The Centre for European Studies Blog

No, even this time is not that different COVID-19, the sudden and mysterious death of the SGP and European integration

Posted by ah220

2 September 2020

By Jonathan C. Kamkhaji University of Exeter associate fellow and Polytechnic University of Milan

What if, within a couple of weeks, the term limit for US presidency was removed? What if, within the same couple of weeks, the UK abandoned its signature first-past-the-post and turned to proportional representation? What if, within the same limited amount of time, Italy surrendered perfect bicameralism or France rejected semi-presidentialism? Although these may seem outlandish questions, the magnitude and pace of the change triggered by COVID-19 on economic policy coordination within Economic and Monetary Union (EMU) resembled that of the above hyperboles.

In a nutshell, the European Union (EU), less than a month after the epidemic curve started its raise in Italy in February, simply suspended its much contested and polarizing mechanism for multilateral economic surveillance – the Stability and Growth Pact (SGP).

Literally in the blink of an eye, those rules that seemed to be, if not eternal, at least stable and structural elements of economic policy coordination within the EMU and key to guarantee its stability and trustworthiness vis-à-vis global markets and investors, disappeared. Technically, they were simply put in abeyance not to get in the way of Member States’ countercyclical fiscal expansions. Practically, the set of rules and parameters to which EMU Member States had voluntarily agreed to subscribe in order to deter fiscal profligacy and extreme financial follies since the early 90s have been discretely set aside for an indefinite amount of time – and no mayhem has, as of yet, unfolded in international financial and debt markets. This is even more remarkable if we realize that the suspension of the disciplinarian mechanism took place against a war-like global scenario poised to mark worst global GDP contraction of the last century.

Needless to say, this change is having and will have far-reaching implications for EU economies and economic and political integration, but I think that while these implications are still brewing within the EU (with the establishment of recovery funds and true fiscal solidarity as the main themes) it is more important, for now, to focus on how this sudden stop and reversal of rules for fiscal discipline has materialised. This is because the EU (and we…) live in times of polycrises, that is, crises that are multiple and overlapping, creating thereof polycleavages. Some go as far as arguing that the whole EU decisions and policy making is undergoing a process of crisisification, understood as the normalization of “crisis‐oriented methods for arriving at collective decisions”. What’s remarkable, however, is not simply the accumulation of crises and its influence on EU decision and policy making, but rather the fact that the EU is actually deepening its economic and political integration, not despite the crises, but through the crises.

Then, if crisis mood has become the new normal for the EU, and crises indeed have the potential to deepen integration, the question is how to explain this further quantum leap in terms of existing models and theory of integration. At the outset, we note that the EU, although entangled in and somewhat plagued by its fragmented governance, has a penchant, at least in the economic realm, for spot, landmark political decisions – like the decisions to renege on the no-bailout clause of Maastricht and rescue Greece in 2010, or to reinterpret monetary neutrality and do “whatever it takes” to save the common currency. Interestingly, those landmark decisions, like the one suspending the SGP, were purely political and came with little or no policy attached.

In all of these crises it is only ex post, after the grand political declarations have been fed to the public, that policy commences its engine, crucially surfing on the feedback of the initial declaration effect. A similar dynamic is captured by a number of new models of integration and crisis management. One of such models is failing forward. According to the model, intergovernmental decision making, which typically occurs in times of crisis, systematically leads to incomplete institutional design. The latter stimulates functional spill overs which in turn lead to further crisis. Crises are then faced again by piecemeal intergovernmental decisions which sow the seeds of future crises and failure. As a result, the EU invariably fails forward. Applying the insight of this model to the current crisis may be depressing but in fact we can already see the merits of the failing forward argument when we observe the massive political conflict which unfolded after the decision of suspending the SGP and rethinking the whole fiscal arm (and economic governance) of EMU. Call me a pessimist, but a piecemeal, incomplete integration of fiscal policies is still more likely than the comprehensive reform the EU needs in the fiscal domain. Yet again, a stern political turn in the right direction mitigated by incremental and insufficient policy instrumentation and institutions.

Another model which draws on contested governance and comes to interesting conclusions about crisis management and integration is presented by Jabko in its sociopsychological account of the Eurozone crisis of 2010-2013. This contribution points to the highly guarded boundaries of policy paradigms to show how decisions taken under conditions of extreme uncertainty (typical of crises) defy paradigmatic expectations and conform instead to malleable repertoires. As crisis decision making is constrained by material and cognitive limitations, the resort to rigid blueprints for action like paradigms takes place post hoc, in the policy phase, but is hardly observable in the context of the single decision which triggers the whole process of change. Yet again, this argument may lead to bitter conclusions. If suspending the SGP may have been a correct decision pushed by the acuteness of the crisis, and defying more than 20 years of ordoliberal paradigm, the construction of institutions and policy around this decision may bring us back, again, to an incomplete design of fiscal integration.

The last model which may explain the sudden and mysterious death of the SGP is contingent learning. According to this model, in episodes crisis management characterized by stress, uncertainty, time pressure and demands for rapid action, real-time policy change takes place through associative processes of contingent learning and the nature and scope of this behavioural change is greater than re-design and incremental adaptations. In change-or-die situations we find accidental heroes. They produce significant change and only later they reflect on ‘what have we done’ and start drawing inferences from experience, thus entering the world of classical policy learning – and policy making. If we stick to this model, we have then to hope for an ex post learning process which does not go back to the tenets of the old paradigms once the storm has been cushioned.

In any case, even this time does not seem to be different: existential threats provide the potential to lead in the right direction, but a little recovery may be enough to stick to the old, failing principles and decisional traps.

 

 

Back home Back