Managing the Euro Crisis

National EU policy coordination in the debtor countries

Sabrina Ragone

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781317301509
• Edition: 1
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

The financial crisis posed new challenges for the administrations of Eurozone countries, including: how to respect EU obligations when the economy is under stress? How to improve the overall implementation of EU policies and domestic reforms? How to negotiate effectively with the Troika and then quickly and efficiently fulfil the requirements of the Memoranda of Understanding?

This volume offers the first analysis of EU coordination by national executives in the light of the legal and political consequences of the crisis, using case studies of five severely affected Member States: Cyprus, Greece, Ireland, Italy, and Portugal. It examines from an interdisciplinary perspective how they have adapted their coordination systems since the outbreak of the crisis, shedding light on the adjustments undertaken by domestic administrations.

The comparison reveals that in this process Prime Ministers and Ministers of Finance were empowered in a common shift towards the centralization of EU coordination.

1
Introduction

Sabrina Ragone

1 The topic

The topic of this volume is the national EU policy coordination in the countries most severely affected by the Eurozone financial and debt crisis. This is a highly salient political and legal issue with important policy implications that has not yet been addressed in the scholarship.

In general terms, the research on the topic of how Member States manage their EU policy process at home and how they organize their negotiations in Brussels deserves to be updated – not only because national governments have historically been central actors in the process of integration but also because of its contemporary relevance. The deepening of integration in the last decade – through the Lisbon Treaty – and the enlargement – moving from 15 to 28 members within a few years – require fresh attention to the relationship between the EU and its Member States. National Parliaments as well as Regions and national Courts are increasingly participating in this relationship, although the national executives remain the fundamental axes.

The domestic coordination of European policies is one of the paramount angles from which scholars can analyse both the influences of Member States on EU law-making processes and the Europeanization of national administrations. The national coordination system consists of different mechanisms aiming at integrating the activities of ministries (and, depending on the case, also domestic Parliaments and/or Regions) and solving potential conflicts. Those mechanisms come into play in two distinct moments of the EU decision-making process: in the bottom-up or ascending phase, when every government formulates the position it will hold, defend, and negotiate within the European institutions and in the top-down or descending phase, when national authorities transpose and implement directives and other decisions adopted at the European level. The instruments of coordination are of a legal and administrative nature, but also include practices; therefore, they can be better examined using an interdisciplinary approach that crosses legal and political studies.

This volume aims to combine the attention given to the topic of national EU policy coordination systems with another unquestionably relevant object of study: the impact of the current crisis in the most stressed countries of the Eurozone.

Several years of crisis have brought about important legal and political changes in a group of Member States that, although diverging in many aspects, share a similar economic and political weakening within the EU – a matter of fact that is captured in the controversial labels of ‘debtor’ or even ‘peripheral’ countries vis-à-vis ‘creditor’ and supposedly ‘central’ states. From this perspective, the selected case studies include Cyprus, Greece, Ireland, Italy, and Portugal.

The list includes both countries that have signed Memoranda of Understanding (MoUs) with the so-called ‘Troika’ (International Monetary Fund – IMF, European Central Bank – ECB, and European Commission) to deal with the implementation of the bail-out and one country that has not. This was a key variable in the research project. Having signed a MoU had, in principle, a paramount impact on the domestic coordination.

A brief description of the context will aid our understanding of why these countries were selected. While Greece formally requested and received the first rescue package in spring 2010, the rating agencies were downgrading other countries’ credit ratings (a phenomenon that would repeat itself over the course of several months), generating panic in the financial markets. Meanwhile, the Irish crisis originated from the decision of the Irish Government to guarantee the liabilities of the country’s main banks; a few months after Greece, Ireland also requested assistance from the EU and the IMF. In 2011, it was Portugal’s turn to receive, through the European Financial Stability Mechanism (EFSM) and the European Financial Stability Facility (EFSF), a rescue package financed by the IMF and the EU.

In November 2012, Cyprus also sought recourse to the EU and IMF to sanitize its banking system and its deteriorating public finances. Despite gradual downgrades in the credit rating and increases in bond interest rates, Italy was not subject to a rescue package. Nevertheless, over the past few years Italian governments have been inclined and/or somehow forced to adopt austerity measures and structural reforms in order to overcome the crisis.

The described situation, therefore, features an element of absolute novelty: the domestic coordination of European policies must be modified in order to adapt to the interaction with the Troika during the implementation of MoU-prescribed measures that are conditional to the rescue packages. In cases in which there was no bail-out (like Italy), the need to implement radical adjustments and austerity measures also affected the national system of EU policy-making.

2 An innovative approach

The existing literature on these two issues (the national coordination of EU policies and the financial crisis) lets us maximize the theoretical robustness of this volume. Nevertheless, the two research lines have not intersected so far.

The scholarship on EU coordination mainly dates back to the 1990s, when several works on Europeanization and the relation between the Member States and the EU were published. The main reference for the topic of EU policy coordination was authored by Kassim, Peters and Wright in 2000, who analysed nine cases.

The recent works on the same issue only address a few countries and adopt a very specific point of view. For instance, Jordan and Schout 2006 studied Germany, the Netherlands, and the UK with reference to environmental policies; and S. Baroncelli 2008 studied Spain, Germany, Austria, and Italy with a focus on the rule-making process in general. Also, the special issue edited by Kassim and Le Galès in 2010 was based on different policies, as was Bulmer and Lequesne 2005. There are now more studies on the new Eastern and central European Member States, such as Dimitrova and Toshkov 2007 or Gärtner, Hörner and Obholzer 2011.

In this respect, a couple of years ago, Kassim underlined the relevance of the Eastern European group of Member States as a case study (Kassim 2015). It is true that the new Member States have recently represented an interesting example of imitation of models and adaptation of the administrations existing before the accession to the EU. However, no comprehensive analysis has been devoted so far to the ‘debtor countries’ as a group, which is characterized by common problems and thus is potentially subject both to adaptation and imitation of foreign models.

As was mentioned, the volume aims to link the matter of EU coordination by domestic executives to the consequences of the financial crisis in order to explore whether and how the negative economic situation and its legal assessment have provoked changes in the coordination mechanisms. The connection between national EU policy-making and the crisis has not been covered by the literature so far. Of course, a great deal has been published on the Eurozone crisis, mostly in journal articles, but current studies on the effects of the crisis have not focused on this specific aspect.

Some features indirectly connected to the topic have been addressed, such as the constitutional effects of the crisis at the European and national level (see, for example, Tuori and Tuori 2013, or the special issue of the European Law Journal, n. 2, 2014). At the same time, the decision-making process adopted inside the EU has been critically analysed (see de Witte, Heritier, and Trechsel 2013), as well as the role of the ECB. At the national level, particular attention has been devoted to the constitutional amendments and legal reforms (see Contiades 2013) that are somehow related to the crisis.

Combining the two perspectives, this volume settles on original criteria, both in the selection of the case studies and in the choice of the perspective on the financial crisis, since internal side-effects have been studied in different directions. The coordination mechanisms put in place due to the bail-out packages of the Troika is also a topic with which the academic literature has barely dealt.

3 Methodological framework

The approach of the volume combines legal and political issues and is both empirical and theoretical. The chapters assess whether the Eurozone crisis was a critical juncture that transformed the national EU policy coordination system in each case study, and, if this was the case, what kind of changes took place (Capoccia and Kelemen 2007).

The perspective is comparative as well. Since the case studies present different systems of coordination that evolved over time in each State respectively, the volume takes into consideration two dimensions of comparison: the synchronic (between Member States during the crisis) and the diachronic (evolution of the EU coordination systems over time within each State).

To do so, each chapter puts forward a reconstruction of the legal (law in the books) and the political (law in action) framework in each country in order to determine what changes have taken place since the outbreak of the crisis and whether there has been a diffusion of certain models and an emergence of common patterns.

Of course, this central question is connected to many other analytical subquestions: Have new structures of coordination been created? Did certain central actors in the core executive (Prime Ministers, Ministers of Finance, Ministers of Foreign Affairs) gain or lose importance due to the crisis? What role did Parliaments play? Have the Member States’ negotiation approaches in Brussels changed and become more or less selective? Are there differences between countries that received rescue packages and those that did not? Are there common tendencies? Which other domestic factors (linked to the political and administrative systems) can explain similarities and divergences?

All these questions have a remarkable theoretical relevance. The volume uses concepts and hypotheses derived from constitutional and administrative scholarship as well as new institutionalism, including both its different general variants (historical, rational choice, sociological) and its specific applications to the EU (particularly, Europeanization and EU governance approaches). For example, the research assesses whether the national coordination processes have become more centralized or, on the contrary, are still decentralized because traditional sectoral policy networks have been able to resist centralization.

In addition to this, the study considers to what extent the structural reforms introduced were intended by the national core executives or rather imposed from outside without the relevant domestic complicity. The question of whether ‘debtor’ Member States changed the focus of their national EU policy-making systems to prioritize effective ‘downloading’ over ‘uploading’ ambitions will be addressed as well.

4 The case studies – a brief introduction to the chapters

Each chapter first provides insights into the domestic coordination of EU policy since the Member State’s accession and its incremental adaptation over the years to developments at the European level. It then highlights how the political and administrative systems reacted and adapted as the country was subject to MoU conditionality and/or under pressure due to its financial situation.

The first case study is Greece (Chapter 2). Calliope Spanou demonstrates how the domestic political-administrative system reacted to the new conditions during the crisis. Greece and its international creditors (the ‘Troika’; later the ‘Quartet’) adopted three MoUs under the Economic Adjustment Programme (EAP). This determined a new policy environment, shaped by the so-called loan conditionality. The MoUs required the implementation of numerous reform measures for the continuation of financial assistance.

Many of the reforms were connected to the implementation of certain EU directives. Therefore, the embedding of EU policies within the requirements of the MoU provided the link between MoU implementation and national EU coordination. To face the MoU-imposed challenges, the system progressively adjusted, through gradual and informal means, within the limits and potentials of its capacities and institutional legacies.

Albeit no major institutional reform in terms of specialized EU coordination structures emerged, the urgency of fulfilling MoU requirements and their emphasis on economic and fiscal adjustments had a significant impact on the domestic political-administrative system – principally the de facto rise of the Ministry of Finance (MF) as the lead ministry. MoU ‘prior actions’ led to a new selective prioritization of EU policies, mainly in the form of economic and fiscal directives, and, thereby, to a shift of the centre of gravity from the Ministry of Foreign Affairs (MFA) towards the MF.

Furthermore, the critical difference between the usual EU procedures and the MoU-implementation scheme was that the latter was constrained by the expectation of immediate, predefined results, whereas the former always offers opportunity to debate and influence the outcome. This divergence in procedures explains the gradual development of the MoU’s own monitoring and coordination mechanisms, which brought new actors to Greece.

Spanou clarifies how the fulfilment of the MoUs required new overarching coordination capacity that the MF with its resources was equipped to provide. Thus, the instrument of conditionality triggered the development of a new MF-led centralized, positive, and selective domestic coordination system of EU policies. Essentially, the policy environment caused the rise of three actors: the Minister of Finance, the SOE President (the SOE is the Council for Economic Advice attached to the MF), and the PM.

The MoU predefined tools for recovery brought to the fore the MF’s new preeminent role that strengthened its status vis-à-vis other ministries, effectively sidelining other domestic institutions and actors (the MFA, sectoral ministries, but also Parliament). In effect, the larger the volume of Eurozone requirements, the lower the involvement of other ministries, particularly the MFA. Further-more, the MoU prioritized certain EU policies over others, which effectively sidelined some EU legislation. At times, relevant EU standards were neglected if in conflict with obligations stemming from the MoUs.

Brigid Laffan deals with the case of Ireland (Chapter 3), which became a programme country (Economic Adjustment Programme, EAP) and signed a MoU with its international creditors in November 2010. Contrary to Greece, the MoU in the Irish case was largely based on a domestically elaborated plan for economic recovery. The State successfully exited the bail-out programme in December 2013, not least due to the political-administrative system’s adaptability, flexibility, and focus on core issues.

In Ireland, EU policy coordination follows a centralized scheme that is managed by the core executive. The author considers that it consists of the ‘Holy Trinity’ or hub of EU management (the MFA, the MF, and the Office of the PM), the inner core (ministries for whose work EU policies are central), and the outer circle of core-executive management (ministries that deal with EU business to lesser degrees.

Over the years, the ever-increasing task of managing EU business led to developments in the existing structures rather than to new institutions. The dominance of the executive in the management of EU business not only favoured centralized decision-making but also practically sidelined the role of Parliament. Following the critical juncture of the Nice Treaty referendum in 2001, the Government set out to remedy the limited role of Parliament in monitoring EU policy and developed a new system of enhanced parliamentary scrutiny.

When Ireland became a programme country, the Government’s response was mainly directed towards repairing Ireland’s international reputation and further strengthening the core executive by introducing institutional and personnel changes. Bringing in new staff was meant to ensure that highly competent personnel assumed the posts of senior civil servants.

Laffan emphasizes that an important institutional change was the division of the MF into a Ministry of Finance and a Ministry of Public Expenditure and Reform. Further, an Economic Management Council (EMC) emerged as the core strategist and coordinator to fulfil MoU requirements and move beyond the bail-out. In sum, the new Ministry of Public Expenditure and Reform, the Ministry of Finance, and the Office of the PM became the new ‘Holy Trinity’ in charge of managing the programme and engaging with the Troika and the EU through the EMC.

José Magone attends to the situation in Portugal (Chapter 4), where the political class regarded the bail-out conditions of the MoU as an interference with its socio-economic sovereignty; thus, it sought to implement the reforms and complet...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of illustrations
• Notes on contributors
• 1 Introduction
• 2 EU coordination in Greece: ‘forced’ Europeanization under the MoU?
• 3 EU coordination in Ireland: centralization to master the crisis
• 4 EU coordination in Portugal: continuity and flexibility in a Troika regime
• 5 EU coordination in Cyprus: the limits of Europeanization in times of crisis
• 6 EU coordination in Italy: (predominantly) internally driven changes in times of crisis
• 7 Conclusion
• Index