Economic governance is in the eye of the beholder. The French want discretion, flexibility, and effective crisis management; the Germans want rules, discipline, and effective crisis avoidance. The euro as a single currency reflects both tendencies. There are aspects of Europe’s macroeconomic framework that are flexible and responsive (like the European Central Bank) and aspects that are more rigid and formulaic (like the ‘six pack’ and ‘two pack’ of policy coordination procedures that strengthen the ‘Stability and Growth Pact’). The challenge for Europeans is to find a sustainable balance. Too much of either tendency is not only unacceptable to one side or the other in the Franco-German partnership, it is also unlikely to work in stabilizing either the euro as a single currency or the European Union as a political project.
If there is one theme that unites European responses to the global financial crisis, it is national responsibility and not European solidarity. There have been moments of solidarity to be sure. The creation of first temporary and then permanent bailout funds was the most obvious; the unconventional monetary policies of the European Central Bank (ECB) and ECB President Mario Draghi’s ‘whatever it takes speech’ count as well. Nevertheless, with the exception of the European Stability Mechanism (ESM), these moments of solidarity have been exceptional, temporary and transitional. They bought time for governments to restructure their banks, consolidate their finances, reform their market institutions, and prepare for an uncertain future so that another round of crisis summits and rushed institution-building will no longer be required. Once this transition period is over, cross-border redistribution and burden-sharing can be kept to a minimum. That is the objective.
The inauguration of Donald Trump as 45th President of the United States represents the triumph of populism over the world’s greatest democracy. It also sets the stage for populists to make further gains across Europe. Trump’s affection for Nigel Farage is plain to see. His affinity for (and his attraction to) populists of other shades is easy to find as well. The challenge is to sort out what this means for the European project. Populists tend to stake out Euroskeptical positions, and Donald Trump has made no secret of his indifference for the European Union, but it is hard to say just how populists can have a lasting impact unless they somehow manage to seize control over government.
The political landscape of Europe is changing rapidly and in ways that are hard to interpret. The recent Italian referendum is a good illustration. Matteo Renzi inherited an agenda to reform the Italian constitution when he became prime minister. He negotiated an agreement with the centre-right on the precise details of the package. He shepherded the agreement through two majority votes in each of Italy’s two chambers of parliament. He then brought the agreement to a popular vote as per constitutional requirement and with an electorate broadly disenchanted with politics and therefore favourable to reform. Nevertheless, virtually every party outside the government opposed the reform package and Renzi lost the referendum vote by a spread of twenty percentage points. Now Renzi is out of office. Italy is without a viable electoral system because of changes made in anticipation of the (failed) constitutional reforms. And it is unclear whether the new government headed by Paolo Gentiloni has sufficient support in the Senate to pass a new electoral law. Most Italians did not want Renzi’s constitutional reforms and yet they are not happy with the status quo either. Disillusionment with politics has grown as a result.
On 30 August 2016, the European Competition Commissioner, Margrethe Vestager, announced that ‘Ireland granted undue tax benefits up to EUR 13 billion to Apple.’ Those benefits distort competition within the European marketplace and so the Commission instructed Ireland to recover the unpaid taxes. This announcement ignited a storm of protest from Apple and from the Irish government. It also sparked a wider debate about how multinational companies are taxed and about whether some form of tax harmonization is essential to the functioning of Europe’s internal market. Although some general principles have emerged from the conversation, the deeper implications of the controversy remain unclear. The debate here is less about the treatment of a single company than about the way European governments have tried to promote regional development and how the United States has relied on multinational corporations to exert influence in the wider world.
The United States is not the only country where the consensus on central bank independence is in trouble; central bankers across the formerly communist world are facing sustained political challenge as well. The difference in the formerly communist world is that central bank norms, practices and policies never fit as well in the institutional context of regimes in transition and the consensus spread only weakly outward from the central banks themselves. This is the argument Juliet Johnson makes in her brilliant book on the role that central bankers played in the transformation of the post-communist world.
The meme that is circulated about the referendum in Italy is that Prime Minister Matteo Renzi gambled heavily and lost. Having staked his political future on the success of a controversial constitutional reform package, Renzi has now placed both the country’s financial system and the euro area as a whole in jeopardy. As with most memes, there is some truth hidden in this assertion. There is also much that is misleading. The complicated reality is that Renzi must have recognized that it would be hard to win the referendum. He also must have realized that he had little choice but to try.