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.
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.
Italians head to the polls on Sunday, December 4, to approve or reject a series of constitutional reforms that will redirect policy competence from the regions to the state, that will transform the Senate into a council of regions, and that will concentrate power in the Chamber of Deputies and the national government. Italian Prime Minister Matteo Renzi argues that these reforms are necessary to equip Italy with the flexibility needed to compete in the global economy of the 21st Century. His opponents counter that changing the constitution this way will eliminate critical checks and balances and so make the country vulnerable to authoritarianism if not dictatorship.
The surprise victory of Donald J. Trump in the United States (US) presidential elections briefly pushed the euro, the Swiss franc, and the Danish kroner up against the dollar. It also pushed down the yields on high quality sovereign debt and it temporarily sent equity markets into the red. This was all to be expected. Like almost everyone, market participants thought Hilary Clinton would gain the White House alongside a predominantly Republican Congress. They placed their bets to take advantage of another four years of competent administration and legislative logjam. A Trump victory upset that calculation and so some of those market participants were trying to safeguard their capital until they could get a better sense of what is happening. The assumption they made was that Europe can act as a safe-haven. Unfortunately, that assumption is mistaken.
The U.S. Ambassador to Italy, John Phillips, caused a minor uproar by telling the Italians that international investors were going to be disappointed with a ‘no’ vote in the upcoming referendum on constitutional reforms. At about the same time, Finch announced that a popular rejection of the reforms would put downward pressure on the country’s ratings. The Italians responded that the ambassador should mind his own business and that the ratings agencies should find some new analysts. Italy will be fine whatever the referendum outcome, they insisted. If anything, this unwelcome foreign intervention is going to encourage the Italians to vote against the reforms just to prove a point. The echoes with Brexit were obvious – and widely noted. So is Italy headed for disaster or is this just another storm in a teacup?