolution bodies can handle the kind of
financial interdependence that now exists in Europe
de Grauwe. 2011. “The Governance of a Fragile Eurozone.” CEPS Working Document, No. 346, May 2011.
Problem • Self-fulfilling mechanism of liquidity crisis to solvency crisis → investors fear default - > SP gov sells
bonds but people prefer GER bonds → euros leave SP → liquidity decreases in SP → SP gov cannot
roll over debt → can force default (3)
• Greece—admits that public profligacy
• Spillover (externalities) effects → integrated financial markets allow bad equilibrium in one MS to
spillover to others
• Talks about sovereign—bank link: domestic banks affected because main investor in domestic sov.
bond market (losses on their balance sheet) + liquidity decrease makes it difficult for banks to rollover
their deposits except with high interest rates (Greece + Portugal)
• Ireland—banking problem prior to sov. debt crisis (which in fact triggered the sovereign debt crisis,
7) → sov. debt crisis then intensified banking crisis
• (3) Competitiveness problem as one of the fundamental imbalances (7)
Solutions • Solution of systemic problem requires transfers (one central budget mechanism) + far-reaching degree
of political union
• 1st step—European Monetary Fund (EFSF, ESM)
• 2nd step—Eurobonds (blue bonds)
• 3rd step—coordination of economic policies—constraints on national economic policies (solve
competitiveness problem)
Acharya, Drechsler, and Schnabi. 2011. “A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk.” National
Bureau of Economic Research Working Paper No. 17136, June 2011.
Problem • Questions assumptions that gov resources are vastly deep and that main problem with bank bailouts
is moral hazard
• Bailouts become priced into sov. credit risk and cost of borrowing → aggressive bailout packages
Pyrrhic victor
• MOTIVATION—THE IRISH CASE!
• Ireland not isolated case
Solutions • Only states that findings of costs of bailouts in terms of sov. credit risk has important consequences
for future resolutions and design of fiscal policy
Marzinotto, Sapir, and Wolff. 2011. “What Kind of Fiscal Union?” Bruegel Policy Brief, Issue 2011/06, November
2011.
Problem • Competitiveness crisis
• Unable to deal with fiscal crisis
• National supervision of banks → conceal problems
• Fears of sovereign solvency endangers banks and vice versa (sovereign-bank links)
Solutions • Limited fiscal union with EU finance minister
• ECB can act as lender of last resort
• EU-level supervisor and resolution authority with deposit guarantee system
• Give euro-area right to levy taxes of 1%–2% of GDP
Verón. 2011. “Testimony on the European Debt and Financial Crisis.” Bruegel Policy Contribution, Issue 2011/11,
September 2011.
Problem • Current phase, which is often described as a sovereign debt crisis, is really a sequence of interactions
between sovereign problems and banking problems
Solution • Successful crisis resolution will need to include at least four components at the European level, in
addition to steps to be taken by individual countries: (a) fiscal federalism, i.e., mechanisms that
ensure that fiscal policies in the euro area are partly centralized with shared backing across countries
so as to meet the requirements of monetary union; (b) banking federalism, i.e., a framework for
banking policy at the European level that credibly supports the vision of a single European market
for financial services; (c) an overhaul of EU/euro-area institutions that would enable fiscal and
banking federalism to be sustainable, by allowing centralized executive decision-making to the extent
necessary and by guaranteeing democratic accountability; and (d) short-term arrangements that chart
a path toward the completion of the previous three points, which is bound to take some time
Alter and Schüler. 2011. “Credit Spread Interdependencies of European States and Banks during the Financial
Crisis.” University of Konstanz Department of Economics, Working Paper Series, 2011–34.1st draft November 2010
(this draft 10 September 2011)
Problem • Clear description of VC (6)
• BUT—talks about state guarantees in IRE being the most successful case—impact on gov bonds
only in short-term
• in the case of Ireland our results indicate that bailout schemes led to the desired results, in the sense
that the spillover effects that originate from the financial sector are limited after the implementation
of bank aid programs (25)
• ANALYSIS DONE BEFORE IRISH COLLAPSE
• This example sheds light on the learning effect from Ireland (Mody and Sandri have this new data in
their analysis)
Olivares-Caminal. 2011. “The EU Architecture to Avert a Sovereign Debt Crisis.” OECD Journal: Financial Market
Trends, 2011(2).
(OECD Seminar—October 2011)
Problem • Focus on Greece, EFSF, ESM
Campolongo, Marchesi, and De Lisa. 2011. “The Potential Impact of Banking Crises on Public Finances: An
Assessment of Selected EU Countries Using SYMBOL.” OECD Journal: Financial Market Trends, 2011(2).
(OECD Seminar—October 2011—Campolongo = head of Financial Crisis Task Force at COM JRC)
Problem • Showing model SYMBOL to assess public finance sustainability in banking system crisis
• Model being used by COM to support various legislative proposals on banking regulation
• Model with 2009 shows some probability of high public finances costs from potential bank
defaults in IRE
Estrella and Schich. 2011. “Sovereign and Banking Sector Debt: Interconnections through Guarantees.” OECD
Journal: Financial Market Trends 2011(2).
(OECD Seminar—October 2011)
Problem • Guarantees by weak sov → insufficient to reassure investors of domestic bank debt
Solutions • One solution is guarantees by several sov or by specific international institutions or facilities
Grande, Levy, Panetta, and Zaghini. 2011. “Public Guarantees on Bank Bonds: Effectiveness and Distortions.”
OECD Journal: Financial Market Trends 2011(2).
(OECD Seminar—October 2011—authors from Banca d'Italia)
Problem • Since end of 2009—investors began to require higher risk premia on sov debt—turned into sov
debt crisis in 2010 (most visible in Greece)
Solutions • Alternative solution is mutualistic approach—guarantee not provided at national level, but
supranational inst (EFSF)
Mody and Sandri. 2011. “The Eurozone Crisis: How Banks and Sovereigns Came to Be Joined at the Hip.” IMF
Working Paper, WP/11/269, November 2011.
Problem • Evidence of VC (feedback loop)—IRE supported banks (Anglo Irish in 2009) → weakened
public finances had adverse impact on banks
• Bank holdings of public bonds became serious strain
• Worse in countries with higher public debt
Solutions • No discussion of EU-level problem or solution
Pisani-Ferry. 2012. “The Euro Crisis and the New Impossible Trinity.” Bruegel Policy Contribution, Issue 2012/01,
January 2012.
Problem • Sovereign-bank interdependence—clear description of Irish banking problem → sovereign debt crisis
(extreme case but not unique—all western European sovereigns heavily exposed to risk)
• Sov. debt → banking crisis (bank holdings heavily biased twds sovereign)—when risk of sov.
default → weakenes domestic banks (Greece) (only in IRE were banks neglible holders of gov. securities)
• Cannot have both no-monetary financing of debt + bank-sov. interdependence + no co-responsibility for
public debt
Solutions • Austerity not enough
• (1) make ECB lender-of-last-resort
• (2) break vicious circle (a) regulatory reforms to prevent overexposure of banks (diversification), (b)
banking federation (supervision and rescue to EU-level)—requires fiscal capacity at EU-level (EFSF
responsibility for backstopping national deposit guarantee schemes) + create permanent common deposit
insurance w/backstop provided by official sector (Marzinotto, 2011)
• (3) establish fiscal union (Eurobonds)
Buti and Padoan. 2012. “From vicious to virtuous: A five-point plan for Eurozone restoration.” Centre for Economic
Policy Research, Policy Insight No. 61, March 2012.
Problem • No talk of VC
Pisani-Ferry, Sapir, and Wolff. 2012. “The Messy Rebuilding of Europe.” Bruegel Policy Brief, Issue 2012/01, March
2012.
(edited version of paper prepared for informal ECOFIN of 30 March 2012)
Problem • Talks about governance reforms, not VC
Angeloni and Wolff. 2012. “Are Banks Affected by their Holdings of Government Debt?” Bruegel Policy Brief, Issue
2012/07, March 2012.
Problem • Focus on providing evidence of sov → banks (holdings of gov. debt), but also banks to sov. mentioned
Solutions • If one wishes to decouple bank from sov. risk, give common guarantee—ultimately BU is required
De Bruyckere, Gerhardt, Schepens, and Vennet. 2012. “Bank/Sovereign Risk Spillovers in the European Debt
Crisis.” Univesiteit Gent Working Paper, December 2012, No. 2012/828.
Problem • VC clearly described
• Gives nice overview of academic debates (and lack of knowledge of sovereign → bank side of links)
Solutions • Ultimately BU is required

Politics Policy - 2022 - Beach - Once Bitten Twice Shy The Overgeneralization Trap and Epistemic Learning After Policy

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DOI: 10.1111/polp.

Once bitten, twice shy: The overgeneralization trap

Derek Beach1 | Sandrino Smeets2

1180 | wileyonlinelibrary.com/journal/polp  Politics & Policy. 2022;50:1180–1208.

THEORY AND METHODS

Process theory—Overgeneralization after policy failure

Operationalizing the overgeneralization after policy failure process

TA B L E 1 Expected observable implications of overgeneralization after failure process

Part 1—Lesson Part 3—Applying

EMPIRICAL ANALYSIS: LESSON LEARNING AFTER THE IRISH

Cause—Perceived policy failure in the Irish case

Part 1—Learning from failure

Part 2—Dissemination—The lesson becomes abstract as it spreads within the

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TA B L E 2 Meetings of Eurogroup and ECOFIN: January–June 2012

Eurogroup meetings ECOFIN meetings

Outcome—Overgeneralization of lessons from the Irish failure case

Discussion—Are there additional explanations of the diagnosis of the Spanish

By drawing example of analogous or parallel policies from a wider variety of contexts,

The process tracing design

Expected empirical observables

Part 1—Lesson learning

Part 2—Abstraction and the dissemination of the lessons

Part 3—Making sense of a new crisis—Applying abstracted lessons

1. European Central Bank official, Frankfurt, July 17, 2015.

Schoenmaker. 2009. “The Financial Trilemma.” Economics Letters 111(2011): 57–59.

IMF. 2010. Global Financial Stability Report. Washington, DC: IMF.

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1180 | wileyonlinelibrary.com/journal/polp Politics & Policy. 2022;50:1180–1208.

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