Mario Monti, the technocratic Prime Minister of Italy, gave a lecture to the European People’s Party at the European University Institute (EUI) last week. In advance of this lecture I was lucky enough to attend a private discussion with him, and a selection of researchers, on the Eurozone crisis. The theme of the debate was “the impact of the Eurozone crisis on democratic governance and social inclusion in the EU”. What follows are my reflections on the discussion.
The debate opened with a poorly structured question on the role of migration and labour market reforms within Italy, and to what extend immigration is fueling political discontent. The speaker did not ask a direct question and therefore Mario Monti did not give a direct response. He argued, correctly in my opinion, that the political problem of immigration began long before the Eurozone crisis. What he did not address was the extent to which the failure of Eurozone policies (austerity driven reforms, stagnant economic growth and rising unemployment) will exacerbate these problems by feeding into the rise of the populist far-right across Europe. Although, as discussed below, he returned to this topic later on when referring to the democratic deficit of European decision-making under conditions of crisis.
He then went on to make what I consider to be a strange and empirically inaccurate statement on the role of expanding markets in facilitating social and economic cohesion. He described the interest of a small Tuscan farmer, selling only to a local market, as ‘protectionist by nature’. This protectionism, in turn, he argued, reduces the overall standard of living in the region, which in turn fuels political discontent. This focus on market competition was a recurring theme throughout the discussion. His argument is that the Eurozone crisis was not a consequence of European market integration (in finance, banking and credit) but that Europe requires more market integration. This is a normative perspective held by many economists. But what it illustrated to me was total and unconditional faith in the ‘market’ as the mechanism through which the socio-economic problems of Europe (and Italy) can be resolved. It is empirically disingenuous to assume that producing for a local rather than a global market reduces overall standards of living.
The debate moved on to a discussion on the role of fiscal coordination across the Eurozone, and the possibility of a federal Europe of states. Again, there was no direct question on the topic and therefore Mario Monti gave a broad and relatively vague response on what needs to occur. However, he made some interesting comments on the policy discourse of ‘coordination’ by European political leaders. Firstly, he described the term ‘coordination’ as innocuous (much like how I consider the term market), because it enables national political leaders and European policy makers to appear as though they are proposing concrete solutions to the crisis. This is true. It is easy to proclaim the need for transnational fiscal, wage and labour market coordination without actually specifying the conditions under which this is actually likely to occur.
He then gave an insight into how policy making occurs within the European Union, particularly the gathering of national leaders at various EU summits. Most policy making takes place off-field. It is a subtle, gradual process based on building alliances and coalitions. As he spoke about this, one got the impression that he considered the whole process of European decision making a game of chess. Interestingly, he gave an example of how he tried to build support for the issuing of Eurobonds. This is something he regularly brought up with Angela Merkel in their private meetings. But in recent months he choose not to mention it. Why? Because by not pushing the issue Angela Merkel takes more notice of it. In other words, his silence on the issue worries her. He also gave an example of when he warned the Greek Prime Minister to never bring up the issue of Eurobonds because if he did, nobody would support it.
Subsequent to this he spoke about the problem of national leaders outlining big objectives through grand policy statements that cannot be realised. He emphasised the need to focus on immediate problems that can be resolved within a reasonable time frame. It was for this reason that he is reluctant to make grand statements on fiscal coordination across member states or the construction of a federal Europe. Whilst discussing this, he had a snipe at the public discourse in various north European countries, often encouraged by political leaders, that the cause of the Eurozone crisis can be traced to something specific to ‘southern European culture’ (he was keen to emphasise that what we are experiencing is a crisis of the Eurozone not the European Union). He specifically mentioned the Netherlands, Finland, Austria, Germany and Slovakia as failing to recognise the crisis as a relationship between creditors and debtors that emerged after the construction of a poorly designed monetary union.
Any discussion on the type of policy prescriptions that he considered neccessary to resolve the crisis were centred on ‘market competition’. But simultaneously it became obvious that Mario Monti is an important ally for countries such as Ireland or Spain if they are to convince the Germans, and the Troika, that a restructuring of the bank debt is necessary. Unfortunately, nobody asked a question on why nothing has been done to tackle the source of the Eurozone crisis (excluding the specific case of Greece). That is, reckless behaviour by private market actors (particularly banks) in private finance markets.
Toward the end of the discussion he spoke more openly about the democratic deficit underpinning the policy decisions being taken in Europe. He traced this to two factors. Firstly, national parliaments and politicians not being honest with citizens about the new constraints they face. They are unwilling to give up national autonomy to empower a transnational European response. At European summits, national politicians (particularly from the larger states) lecture each other on what needs to be done but in the end always defend their national interests. One got the impression that this was specifically directed at the German government. Secondly, European institutions are in need of but clearly not capable of political reform.
The European parliament, he argued, needs to be empowered to take collectively sanctioned decisions for Europe as a whole. Furthermore, the technical decisions required to solve the crisis (in his opinion) have to be somewhat removed from the immediate interest of national electorates. In fact he went as far as saying that citizens (and their respective governments) need to be faced with the threat of an exit from the European Union so as to empower European policymakers to take new and bold decisions. He was quite clear that he has been tasked to do a technical job and has no intention of remaining in political office. Again, the language he used to describe European decision-making was framed almost entirely in economic game-theoretic terms. Depending on your political perspective this is either a good or a bad thing. Empirically he is probably right which does not say a lot about cross-national European solidarity.
The discussion on European decision-making evolved in a rather circular fashion until he asked the political scientists in the room a rather interesting question. He asked what would have happened if the Schuman declaration was put to a referendum after WWII. Adrienne Heritier responded that obviously it would have been rejected. He then asked us to imagine whether Europe could have recovered during this period if the policy decisions taken during this period were put to the electorate for approval. He then argued that political scientists need to re-think the type of democratic structures that are required to govern in a post-Eurozone crisis world. The EU needs institutional re-newal.
One almost got the impression that he considered the electoral process as a mechanism to fuel populism (not surprising after 15 years of Berlusconi). In effect he was arguing that the democratic structures in many nation-state and at a transnational level are clearly not working. This is particularly the case under conditions of crisis. What he failed to recognise is that what we are witnessing in Europe is a version of Fredrich Hayek’s utopia. This involved an inter-state federal system where national governments cannot respond to democratic pressures emerging from the electorate because macro-economic policies are outside their control. The latter, he argued, needs to be sufficiently insulated within a European elite capable of pursuing market managerialism beyond the nation-state. Democracy rather than the capitalist-market is considered to be the problem. Therefore it is democracy not capitalism that needs to be held in check.
Unfortunately, I did not get a chance to ask my question which was as follows; “given the monetary constraints of the EMU, and the absence of exchange rate adjustments, the entire burden of adjustment has been shifted on to national fiscal and labour market policy. This has significant implications for the democratic welfare state. In Ireland, Italy, Spain, Portugal, Greece and Cyprus the main focus is on structural reforms of the labour market. Yet in Germany, Austria, Finland and the Netherlands, one of the core factors in explaining their economic success is coordinated collective bargaining. Do you think this narrow focus on liberalizing the labour market will actually improve economic and employment performance of weaker member states?”
If he responded yes, I was ready to present empirical evidence from institutional economics (varieties of capitalism and new Keynesian models) that would suggest otherwise.
Overall I was impressed with Mario Monti as an individual, even if I disagree with much of his politics and economics. He was not a typical politician in that he spoke directly and honestly. He was very aware of the limitations facing national governments operating within the EMU (in terms of policy outputs) and the global market more generally. Furthermore, it is refreshing to hear a Prime Minister citing research from both economics and political science to support their arguments. But, overall, I walked away from the discussion deeply concerned about his blind faith in the market as a solution to the crisis, which reflects a belief in the underlying micro-theoretic assumptions of neo-classical economics.
This belief in the market as a solution to the crisis, no doubt, comes from his reputable background in European competition policy, an advisor to Goldman Sachs and his professional training at the Bocconi institute in Milan. Therefore, his political position reflects the preference of the core actors in the European Union (ECB and EU Commission) for greater market-liberalism as the primary mechanism to advance European integration. If he did not share this ideological position he would not have been imposed as the de-facto Prime Minister of Italy.