Economic Government of the EU: A Balance Sheet of New Modes of Policy Coordination (Palgrave Studies in European Union Politics)

Economic Government of the EU A Balance Sheet of New Modes of Policy Coordination

Edited by

Ingo Linsenmann, Christoph O. Meyer and Wolfgang T. Wessels

Palgrave Studies in European Union Politics Edited by: Michelle Egan, American University USA, Neill Nugent, Manchester Metropolitan University, UK, William Paterson, University of Birmingham, UK Editorial Board: Christopher Hill, Cambridge, UK, Simon Hix, London School of Economics, UK, Mark Pollack, Temple University, USA, Kalypso Nicolaïdis, Oxford UK, Morten Egeberg, University of Oslo, Norway, Amy Verdun, University of Victoria, Canada Palgrave Macmillan is delighted to announce the launch of a new book series on the European Union. Following on the sustained success of the acclaimed European Union Series, which essentially publishes research-based textbooks, Palgrave Studies in European Union Politics will publish research-driven monographs. The remit of the series is broadly defined, both in terms of subject and academic discipline. All topics of significance concerning the nature and operation of the European Union potentially fall within the scope of the series. The series is multidisciplinary to reflect the growing importance of the EU as a political and social phenomenon. We will welcome submissions from the areas of political studies, international relations, political economy, public and social policy and sociology Titles include: Ian Bache and Andrew Jordan (editors) THE EUROPEANIZATION OF BRITISH POLITICS Derek Beach and Colette Mazzucelli (editors) LEADERSHIP IN THE BIG BANGS OF EUROPEAN INTEGRATION Morten Egeberg (editor) MULTILEVEL UNION ADMINISTRATION The Transformation of Executive Politics in Europe Isabelle Garzon REFORMING THE COMMON AGRICULTURAL POLICY History of a Paradigm Change Heather Grabbe THE EU’S TRANSFORMATIVE POWER Katie Verlin Laatikainen and Karen E. Smith (editors) THE EUROPEAN UNION AND THE UNITED NATIONS Paul G. Lewis and Zdenka Mansfeldová (editors) THE EUROPEAN UNION AND PARTY POLITICS IN CENTRAL AND EASTERN EUROPE Hartmut Mayer and Henri Vogt (editors) A RESPONSIBLE EUROPE? Ethical Foundations of EU External Affairs Lauren M. McLaren IDENTITY, INTERESTS AND ATTITUDES TO EUROPEAN INTEGRATION

Christoph O. Meyer, Ingo Linsenmann and Wolfgang Wessels (editors) ECONOMIC GOVERNMENT OF THE EU A Balance Sheet of New Modes of Policy Coordination Frank Schimmelfennig, Stefan Engert and Heiko Knobel INTERNATIONAL SOCIALIZATION IN EUROPE European Organizations, Political Conditionality and Democratic Change Justus Schönlau DRAFTING THE EU CHARTER Rights, Legitimacy and Process

Palgrave Studies in European Union Politics Series Standing Order ISBN 1–4039–9511–7 (hardback) and ISBN 1–4039–9512–5 (paperback) You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and one of the ISBNs quoted above. Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England

Economic Government of the EU A Balance Sheet of New Modes of Policy Coordination Edited by Ingo Linsenmann European University Institute, Italy

Christoph O. Meyer King’s College, University of London, UK

and

Wolfgang T. Wessels University of Cologne, Germany

Editorial matter, selection, introduction and conclusion © Ingo Linsenmann, Christoph O. Meyer and Wolfgang T. Wessels 2007 All remaining chapters © respective authors 2007 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2007 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN-13: 978–1–4039–3580–9 ISBN-10: 1–4039–3580–7

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Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham and Eastbourne

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Contents List of Figures

ix

List of Tables

x

Acknowledgements

xi

Notes on Contributors

xiii

List of Abbreviations

xvi

1 An Economic Government for Europe in the Making? The Evolution of Policy Co-ordination in Turbulent Times

1

Christoph O. Meyer, Ingo Linsenmann and Wolfgang T. Wessels

2 Evolution Towards a European Economic Government? Research Design and Theoretical Expectations

11

Christoph O. Meyer, Ingo Linsenmann and Wolfgang T. Wessels Introduction Policy co-ordination as an object of study: the historical and conceptual background Towards an effective and legitimate economic government? The debate about the future of policy co-ordination The institutionalist path from legal to living constitution Conclusion

18 35

3 To Co-ordinate or Not to Co-ordinate: an Economist’s Perspective on the Rationale for Fiscal Policy Co-ordination in the Euro Zone

37

Jacques Le Cacheux Introduction Economic interdependencies and the rationale for co-ordination Co-ordination by rules and other institutional arrangements: constraints and incentives on national governments’ choices Heterogeneity in the Euro zone and its sources Small and large states: coping with differences in incentives Concluding remarks: fiscal policy co-ordination without an economic government v

11 11 15

37 39 43 45 48 49

vi Contents

4 New Governance Structures in Employment PolicyMaking: Loose Co-ordination in Action Kerstin Jacobsson and Åsa Vifell Introduction An actor-oriented multilevel framework Coalition-building in face of member state resistance The integration of the EES in the member states – or rather lack of it Changes in domestic opportunity structures The EES and changes in national governance systems Conclusion: co-ordination of national strategies rather than development of one European strategy

5 The Dismal Record of the Stability and Growth Pact Jacques Le Cacheux and Florence Touya Introduction Implementation of the multilateral surveillance procedure underlying the SGP Major milestones in the history of the SGP Has the SGP delivered? The relevance of the SGP instruments questioned Conclusion

6 Europeanisation of National Economic Governance Through Policy Co-ordination? Gains and Pains of a New Policy Instrument Christoph O. Meyer and Gaby Umbach Introduction National adaptation to policy co-ordination: outlining the theoretical and empirical approach The pains of the Stability Pact: adaptation, contestation and evasion in fiscal policy co-ordination The gains of the employment strategy: peer review, learning and neglect in employment policy co-ordination Making sense of the findings: comparing Europeanisation effects across governing modes and countries Conclusion: soft governance, weak Europeanisation?

7 European Employment Strategy and Structural Funds: Spill-overs Towards Communitarisation? Ines Hartwig Introduction Different frameworks of policy-making: the European Employment Strategy and the structural funds

53 53 54 56 59 63 66 68

72 72 73 76 81 83 89

91 91 92 96

102 109 114

119 119 122

Contents vii

The legal-constitutional level: setting the basis for a functional relationship? The strategic level: synergies or patchwork? The administrative level: towards a European administrative space Spill-over and institutional stickiness on the way towards communitarisation

8 Towards a Horizontal Fusion of Governing Structures? Co-ordinating the Co-ordination Processes Through the Broad Economic Policy Guidelines Ingo Linsenmann Introduction What kind of economic policy co-ordination? Fusion versus fragmentation The emergence and evolution of European economic policy co-ordination Evaluating the impact of the BEPGs The scenarios revisited: fusion via the BEPGs or fragmentation despite the BEPGs?

9 Deliberative Transnationalism? Analysing the Role of Committee Interaction in Soft Co-ordination Kerstin Jacobsson and Åsa Vifell Introduction Administrative networking in the EU Deliberative transnationalism The OMC as an enabling structure The role of the committees The OMC – deliberative governance in practice? Conclusion: prospects and limits of deliberative transnationalism

123 124 133 136

141 141 143 145 156 159

163 163 164 165 167 168 177 181

10 Towards a ‘Grand Débat Européen’ on Economic Governance? Publicised Discourses as Indicators for the Performance and Evolution of Policy Co-ordination Modes 187 Christoph O. Meyer and Tobias Kunstein Introduction How does policy co-ordination impact on public discourses? The significance of regulative and compensatory Europeanisation Quantitative and qualitative analysis of media content Has policy co-ordination induced regulative Europeanisation? Has policy co-ordination led to a compensatory Europeanisation?

187

188 192 194 205

viii Contents

Conclusion: mixed potential of policy co-ordination to induce communicative Europeanisation

11 The Limitations of European Economic Governance: Loose Policy Co-ordination and the Commitment-Implementation Gap Christoph O. Meyer, Ingo Linsenmann and Wolfgang T. Wessels Introduction The evolution of self-co-ordination: loose co-ordination in action Revisiting our expectations: some lessons for theorising Outlook and lessons: the future of economic governance

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211 211 212 221 231

Chronology of Events

234

References

243

Index

265

List of Figures 2.1 2.2 2.3 2.4 2.5 6.1 6.2 6.3 7.1 7.2 7.3 7.4 10.1 10.2 10.3 10.4 11.1

The employment policy process according to Article 128 ECT The fiscal policy process according to Article 104 ECT From legal provisions to living practice: the chain of argument Fusion trends and potential outcomes The ‘core network’ of EMU on the European level Standardised Europeanisation measures across policy co-ordination modes in 2003 Standardised Europeanisation measures across member states: fiscal policy co-ordination Standardised Europeanisation measures across member states in 2003: employment policy co-ordination Breakdown of ESF mainstream allocation to the four EES pillars (2000–2006) Breakdown of Objective 3 (1994/5–1999) Breakdown of Objective 4 (1994/5–1999) EQUAL – breakdown of allocation to the four EES pillars (2000–2006) The responsiveness-effectiveness matrix of Europeanisation outcomes Press coverage of fiscal and employment co-ordination Media coverage of employment co-ordination, 1997–2003 Media coverage of fiscal policy co-ordination, 1997–2003 Overview of evolutionary trends: loose co-ordination in action

ix

19 19 21 27 29 110 112 112 127 128 129 132 189 196 197 198 219

List of Tables 2.1 3.1 3.2 3.3 3.4 5.1 5.2 6.1 6.2 9.1 10.1 10.2

Typology of co-ordination modes Annual growth rates, 2000–2005 Consumer price inflation, 1999–2005 Real short-term interest rates, 1999–2005 Real long-term interest rates, 1999–2005 Public deficits and debt ratios in the Euro zone, 1999–2006 Influence of business conditions on the budget balances The impact of the EU employment policy co-ordination at the national level The impact of the fiscal policy co-ordination at the national level Number of meetings of the following bodies Fiscal policy coverage in selected member states between 1998 and 2002 Employment policy coverage in selected member states between 1998 and 2002

x

14 45 46 46 47 77 79 117 118 185 201 203

Acknowledgements The editors would like to acknowledge the assistance they have received from various sides. First and foremost, the research findings contained in this book would not have been possible without the expertise of numerous practitioners from EU and national institutions, the social partners, journalists and other relevant actors, who were interviewed over a period of 30 months by the project teams, including particularly the national rapporteurs. We are very grateful for their assistance and time. The extensive empirical groundwork and the underlying research project called GOVECOR were funded by the European Union (HPSE-CT-2001-00045). The editors would like to thank in particular the responsible scientific officer at the European Commission, Angela Liberatore, for her support and inducements throughout the project. The findings and arguments elaborated here have been presented and tested at various conferences, especially the bi-annual TEPSA Presidency Conferences, the Pan-European Conference of the ECPR in Bordeaux 2002, and the EUSA annual conference in Nashville 2003. The editors of and contributors to this volume are very grateful for comments and probing questions from participants at these conferences. They would like to thank in particular the experts who came to the mid-term (January 2003) and end of project review (February 2004) workshops. These were Iain Begg (LSE), Thomas Christiansen (EIPA), Hendrik Enderlein (Hertie School of Governance), Gerda Falkner (IHS Vienna), Dawid Friedrich (GSSS University of Bremen), Janine Goetschy (CNRS), Daniel Gros (Centre for European Policy Studies), Angela Liberatore (European Commission DG Research), Jean-Victor Louis (ULB Brussels), Carola Maggiulli (European Commission DG TAXUD), Martin Marcussen (University of Copenhagen), Laurent Moulin (European Commission DG Ecfin), Jacques Pelkmanns (College of Europe), André Sapir (ULB), Elena Saraceno (European Commission, Group of Policy Advisers), Loukas Tsoukalis (University of Athens), Beatrice Vaccari (EIPA), Amy Verdun (University of Victoria), Jérôme Vignon (European Commission DG Employment), Andrew Watt (European Trade Union Institute) and Jonathan Zeitlin (University of Wisconsin Madison). Their advice was invaluable and has informed our research and writing in too many ways to list. The authors would also like to thank Tobias Kunstein for invaluable assistance in researching, editing and proofreading the volume. The excellent work of the copy editors at the Federal Trust for Education and Research in London and at Palgrave should also provide a guarantee that any remaining language errors or inelegancies in this text must be the result of black magic at the printing stage rather than due to the linguistic weakness of any of the authors. xi

xii Acknowledgements

Finally, the editors would like to thank the national rapporteurs from ten member states, who carried out extensive research on their respective national levels. The rapporteurs have submitted four reports during the lifetime of the project, that is between spring 2002 and autumn 2003. The following rapporteurs have contributed to the national reports: Austria: Peter Huber, OIIP and WIFO, Vienna; Belgium: Philippe Pochet, GEPE and OSE, Brussels; Sylvain Plasschaert, University of Antwerp and Catholic University of Leuven and GEPE; Olivier van der Haert, GEPE, Brussels (co-author first report); France: Jacques Le Cacheux, CATT, Pau, and OFCE, Paris; Florence Touya, CATT, Pau; Germany: Elke Thiel, IEP and Stiftung Wissenschaft und Politik, Berlin; Ireland: Brendan Lynch, Institute of European Affairs, Dublin; Italy: Stefano Fantacone, IAI and CER, Rome; Netherlands: B. J. S. Hoetjes, EIPA and University of Maastricht; Portugal: Patrícia Cadeiras, IEEI and Instituto Superior de Ciências do Trabalho e da Impresa, Lisbon (fourth report); Pedro Courela, IEEI Lisbon (first and second report); Noemia Pizzaro, IEEI Lisbon (third report); Sweden: Kerstin Jacobsson, SCORE, Stockholm; Åsa Vifell, SCORE, Stockholm; United Kingdom: Dermot Hodson, Federal Trust and London School of Economics, London. The editing of the national reports and the production of the synthesis section has been carried out by Principal Contractor TEPSA, and by the Coordinator. During the four rounds of national reports, the following researchers were involved: on behalf of TEPSA, Olivier Maiscocq, Dorota Pyszna-Nigge, and Barbara Engelstoft; on behalf of the Jean Monnet Chair in Cologne, Christoph Meyer, Ingo Linsenmann, and Gaby Umbach. Additional support was given by Tobias Kunstein at the Jean Monnet Chair, and Michael Bornkessel @ www.europa-digital.de. These acknowledgements do of course not absolve us from the responsibility for any remaining factual mistakes and errors of judgement.

Notes on Contributors Dr Ines Hartwig is an Administrator in the European Commission, DirectorateGeneral for Employment, Social Affairs and Equal Opportunities. She was a Senior Lecturer at the European Institute of Public Administration (EIPA) in Maastricht (NL) until 2005. From 2003 to 2005 she also worked as a European adviser to the members of the Green Political Group in the German Bundestag. In 2001–2, she was a Visiting Scholar at the American Institute for Contemporary German Studies, Johns Hopkins University in Washington DC (USA) where she conducted a study on the implementation of a US employment policy instrument. Her main areas of expertise include EU Structural Funds, Employment Policy and Finances of the EU. Dr Kerstin Jacobsson is Associate Professor of Sociology. She is a Senior Lecturer at Södertörn University College and a Research Fellow at Score (Stockholm Centre for Organisational Research) at Stockholm University and Stockholm School of Economics. Recent publications include Learning to be Employable: New Agendas on Work, Responsibility and Learning in a Globalizing World (co-edited with Christina Garsten, Palgrave Macmillan 2004) and articles in Journal of European Public Policy and Journal of European Social Policy. Tobias Kunstein is a student of Economics and Political Science at the University of Cologne. During the lifetime of the GOVECOR project, he assisted the researchers at the Jean Monnet Chair of Professor Wessels, where he is currently engaged in the New Modes of Governance (NEWGOV) project. Jacques Le Cacheux, PhD, is Professor of Economics (since 1996) at the Université de Pau et des Pays de l’Adour and at Sciences Po (Paris) and Director of the Economics Research Department of OFCE (Observatoire français des conjonctures économiques) in Paris (since 1993). He has been a member of the INGENUE Team since the launching of the project, in 1999, and a member of various EU-funded research projects and networks (EUROMOD, MOCHO, EUROCAP, CONNEX, CONSENT ). Professor Le Cacheux has published articles in many journals, including Revue de l’OFCE, Revue économique, Revue d’économie politique, Revue d’économie financière, American Economic Review and Economic Policy, and edited volumes. He is the co-editor, with Jean-Paul Fitoussi of the Report on the State of the European Union (Palgrave, forthcoming). Ingo Linsenmann is Project Manager at the Robert Schuman Centre for Advanced Studies at the European University Institute in Florence, xiii

xiv Notes on Contributors

co-ordinating the New Modes of Governance (NEWGOV) project. Between 1999 and 2004 he was research fellow at the Jean Monnet Chair for Political Science, University of Cologne. His research fields include EMU and economic governance, institutional matters, as well as European education and youth policy. Dr Christoph O. Meyer is Lecturer in European Studies at King’s College, London. Previously, he worked at Birkbeck, University of London, at the University of Cologne and at the Centre for European Policy Studies in Brussels as a Marie Curie Research Fellow. His specialisations include European integration and governance, transnational political communication and constructivist approaches to security and defence policy. He has published monographs on the European Public Sphere (2002) and the emergence of a European Strategic Culture (2006) and contributed articles to leading peer-reviews such as the JCMS, JEPP and the EJIR. Florence Touya has obtained her PhD in Economics at the University of Pau. Her thesis looks at ‘Vertical Tax Interactions in Multi-Layer Governments’ in the context of, firstly, the deepening and accelerating decentralisation process in many OECD countries and, secondly, the strengthening of the European dimension given for instance the issue of providing the EU budget with its own tax resource. She has produced a paper using the multi-principal theory to study vertical interactions between the taxation policies of different tiers of government under conditions of asymmetries in information. A second piece, co-written with David Martimort, studies a common agency game model where both horizontal and vertical tax externalities emerge. Gaby Umbach, MA, is Research Associate at the Jean Monnet Chair for Political Science, University of Cologne. Her main fields of research include European integration and governance, Europeanisation studies, European socio-economic governance, European environmental policies, constitutionalisation and institutionalisation of the EU as well as EU enlargement and system transformation. She recently published a monograph together with Dr B. Lippert on the transformation of post-communist state administrations in the context of EU accession as well as several articles on environmental policies and EU institutions. Dr Åsa Vifell is a researcher in political science at Stockholm University and Score. Her main fields of interest are the internationalisation and Europeanisation of national administrations, bureaucratic politics and democracy in transnational networks. Publications include ‘Enclaves Within the State: Internationalisation, Democracy and the Swedish State Administration’, Stockholm: Stockholm University, 2006 (dissertation in Swedish) and ‘Soft

Notes on Contributors xv

Policy, Committee Governance and Deliberation’, with Kerstin Jacobsson, in Erik O. Eriksen (ed.), Making the European Polity, Routledge, 2005. Professor Dr Wolfgang T. Wessels has been Jean Monnet Chair for Political Science at the University of Cologne since 1994. He is chairman of the Executive Board of the Institut für Europäische Politik (IEP), Berlin and of the Trans-European Policy Studies Association (TEPSA), Brussels, as well as coordinator of the EU-CONSENT network of excellence. Recent publications include ‘The Constitutional Treaty: Three Readings from a Fusion Perspective’, Journal of Common Market Studies, 2004/05, and ‘EMU’s Impact on National Institutions: Fusion towards a “Gouvernance Économique” or Fragmentation?’ (in co-operation with Ingo Linsenmann), 2002.

List of Abbreviations

BEPGs CEMR CoR COREPER DG DG ECFIN DG Employment EAGGF EAPN EC ECB EDF EEC ECOFIN ECOSOC EES EFC EG ELMC EMCO EMU ENIAC EP EPC ERDF ESF EU Eurostat FIFG GDF GDP GNP HI IGC IMF IMS LAP MS

Broad Economic Policy Guidelines Council of European Municipalities and Regions Committee of the Regions Comité des Représentants Permanents Directorate General (of the European Commission) Directorate General Economic and Financial Affairs Directorate General Employment and Social Affairs European Agricultural Guidance and Guarantee Fund European Anti-Poverty Network European Community European Central Bank Electricité de France European Economic Community Economic and Financial Affairs Council Economic and Social Affairs Committee European Employment Strategy Economic and Financial Committee Employment Guideline(s) Employment and Labour Market Committee Employment Committee Economic and Monetary Union ESF-NAP Impact Assessment Cell European Parliament Economic Policy Committee European Regional Development Fund European Social Fund European Union Statistical Agency of the European Union Financial Instrument for Fisheries Guidance Fund Gaz de France Gross Domestic Product Gross National Product Historical Institutionalism Intergovernmental Conference International Monetary Fund Internal Market Strategy Local Action Plan Member State xvi

List of Abbreviations xvii

NAP NGO OCA OECD OJ OMC QMV RI R&D SGP SI SPC TEC UK UMTS UNICE

National Action Plan Non-Governmental Organisation Optimum Currency Area Organisation for Economic Co-operation and Development Official Journal Open Method of Co-ordination Qualified Majority Vote Rational Choice Institutionalism Research and Development Stability and Growth Pact Sociological Institutionalism Social Protection Committee Treaty establishing the European Community United Kingdom Universal Mobile Telecommunications System Union of Industrial and Employers’ Confederations of Europe

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1 An Economic Government for Europe in the Making? The Evolution of Policy Co-ordination in Turbulent Times Christoph O. Meyer, Ingo Linsenmann and Wolfgang T. Wessels

Political systems can evolve gradually or through sudden qualitative transformations in response to crisis situations. One peculiar feature of European integration from a historical perspective has been that each step of widening and deepening, each adoption of new legal language by national governments and parliaments, has eventually set in motion dynamics towards a more binding, more wide-reaching, and more supranational system of governance. Even if this process can be complex, cumbersome and far from automatic (as the crisis over the ratification of the Constitutional Treaty demonstrates) legal texts with their ‘constructive ambiguity’ have often developed into the launch pad for unanticipated initiatives and the entrance door for dealing with unexpected problems. While some may interpret the Dutch and French ‘No’ vote on the Constitutional Treaty as a signal that the integration process has reached a permanent end-state, a longer-term historical perspective suggests that integrative forces are far from exhausted. Drawing on contemporary theories of integration and political change, this book investigates this pattern in the case of economic policy co-ordination modes, which were instituted by the Maastricht and the Amsterdam Treaties (articles 125–130 and 104 TEC). Our main focus is on the particular modes of governance known as the Stability and Growth Pact (SGP) for fiscal, the European Employment Strategy (EES) for employment, and the Broad Economic Policy Guidelines (BEPGs) for economic policy co-ordination. The term ‘policy co-ordination’ refers to the process through which member states agree to meet common European concerns and objectives whilst fully preserving their competences to legislate and act in the respective policy areas. Our research-guiding question has been to explore whether these in comparison to the Community method of ‘softer’ modes of governance have set in motion dynamics towards the emergence of an ever more integrated and deliberative economic government by the European Union. 1

2 Economic Government of the EU

Political and academic interest in policy co-ordination modes has been very high in recent years for many reasons (Hodson and Maher 2001; Employment Taskforce 2003; Sapir et al. 2004; Ardy et al. 2006). Policy co-ordination modes have been considered by many authors as an innovative ‘third way’ in that they provide instruments for the pursuit of common goals – be they co-ordination, convergence or learning – without requiring a potentially problematic supranationalisation of the means, rules and institutions to achieve these goals (De la Porte and Pochet 2002; Zeitlin et al. 2005). Provisions for peer review, multilateral surveillance and public pressure drawing on benchmarking, reports and scoreboards were proposed as an alternative to the sanction mechanism of legally enforceable legislation. The emphasis on this kind of soft governance is particularly apparent in the case of the application of the so-called open method of co-ordination (OMC), a term coined at the Lisbon European Council meeting in the year 2000, which applies policy co-ordination, with an emphasis on multilateral review and learning, to policy fields hitherto under exclusive national competence, such as social exclusion, pensions and education. Because of the emphasis on deliberation, persuasion and learning, these new modes of policy co-ordination have been called ‘discursive regulatory mechanisms’ (Jacobsson 2002). They have attracted considerable interest from politicians and scholars, who emphasise their potential to provide for a sovereignty- and diversity-preserving, but yet effective approach to the governance of increasingly interdependent economies with an Economic and Monetary Union. They were discussed in the debates leading up to the production of the White Book on Governance (2001) and, eventually, the European Constitutional Treaty (2004). Similarly, harder variants of policy co-ordination, with fixed quantitative rules for all and potentially severe pecuniary sanction mechanisms, have also been the subject of considerable public debate. A number of member states challenged the Stability and Growth Pact and found support for a reform of the interpretative framework which substantially weakens the punitive ‘corrective arm’, but strengthens the ‘preventive arm’ (Subacchi 2005: 751–2). This is not to underplay the fact that policy co-ordination modes, both in their soft and their hard manifestations, are not quite as ‘new’ as is sometimes claimed. Precursors of the legal provisions for policy co-ordination created at Maastricht and Amsterdam can be found both within and outside the EU. Armin Schäfer (2006), among others, has argued that many of the supposedly novel features of soft co-ordination as exemplified by the EES have in fact been used for some time by the OECD (Economic Surveys) and the IMF (Article IV Consultations), with at best modest success. Moreover, there are precursors of soft law policy co-ordination in the history of European integration when member state governments in the 1960s and 1970s agreed under the conditions of unanimity voting mid-term economic programmes for the Community and submitted convergence reports (Linsenmann and Meyer 2002).

An Economic Government for Europe in the Making? 3

While such a historical perspective can advance a more sober assessment of the common features and weakness of governing modes relying on voluntary rule-following by member states (Schäfer 2006), we should not lose sight of the genuine novel features of the three governing modes at the centre of this study. First and foremost, the three modes are treaty-based (since Maastricht and Amsterdam), with the relevant articles 99, 104 and 129 TEC describing in detail how co-ordination should be conducted. Secondly, with regard to the introduction of the EES one important novelty was the submission of national action plans in order to better synchronise the processes of European goal-setting and national legislation and to closely involve non-governmental actors in the policy process. A third central feature where EU policy co-ordination differs from international organisations is the central role of committees (e.g. Employment Committee, Economic Policy Committee, Economic and Finance Committee), which give EU policy co-ordination a more permanent as well as a more political character. Finally, the new economic self-co-ordination modes within the EU cannot be understood in isolation of each other, but are dependent on each other in functional, political and administrative terms. In other words, what is ‘new’ is not so much a single process based on new treaty articles, but the potential reality emerging from overlapping opportunity structures and constraints in the field of economic policy. A study of the implementation and evolution of these different kinds of policy co-ordination is not only relevant from a theoretical perspective, but also important for understanding how multilevel governance in Europe works and whether it can realise policy-makers’ and indeed citizens’ aspirations. Economic governance remains the backbone of the integration project and its workings and performance are crucial to Europe’s ability to respond to new external and intra-European challenges. The aspirations for and rhetorical justifications of economic policy co-ordination have been ambitious. On the one hand, fiscal policy co-ordination and the rules of the Stability and Growth Pact were designed as a necessary complementary instrument to safeguard the sustainability and economic success of monetary union. The Pact should also induce national governments to conduct prudent, anti-cyclical fiscal policy-making. The European Employment Strategy was conceived as an instrument to promote job creation, wider participation, and better jobs through improving national policy-making and reform. The European Council meeting at Lisbon in 2000 has coined the umbrella term of ‘open method of co-ordination’ to refer to the central role of different policy co-ordination processes in reaching the strategic goal of making Europe by 2010 the most competitive region in the world with high levels of employment and social cohesion – a thinly veiled aspiration to overtake the United States in terms of productivity and growth whilst preserving the European welfare state. After five years have passed since the pinnacle of co-ordination euphoria a new consensus has emerged among experts and policy-makers that the Lisbon strategy has not lived up to expectations, and recommendations have

4

Economic Government of the EU

been made by experts groups chaired by André Sapir (2004) and Wim Kok (Employment Taskforce 2003) on how to improve economic governance in general and the Lisbon process in particular. Policy-makers have been forced to backtrack on the original 2010 deadline because of sluggish growth and the slow progress towards supply-side reforms in a number of member states. Yet, the Lisbon strategy has not been abandoned, but only ‘refocused’ on ‘delivery’ and ‘implementation’ with clearer, less frequent and fewer goals (European Council 2005). The present study can help to understand why the European Union’s contribution to these goals was so limited and why policy co-ordination modes on the whole have failed to induce the kind of reforms and policy changes that many economists see as essential for the long-term performance of the EU in the context of economic globalisation, ageing populations and sectoral change. The research findings presented in this book will attempt to explore how the three most important and institutionalised co-ordination cycles have worked in practice, how they evolved and impacted on national systems of governance, and whether they have been capable of realising the political, social and economic aspirations of their instigators. More specifically, we have looked at the first generation of policy co-ordination modes established by the Maastricht and the Amsterdam Treaties, particularly the Stability and Growth Pact, the European Employment Strategy and the co-ordination of these policies in the framework of the Broad Economic Policy Guidelines. How do governmental and non-governmental actors understand, use and adapt these legal empowerments, which provide means for interaction, deliberation, problem-solving and decision-making in vital fields of European public policy? Are we going to see a gradual process of communitarisation of policy co-ordination modes in the form of a knitting together or even fusion of the different levels of economic governance in Europe as well as the different policy areas covered by economic governance? In contrast to the second generation of mostly non-Treaty based policy co-ordination modes associated with OMC, these co-ordination processes have operated long enough to study them with reliable results. The time frame of our enquiry ranges from the adoption of the legal provisions for the co-ordination of employment and fiscal policies at the Amsterdam summit of 1997 and ends with the new legal provisions for economic governance as set out in the Constitutional Treaty, which was agreed in June 2004. We have also considered as far as possible decisions and changes in economic governance during 2005. Our research findings will qualify some of the initial optimistic accounts of these governing modes as a democracy enhancing, deliberative, flexible and yet effective approach to economic governance and welfare state reform. During the period 1999–2004 we found little evidence that the new legal provisions have encouraged a co-evolution of the policy co-ordination modes in the direction of what we call supranational economic government. Especially in the area of employment policy co-ordination, the early enthusiasm waned and opportunistic use of the rules followed. Fiscal policy co-ordination entered

An Economic Government for Europe in the Making? 5

a phase of contention and crisis as the Euro zone’s two largest economies exceeded the deficit rules and successfully evaded sanctions. Policy co-ordination modes have not (yet) fully integrated with domestic structures of policy-making, interest mediation and public deliberation. Compliance and adaptation have been sporadic, despite publicly stated commitments by the member states, pointing to a systematic and in some areas widening ‘commitment-implementation gap’ of policy co-ordination. Low levels of national ownership, especially felt at the sub-national level, hindered the kind of adaptations needed to foster sustained compliance. Our studies of soft co-ordination have highlighted both the opportunities as well as the limits of deliberation to affect preference change and to ensure implementation. Yet our authors also found some empirical evidence of innovation in terms of policy substance, of strengthening interdepartmental co-ordination and evaluation, of the emergence of European-level fora for deliberation, for peer pressure for the involvement of civil society actors. At the same time, our studies of public discourses demonstrate deficits in the communication and democratic scrutiny of these soft modes of governance. The empirical research presented in this volume was conducted in the framework of the multinational and multidisciplinary research project GOVECOR, funded by the European Union’s 5th Framework Programme. It is based on original empirical research of over twenty scholars from across Europe, who are not only experts in the different policy fields and national systems, but who have joined forces to work on a transversal and interdisciplinary research framework over a period of three years (GOVECOR 2004). The common research design and the theoretical expectations (see Chapter 2) have guided the empirical work of all the authors from the outset, so that we like to think of the present outcome as a co-authored monograph rather than a traditional edited volume. The book is subdivided into four main sections. The first analyses the origins and particularities of these modes of governance and sets out our research design and theoretical expectations concerning their evolution. The second looks empirically at the evolution of real world practice of economic policy co-ordination and draws some conclusions on performance over the five-year period. The third section is more narrowly devoted to the analysis and probing of the integration theoretical expectations underpinning this volume. The concluding chapter draws on the empirical findings presented throughout the volume to revisit and adapt theories concerning the evolution of policy co-ordination modes, and to consider the latest proposals for the reform of economic governance within and outside of the Constitutional Treaty. Given that a more detailed discussion of the findings in the light of our research design is contained in the concluding chapter, we will restrict ourselves at this point to providing a short overview of the main contents of each of the chapters in the form of abstracts to help the reader navigate more quickly this volume’s contents and main findings.

6

Economic Government of the EU

Christoph Meyer, Ingo Linsenmann and Wolfgang Wessels introduce the reader in Chapter 2 to this volume’s research question and provide the necessary historical, conceptual and theoretical background to the debate about new modes of policy co-ordination and the prospects for the evolution of a European Economic Government. The chapter sets out the theoretical framework to study the evolution of policy co-ordination in two selected policy fields since the signature of the Treaty of Amsterdam. Drawing on neo-institutionalist theories of political change, the provisions and rules of policy coordination are taken as the independent variables (‘the legal constitution’) and are expected to have opened up new possibilities and set constraints for policy processes and actors’ strategies (‘living constitution’). Intervening variables are specified to test competing scenarios regarding the impact of these provisions at EU and national level. In particular, the joint research efforts focus on (i) the effective use of the legal provisions by political actors, (ii) the development of governing networks, and (iii) the impact of publicised discourses. The dependent variable is thus the type of economic governance that results from the institutional, procedural, behavioural and ideational changes at multiple levels of policy-making and opinion formation. Beyond this inductive approach, the authors draw on neo-functionalist, intergovernmentalist and constructivist theories of integration to elaborate six expectations of change, which would entail further steps towards a more supranational and more wide-reaching kind of economic government in Europe. This focus includes, for instance, socialisation processes in newly founded committees, Commission activism in establishing linkages between Community instruments and policy co-ordination, and functional spill-overs arising from monetary union. In Chapter 3 Jacques Le Cacheux complements the theoretical perspective on policy co-ordination modes by analysing their economic rationales in a monetary union with decentralised fiscal authorities. In drawing on the literature in economics he explores the foundations of the kind of co-ordination devices chosen in the Euro zone, as well as the incentives and constraints on member states’ governments arising from the fiscal rules in the Euro zone. He argues that these insights are relevant to understanding the possible causes of the failure of the Stability and Growth Pact (SGP) to deliver expected outcomes, both in terms of fiscal consolidation and in broader terms of economic performance. The chapter then proceeds with an analysis of the difficulties for co-ordination arising from the heterogeneous nature of the Euro zone. It explores some of the possible causes of heterogeneity and devotes particular attention to the issue of country size, with the coexistence of large and small countries, each group tending to adopt divergent strategies in the face of common macroeconomic shocks. Le Cacheux concludes by advocating a better mix of rules and discretionary co-ordination for fiscal policies in the Euro zone in order to achieve a more satisfactory policy mix and hence better macroeconomic performance.

An Economic Government for Europe in the Making? 7

Kerstin Jacobsson and Åsa Vifell analyse in Chapter 4 the governance structures developed in EU employment policy-making as a result of the coming into force of the European Employment Strategy. They ask what the formal treaty provision meant for the ‘living’ practice of employment policymaking in terms of instruments, actors involved, and relations and interactions between actors. What opportunities have been opened for various actors, at European level, at national level and at local levels? Jacobsson and Vifell’s balance sheet of six years of employment policy co-ordination identifies achievements as well as factors limiting the impact of the European Employment Strategy (EES) at different levels of governance. More specifically, they argue that the EES has encouraged the emergence or intensification of co-ordination and consultation practices in national employment policy-making, induced more reflection on policy choices, and led to new initiatives, especially at local levels. However, they also argue that the potential of policy co-ordination is far from fully exploited by policy-makers. Moreover, its effectiveness could be considerably improved by being better integrated in the policy-making systems of the member states and simplified in order to prevent fatigue on the part of administrations and loss of interest by social partners. In sum, Jacobsson and Vifell find that the EES has strengthened multilevel dynamics rather than led to a fusion between the European and national levels, despite some evidence of Europeanisation trends. In Chapter 5 Jacques Le Cacheux and Florence Touya analyse the performance of the Stability and Growth Pact (SGP) since the beginning of the European monetary union. They look at three distinct dimensions of the SGP track record: first, whether it has had an effective influence on the way national fiscal policies are being defined and discussed; second, whether and how it has led to the kind of fiscal consolidation and discipline it was aiming at; and finally, what the economic consequences of the SGP are. On the first aspect, they find that the SGP may be said to have been fairly successful. It has induced many domestic stability pacts or other arrangements to co-ordinate domestic fiscal authorities of various kinds; it has led to a streamlining of fiscal policy definition and procedures; and it has strengthened the position of the Minister of Finance within national governments. On the other hand, Le Cacheux and Touya also highlight negative aspects in the relative weakening of national parliaments and the lack of public debate on fiscal policy choices. On the second point of the enquiry, they find the SGP’s record mixed: even though public debts did ebb in the EU until 2001, they may have done so quite independently of the SGP and have been on the rise since then. On the third point, the authors critically review the economic consequences of the SGP incentives, especially the bias against public investment and in favour of tax cuts. Various flaws in the design of the SGP are then briefly analysed and several reform proposals discussed. Le Cacheux and Touya conclude with some reflections on co-ordination and the lack of progress thereof in the Constitutional Treaty adopted by the European Council in June 2004 in Brussels.

8

Economic Government of the EU

In Chapter 6 Christoph Meyer and Gaby Umbach draw together the key findings of 40 national reports on the practice of policy co-ordination at the member state levels between 1997 and 2003 (the final national reports are published in GOVECOR 2004). National rapporteurs had been asked to investigate whether there has been a shift of national awareness and priorities, or an adaptation of procedures, institutions and policies as a result of the new provisions for different kinds of policy co-ordination modes. In order to interpret the reports’ empirical findings concerning changes in the major vectors of national economic governance the authors draw on theories of Europeanisation. Meyer and Umbach find that the impact varies across policy co-ordination modes, countries and dimensions of change. But they also find that Europeanisation has on average been moderate, and on balance smaller, than political actors and observers may have expected. In particular, there was little change in institutional and procedural terms, while policy changes were hard to trace back to co-ordination methods rather than other causes. The authors emphasise that domestic arrangements for economic governance are not easily changed through soft modes of governance with their relatively weak incentive and enforcement structures. However, given that some countries did adapt quite strongly to peer pressure and took advantage of learning benefits, Meyer and Umbach emphasise that the specific properties of individual countries deserve more attention in academic studies. Ines Hartwig examines in Chapter 7 theories of functional and cultivated spill-over from community instruments to policy co-ordination modes. She points out that initially member states made it very clear at the launch of the European Employment Strategy in 1997 that it should not be subject to supranational law or rule-making, but should rely on a primarily intergovernmental process of benchmarking, peer review, and exchange of best practice. Yet, over the last five years, linkages between the European Employment Strategy (EES) and the EU structural funds (governed by the ‘community method’), in particular the European Social Fund (ESF), increased. With the Agenda 2000 reforms, the ESF has become the main financial instrument at EU level to support the European Employment Strategy. Hartwig examines the relationship between the European Employment Strategy and the ESF at the legal, strategic and administrative levels and examines the question of at what level of policymaking, and how, the relationship has evolved over time into a new mode of governance that links the intergovernmental sphere of the EES with the supranational sphere of the ESF. Hartwig’s main finding is that despite convergence and coupling trends at the legal and strategic (policy) level, member states have successfully resisted Commission-cultivated spill-over at the institutional and administrative level, often paying only lip-service to the programmes and defending existing institutional set-ups, interests and power relations. Ingo Linsenmann analyses in Chapter 8 the governance of European economic policy co-ordination through the Broad Economic Policy Guidelines (BEPGs) as the main framework for the definition of overall economic policy

An Economic Government for Europe in the Making? 9

objectives and orientations. He examines the historical evolution of the BEPGs procedure from its beginning in the mid-1990s up to the decision to synchronise the BEPGs and the EES in the year 2003, analysing closely the BEPG consultation and decision-making procedures on both the European and the national levels. He also addresses the question of whether the BEPGs fulfil their aspirations and whether this process has contributed to a more coherent economic policy in the EU. Linsenmann’s main finding is that despite the considerable administrative resources invested into reporting and surveillance mechanisms, a direct impact of the BEPG process on national policies is hardly recognisable. At best, progress can be attributed to the constituting processes of the BEPGs such as EES or fiscal policy co-ordination. He argues that so far and as long as BEPG recommendations remain non-binding, the BEPGs should be understood rather as a programmatic statement of member states on what they intend to do in the near future than as a credible incentive or opportunity structure for actors to pursue economic reforms. However, the BEPG process did contribute to a more integrated policy approach on the EU-level, not only co-ordinating the co-ordination policies but also linking these member state-oriented processes with other related EU policies. Kerstin Jacobsson and Åsa Vifell focus in Chapter 9 on socialisation effects and deliberative practices as a result of the creation of new policy co-ordination committees, especially the Employment Committee, Social Protection Committee, Economic and Financial Committee and the Economic Policy Committee. They investigate to what extent these soft forms of governance are supportive of a deliberative mode of policy-making and problem-solving. They focus in particular on the role of administrative networks developed in and around the new committees in fostering dialogue and learning based on the exchange and evaluation of arguments. Jacobsson and Vifell find indications for the thesis that policy co-ordination is indeed supportive of a more deliberative mode of governance in the EU, but also that there are limits to deliberation as a mode of problem-solving and action co-ordination, especially when recommendations to member states are discussed and sensitive issues are raised. They also find differences between the different committees and examine some explanations concerning the causes of these differences. Jacobsson and Vifell’s main conclusion is that even though expert deliberation can hardly solve the democratic legitimacy problems of EU policy-making, expert deliberation can serve a number of important purposes in achieving a well-functioning and legitimate mode of governance in the EU. Chapter 10, by Christoph Meyer and Tobias Kunstein, looks at the degree to which the European co-ordination of member states’ economic policies has been accompanied by a Europeanisation of national public discourses. The impact of EU legal provisions on national discourses is not only relevant for the discussion about the lack of public scrutiny of European governance, but also for the capacity of peer review to change member states’ behaviour and to induce learning through mediatised debates. Meyer and Kunstein

10 Economic Government of the EU

conceptualise these two phenomena as regulatory and compensatory Europeanisation and examine them empirically by means of a media content analysis of reporting in quality newspapers in Germany, France and the UK. They find substantial differences in the Europeanisation of media debates in the two policy fields as the media covered extensively the debate over the future of the Stability and Growth Pact and the failure of France and Germany to follow the fiscal deficit rules. The European Employment Strategy in contrast faded from media coverage, especially after 2001. Meyer and Kunstein argue that regulatory Europeanisation of public debates has been at best moderate in France and strong in Germany, but failed to make much of an impact in employment policy. The second major message is that compensatory Europeanisation was virtually absent in the case of the EES and varied between countries with regard to the fiscal policy co-ordination process. The communicative deficiencies of the EES partly explain why national ownership of this governing mode is so low and implementation is sluggish and opportunistic. The authors conclude by considering some explanations for the differences between the governing modes and suggest some avenues for reform of public communication. In the concluding Chapter 11, Meyer, Linsenmann and Wessels provide an answer to this volume’s research-guiding questions: How have the new modes of policy co-ordination worked in practice and did they constitute a stepping stone towards an ever closer and more institutionalised form of economic government? In doing so, they revisit the theoretical expectations expressed in the research design and probe to what extent they have been borne out by the empirical evidence. They argue that many of these expectations were not met for various reasons and that policy co-ordination modes have largely failed to provide a decisive push towards more integrated forms of economic governance. Despite some notable differences between member states, policy co-ordination modes have failed sufficiently to integrate with domestic structures of policy-making, interest mediation and public deliberation during the period observed. As a form of loose co-ordination, these governing modes lack not only policy impact but also rest on a relatively weak, topheavy legitimacy of the EU Commission and national finance ministers, which can be easily challenged both from within the administration and public opinion. Meyer, Linsenmann and Wessels examine why the impact of soft policy co-ordination has been so limited and find that differences concerning economic conditions and interests, institutionally ingrained welfare state arrangements, and economic philosophies have stopped significant steps towards a more robust, integrated and wide-ranging economic government. In their current legal form, policy co-ordination modes seem badly suited to overcome the asymmetries between centralised monetary policy and decentralised national level economic policy-making.

2 Evolution Towards a European Economic Government? Research Design and Theoretical Expectations1 Christoph O. Meyer, Ingo Linsenmann and Wolfgang T. Wessels

Introduction The purpose of this chapter is to set out the theoretical and analytical framework used throughout this volume to study the evolution of economic policy co-ordination. This focus represents also an opportunity to test and revise some key assumptions, causal mechanisms and hypotheses about the broader dynamics of European integration and governance. In recent years, theorising about the evolution of the European Union and its governing processes has matured substantially. Established theories have been refined and revised, old theories revived and new approaches suggested (Wiener and Diez 2003; Rosamond 2000). The increasing number of journal articles and books on this topic testifies to this development as do attempts at thinking outside the boxes of International Relations, European Studies or Comparative Government (Pollack 2001). However, the primary objective of this volume is not to refute, redesign or criticise different schools of theorising, but to draw on and synthesise these contributions to set out an appropriate theoretical frame for the purpose of this study. This study brings together political scientists, economists and sociologists from a number of countries to cover a large empirical field, looking at developments in ten EU member states between 1997 and 2003. In doing so, we hope to provide a useful analytical framework and empirical insights into a policy-making process, which has hitherto being studied only on the basis of a small sample of countries and policy fields and relatively short observation periods.

Policy co-ordination as an object of study: the historical and conceptual background Policy co-ordination has been called the ‘multi-level governance method’ (Wallace 2000a: 28), ‘open co-ordination’ (Scharpf 2001b, 2001c) or even ‘democratic experimentalism’ (Eberlein and Kerwer 2002). It has also been called a ‘new’ mode of governance, because it does not fit into the 11

12 Economic Government of the EU

characteristics of the EU’s two main governing modes: the Community method, which is applicable to most market creation policies, and the intergovernmental method, which has been traditionally associated with decision-making in the area of security and defence policy. However, this traditional dualism of European governing modes has long been complemented by empirically informed accounts of other kinds of governing modes in other policy fields – most notably justice and home affairs and socio-economic policy – whose characteristics do not fit either of the two models. While policy co-ordination is clearly ‘atypical’ from a purely statistical viewpoint, it is not actually ‘new’ (cf. Linsenmann and Meyer 2002). The European integration process has seen procedures that bear a resemblance to the contemporary policy co-ordination for decades (Ahonen 2001: 6). ‘Neo-voluntarism’ (Streeck 1995) has led European policy-makers to prefer methods without binding force instead of using the Community method. In the 1960s and 1970s, policy co-ordination was primarily motivated by the concern to achieve a modest degree of policy convergence under conditions of unanimity voting (such as the medium-term economic programmes and convergence reports). Although not new as a policy instrument, policy co-ordination was given a new spin in the 1990s when the Maastricht Treaty for the first time formalised this mode of governance in the field of fiscal policy co-ordination to meet the convergence criteria for EMU. The Amsterdam Treaty extended the scope of policy co-ordination to employment policy, in order to inject a more popular but less binding element into the European framework for economic governance, seen by some as dominated by the monetarist paradigm. These new treaty provisions were complemented by a stream of European Council conclusions adding both new procedural and new institutional aspects to the acquis communautaire. The Dublin European Council (1996) adopted the Stability and Growth Pact; the Luxembourg European Council (1997) created the European Employment Strategy (EES) and decided to implement the employment title of the Amsterdam Treaty before the Treaty itself entered into force; policy co-ordination was further extended in 1998 by setting up the so-called Cardiff process, which established a light reporting procedure to stimulate structural reforms on product and capital markets; and in 1999, the Cologne process came into being, adding a macroeconomic dialogue to the Union’s procedures (Heise 2002). All these processes were then ‘capped’ by the broader Lisbon strategy adopted in 2000 (Best and Bossaert 2002: 2). In Lisbon the heads of state or government aimed at formulating a strategy to reach ambitious socio-economic goals, notably boosting Europe’s competitiveness, creating more and better jobs, and improving social cohesion by 2010. One important means of achieving this was the so-called ‘open method of co-ordination’ with the following features (Lisbon European Council 2000: Point 37): • establishing guidelines for the Union; • setting targets and adopting measures to meet the guidelines;

Research Design and Theoretical Expectations 13

• specifying indicators and benchmarks to measure and compare best practice; • monitoring, evaluation and peer review. In the context of this study we understand policy co-ordination as an iterative, cyclical process by which member states submit themselves to following a common set of policy objectives, timetables, review, reporting and monitoring procedures in order to realise common gains and/or to safeguard the provision of collective goods. As a principle, policy co-ordination does not automatically lead to binding legislation for member states (in the case of the European Employment Strategy harmonisation of laws is explicitly excluded), indeed the choice of the soft variant of policy co-ordination has been motivated by concerns over the perceived drawbacks of a hard law, such as an erosion of national sovereignty in policy fields of electoral significance and an overly rigid approach to diverse national circumstances. Under policy co-ordination, competences in these policy fields are not supranationalised or exercised through joint decision-making on legally binding legislation in the Council of Ministers. Compliance cannot be enforced through Treaty infringement procedures before the European Court of Justice and the European Parliament (EP) has only ex-ante consultation and ex-post information rights. The bulk of the co-ordination work at the European level is in the hands of Council committees, which prepare the ministers’ decisions on guidelines and recommendations, help to organise peer review and benchmarking exercises and monitor compliance. In the case of the European Employment Strategy (EES) and the Stability and Growth Pact (SGP) the Treaty gives far-reaching mandates to two high level committees – the Economic and Financial Committee (Article 114.2) (cf. Linsenmann and Meyer 2003) and the Employment Committee (Article 130). Although all procedures of policy co-ordination share the fundamental feature that they do not rely on the Community method of regulation, it would be misleading to speak of ‘the’ method of policy co-ordination or OMC (Best and Bossaert 2002: 2). In fact, we propose to categorise policy co-ordination modes by drawing on some of the criteria developed in the literature (cf. Hartwig and Meyer 2002; Treib et al. 2005): most notably the type of legal instrument involved, the degree to which decisions are binding on authorities at the implementation stage, the relationship between the state and the market as well as between private and public actors, the roles and responsibilities of central institutions vis-à-vis member states, and the kind of incentives and disincentives involved. In the field of socio-economic policy-making one is faced with a range of governing modes. Policy co-ordination modes do not involve an outright transfer of competences but vary widely in their impact on member states. More specifically, we propose to situate the processes at the centre of this study at varying points between the poles of ‘hard co-ordination’ on the one side, and ‘soft co-ordination’ on the other hand (see Table 2.1).

14 Table 2.1:

Typology of co-ordination modes Hard co-ordination

Soft co-ordination

Policy Areas

Fiscal Policy

Macro-economic Policy Mix

Employment Policy

Instruments

Stability and Growth Pact (since 1997)

Broad Economic Policy Guidelines (since 1992)

Luxembourg Process (since 1997)

Policy Goals

Avoidance of negative externalities, especially free-riding of member states in EMU

Sustainable and co-ordinated socio-economic policy-making in EMU

Increasing employment levels through labour market reforms, active employment policy measures

Treaty Basis

Art. 104 TEC, Protocol, Regulations 1466/97, 1467/97

Art. 99 TEC, European Council of Helsinki 1999

Art. 128 TEC, European Council of Luxembourg 1997

Sanctions in case of noncompliance

Peer pressure and negative publicity through individual recommendations & Option of the Council imposing financial fines in case of excessive budgetary deficits

Peer pressure and negative publicity through individual recommendations & especially regarding fiscal policy

Peer pressure and negative publicity through individual recommendations and rankings/ benchmarking

Objectives, Guidelines and Benchmarks

Medium term budgetary targets, national quantitative targets in stability/ convergence programmes, quantitative thresholds

Depending on the policy area, qualitative guidelines and quantitative targets for EU and national level, national reports

Qualitative guidelines and quantitative EU-targets, common indicators, national action plans, variable national benchmarks

Role of EUCommission and European Parliament

Monitoring of targets through DG Ecfin, Proposal for Decisions of Ecofin Council by QMV

Monitoring of targets through DG Ecfin, Proposal for Decisions of Ecofin Council by QMV, EP rights for ex-post information

Monitoring of targets through DG Emploi, Proposal for decisions of Employment and Social Affairs Council by QMV EP is being consulted

Procedures for Voting and Learning

Annual reporting and review cycles, qualified majority voting in Council on sanctions under the excessive deficit procedure

Annual reporting and review cycles

Annual reporting and review cycles, multilateral surveillance and partnering

Involvement of nongovernmental actors

No, indirect through public sphere

No, indirect through macroeconomic dialogue and public sphere

In principle yes, social partners and public sphere

Research Design and Theoretical Expectations 15

‘Hard’, in the context of this study, means the degree of bindingness at the implementation stage, which can be examined by looking at two dimensions: firstly, how much flexibility do member states have in achieving common objectives and, secondly, what kind of corrective mechanisms exist to bring about compliance with these objectives? Policy flexibility can arise from very broad and ambiguous guidelines and indicators, variable or long time frames for implementation, or provisions for partial or full non-compliance. Policy co-ordination can even be purely geared towards policy learning and nonTreaty based as in the case of the various new co-ordination procedures covering social protection, pension reform, or the reform of education systems promoted by the Lisbon strategy (cf. also Begg et al. 2003). The legal provisions of the hard variant of policy co-ordination can provide very clear criteria and policy goals as in the case of fiscal policy, whereas the soft type may leave the definition of guidelines, benchmarks, criteria and recommendations to the policy process itself and thus to the actors involved, be they member states (as in the case of the EES), experts or civil society actors, even though the latter are not involved in the final decision-making. Corrective mechanisms could be substantial fines against member states as under the Excessive Deficit Procedure of the Stability and Growth Pact, ‘naming and shaming’ through the publication of negative opinions regarding individual member states or rankings (Stability and Growth Pact and the BEPGs), peer pressure with unknown effects behind closed doors (Eurogroup), or reliance on voluntary learning (macroeconomic dialogue).

Towards an effective and legitimate economic government? The debate about the future of policy co-ordination The first wave of scholarship on policy co-ordination and the open method of co-ordination compared these modes favourably to traditional top-down regulation and Community method policy-making by virtue of being particularly ‘deliberative’, ‘heterarchical’, ‘poly-centric’, ‘networked’ and ‘bottom-up’ (Ahonen 2001; Hodson and Maher 2001; De la Porte and Pochet 2002; De la Porte et al. 2001). The case was put for an alternative to a hard law approach, because the latter did not leave sufficient room for national policy choices in the provision of social welfare and therefore infringed the principle of subsidiarity in vital policy fields (Scharpf 2001a). Input legitimacy would be better preserved by European policy co-ordination, given that binding decisions are taken and justified at national and not at European level (Scharpf 1999: 30). Another line of argument highlighted the effectiveness gains to be reaped from the capacity of policy co-ordination to take differences between member states’ political systems, socio-economic preferences and welfare arrangements into account, to stimulate learning through benchmarking and peer review, and thus allow for more appropriate solutions (Goetschy 2003; Trubek and Mosher 2003). However, first empirical studies have

16 Economic Government of the EU

pointed out that soft governing modes face substantial problems to reach their objectives without at least the shadow of ‘hierarchy’, that is the possibility for future supranational legislation (Héritier 2003). Johan P. Olsen also adopts a pessimistic undertone as he fears that open co-ordination may produce more homogenisation across domestic systems, which in the long run may inhibit learning and successful adaptation to changed intra- or extraEuropean circumstances (Olsen 2001b: 11). Moreover, policy co-ordination has been criticised from the perspective of democratic theory and input legitimacy. Sceptical voices argued that soft governance hides political choices behind top-down intransparent technocratic politics, blurs lines of accountability between levels of governance, weakens parliamentary oversight, and thereby exacerbates the democratic deficit of EU governance. However, empirical evidence for each of these positions has remained thin so far. Beyond the debate about the functioning and performance of governance, some scholars are beginning to ask how the application of European policy co-ordination to new policy fields fits into and affects the course of political integration. There are some who argue that policy co-ordination might be a typical step towards deeper forms of integration within the logic of a ‘ratcheted fusion’ or neo-functionalist phenomena of spill-over (Wessels and Linsenmann 2002; Wessels 2003a). Policy co-ordination would act as ‘precursor’, ‘stepping stone’, ‘catalyst’ or ‘transmission-belt’ for deeper political integration or, in the words of Kenner, as an ‘ideal means of progressing policy . . . in anticipation of Treaty changes’ (Kenner 1999: 58). Another position is that self-co-ordination modes are likely to spread to new, not previously Europeanised policy areas, where ‘harmonization is unworkable or counterproductive but mutual recognition and the resulting regulatory competition may be too sensitive’ (Trubek and Mosher 2001: 21; Hodson and Maher 2001: 721; Ferrera et al. 2000). Goetschy (2003) has expressed the concern that policy co-ordination is not a precursor to hard legislation in the social policy field (which she evidently considers necessary), but rather a substitute. Indeed, Scharpf sees and welcomes a trend towards inserting open co-ordination elements into traditional governing modes covering other policy areas (‘framework directives’), replacing an overly rigid approach to market creation and liberalisation (Scharpf 2001a). In this line of argument, open co-ordination may be either a kind of first step towards a renationalisation of European Union governance as governments claim back decision-making room for manoeuvre in the area of welfare provision, or at least the attempt to stop the seemingly inexorable supranationalisation trend in policy fields covered by the EC Treaty. The academic debate about the evolution of policy co-ordination modes is also of direct relevance for the debate involving politicians and economists about what the optimal form of economic governance for Europe is. A particular strand of this debate, which provides the title for the research project

Research Design and Theoretical Expectations 17

underlying this study, concerns the calls for the establishment of a gouvernement économique, which are associated with reports by the French Commissariat Général du Plan chaired by Robert Boyer (Commissariat Général du Plan 1999; also Boyer and Dehove 2001). The calls are grounded in an analysis that the current structure of EMU is asymmetric and not conducive to economic growth and jobs, given the autonomy and mandate of the ECB as the guardian of price stability (Verdun 2003). While the dissatisfaction with ‘monetarist Europe’ is clear, there is no coherent political or academic consensus about the specific characteristics of a gouvernement économique, in particular, to what extent it would involve a further strengthening of central institutions or a transfer of competences. David Howarth (2005: 1) identifies five distinct meanings of the term referring to: • economic policy co-ordination with other member state governments and with the ECB to achieve an ‘appropriate’ policy mix; • a more energetic EU-level interventionism designed to stimulate economic growth and create jobs; • a political interlocutor of the ECB to contribute to the legitimisation of ECB monetary policy-making; • an exercise in political communication to reinforce the credibility of Euro zone monetary policy; and • an explicit limitation of the ECB’s independence. It is particularly the fifth of these goals that has led to vigorous debates between both national governments and economists – a debate which resurfaced in the European Convention’s working group on economic governance and remained unresolved. It has been hard for the observer to assess the relative value of the different positions in both the academic and political debate, because most of it has not been (and could not be) backed up by comprehensive research and theorising on why these modes of governance have emerged as well as how they have worked and evolved since their establishment – a question that is currently addressed by the EU funded integrated project NEWGOV. The dynamics governing the design process of new instruments are often very different and less rational than subsequent justifications by practitioners – not to speak of the unintended consequences at the implementation stage. Moreover, the theoretical insights into how different national arenas of governance adapt to and interact with pressures emanating from the European Union (Europeanisation) have so far been usually based on case studies from policy areas falling under the remit of the Community method. In contrast, little is known about not only how member states, but also EU institutions and governing networks have dealt with these relatively novel governing modes, which employ particular incentives and constraints, promote the diffusion of policy ideas and the exchange of best practices, and rely on peer review and

18 Economic Government of the EU

public naming and shaming. Finally, it is also a well-known phenomenon in European integration scholarship that the communitarisation of a new policy field tends to generate initially a kind of supportive scholarship, be it on the ‘Sound Money Paradigm’ or the building of ‘Social Europe’. It is often only the second wave of writing which can take a more distanced view.

The institutionalist path from legal to living constitution Johan P. Olsen has made a distinction between the ‘formal-legal’ and the ‘living institutions’ of the European Union, by which he meant formal institutional design, decisions, and Treaty texts on the one hand, and rule-implementation, political conduct, outcomes and culture on the other hand (Olsen 2000: 6). For our research design (see Table 2.1) we have twisted this semantic distinction a little to explore how the ‘legal’ constitution acts as a kind of ‘skeleton’ for the ‘living’ constitution (how policy co-ordination modes play out over time in real-life European politics). The primary and secondary law on economic policy co-ordination agreed at the European Councils of Maastricht (1992) and Amsterdam (1997) are thus our independent variable. In terms of primary law, we are looking at fiscal policy co-ordination as laid down in the excessive deficit procedure and the Stability and Growth Pact, employment policy co-ordination, and the Broad Economic Policy Guidelines. These legal provisions can be expected to pre-structure political reality in a number of ways. First, they provide for explicit legal provisions for the implementation of certain procedures and the set-up of specific institutions: they establish voting rules, reporting and surveillance procedures with timetables and new fora for deliberation, preparation and decision. New committees such as the Employment Committee (EMCO) have been set up and other pre-existing bodies such as the Economic and Finance Committee (EFC) were given a different brief and role, thereby potentially changing the institutional setting in which policy co-ordination takes place. Secondly, the legal provisions also aim to change actor behaviour through incentives for compliance (for example, the strategic use of grants from the European Social Fund, ESF), or disincentives against non-compliance (fines under the SGP), to encourage participation of non-governmental actors (within the process of establishing National Action Plans, NAPs, within the EES), and to offer opportunities for publicity and debate (publication of implementation reports, early warnings, recommendations, reprimands). Figures 2.1 and 2.2 provide an overview of how the two policy co-ordination processes in the field of employment and fiscal policy work. They should be read in conjunction with the overview in the previous section. But how will the provisions for policy co-ordination be utilised and how will they impact on the overall evolution of European governance? Given the comprehensive scope of the present enquiry, we want to avoid restricting our research at too early a stage by relying on very specific assumptions of one

Research Design and Theoretical Expectations 19

The European Union’s co-ordination and monitoring cycle in Employment policy (Article128 ECT)

Stage 7 European Council examines the employment situation on the basis of the Joint Report and adopts conclusions on Employment Guidelines

Stage 6 Commission and Council establish a Joint report on Employment in the Union

Figure 2.1:

Stage 1 Council of Ministers adopts the Employment Guidelines for member states (on a proposal of the Commission and after consultation of the European Parliament, the Employment Committee, ECOSOC and the Committee of the Regions

Governments, Administrations, Parliaments and Political Parties, Socio-Economic Intermediary groups and networks

Stage 5 Council of Ministers examines Member States’ reports and adopts, on recommendation of the Commission recommendations to the Member States

Stage 4 Employment Committee examines the Member States’ reports and comments on them

Stage 2 Member States draw up NAPs and implement the Employment Guidelines ...

Stage 3 ... submit an implementation report to the Council and the Commission

The employment policy process according to Article 128 ECT The European Union’s co-ordination of fiscal policy within the Pact for Stability and Growth (Article104 ECT)

Stage 7 Council imposes fines if excessive deficit still exists two years after decision on deposit. Council abrogates decisions if excessive deficit has been corrected (exception: fines)

Stage 6 Council decides on sanctions (non-interest-bearing deposit) if excessive deficit still exists after given period

Figure 2.2:

Stage 1 Member States submit stability programmes (pre-ins: convergence programmes). Council of Ministers – within three months – adopts opinions on programmes on the basis of reports from the Commission and the Economic and Finance Committee (EFC)

Governments, Administrations, Parliaments and Political Parties, Socio-Economic Intermediary groups and networks, media

Stage 5 Council declares the existence of an excessive deficit on the basis of Commission proposal (and EFC opinion) and makes recommendations

Stage 4 Council makes and publicises recommendations on correction measures, while Commission supervises efforts

Stage 2 In case of a substantial derogation from the preceding programme, the Council of Ministers makes recommendations to the member state concerned ... Stage 3 ... which in turn tries (or not) to implement the necessary measures

The fiscal policy process according to Article 104 ECT

school of theory, which might exclude some potentially important factors from the outset. However, keeping an open mind for surprising empirical findings does not obviate the need for making choices about those factors and variables which matter most for understanding the functioning and

20 Economic Government of the EU

evolution of economic governance. Best suited to make these choices when studying the functioning of the new governing modes is new institutionalist thought, which has become increasingly influential in political science since March and Olsen published their two major works in the 1980s (March and Olsen 1984, 1989). Depending on the strand of theorising, institutions are understood as either formal organisational structures and decision-making rules (the rational choice and historical institutionalist variant) or alternatively as informal rules, norms and practices (the sociological institutionalist strand); they have in common that they are both expected to influence the choices of political actors even if their ontological assumptions are quite different (cf. Hall and Taylor 1996; Peters 1999; Kaiser 1999). While all of them share similar explanatory aspirations, the three strands offer distinct insights for our research approach. Rational choice institutionalism emphasises how institutions and decisionmaking may influence political actors’ pursuit of their ranked preferences for utility maximisation. Formal and informal institutions do not change these preferences, but can influence actors’ strategies, interactions and outcomes by providing new opportunities (incentives) and constraints (costs) to different groups of collective actors. Institutions may empower some actors, while weakening others; they can also change the nature of interactions depending on the decision-making rules. Institutions can thus influence the ‘logics of consequentialism’, which govern the interactions between actors pursuing their interests. Actors may also become principals when they delegate power to newly set-up or pre-existing institutions as agents, in order to solve collective action problems. In relation to our enquiry we are interested in how powerful the incentives and constraints are, as perceived by national political actors, most notably governments, in adapting their pursuit of national policy preferences. These dynamics should show particularly when observing how actors comply with and use the substantive and procedural rules (intervening variable one in Figure 2.3) and to a lesser degree when they seek to benefit from information gains and learning through the participation in committees and peer review process, that is dynamics covered by intervening variable two. Historical institutionalism focuses on the path-dependency of political choices, which are conditioned by pre-existing choices embodied in institutions and cannot be fully controlled by the actors concerned. ‘Individuals may choose their institutions, but they do not choose them under circumstances of their own making, and their choices in turn influence the rules within which their successors choose’ (Putnam 1993: 8). Formal and informal rules, norms and ideas shape not only what actors choose as the optimal strategy to pursue their interests, but also the perception of their interests, going beyond the rationality assumption of the first strand of institutionalist thought. The concept of pathdependency theory (Hall and Taylor 1996; Pierson 1996, 2000) suggests that ‘past lines of policy [will] condition subsequent policy by encouraging societal forces to organise along some lines rather than others, to adapt particular

Research Design and Theoretical Expectations 21 Antecedent Variable: Emergence: Political motivations, interests and policy preferences

Independent Variable: Provisions of ‘legal constitution’ as common framework of analysis Intervening Variable 1: Compliance with, use of, and adaptation to Treaty provisions by political actors on EU, national and sub-national level Intervening Variable 2: Interactions between governmental and supranational actors as well as the interaction of the latter two with intermediary groups on EU, national and sub-national level

Fiscal Policy Co-ordination (art. 104 TEC and SGP)

Employment Policy Co-ordination (art. 128-129 TEC) Economic Policy Co-ordination (art. 99 TEC)

Intervening Variable 3: Adaptation of Public Discourses and Public Opinion across governing levels Impact of Economic Change: European economic cycles and international developments

Dependent variable: creation, evolution, and/or transformation of multilevel governance Hollow Co-ordination

Loose Co-ordination

Tight Network Governance

Supranational Government

Global Perspective (across governing level and policy fields) Fragmentation

Figure 2.3:

Fusion

From legal provisions to living practice: the chain of argument

identities or to develop interests in policies that are costly to shift’ (Hall and Taylor 1996: 941). Our enquiry will therefore be sensitive to changes over time and the path-shaping influence of precedent-setting events of high conflict over the dominant interpretation of the legal rules. This insight cuts across all three of our intervening variables, but will be most relevant for the contestation of rule following, that is our intervening variable one. The third strand of neo-institutionalist thought, sociological institutionalism (Olsen 2000; Checkel 1997, Christiansen 1997), widens the notion of institutions substantially, to include ideas, norms, symbols and values, essentially the whole range of informal cultural forces (Kohler-Koch 1996: 215). Sociological institutionalists dismiss as reductionist and ahistoric the premises of rational choice theorists who seek to explain outcomes solely on the basis of interactions between preferences of rationalist, utility-maximising actors. They do not deny the value of a focus on interests and preferences, but they argue that most actors’ rationality is socially bounded, that their choices are pre-structured by pre-existing ideas, norms and beliefs about what is legitimate, appropriate or true given a particular conception of identity. Olsen (2000) has thus contrasted a ‘logic of consequentiality’ with a ‘logic of appropriateness’, which is acquired through complex socialisation and learning processes, some of which may involve European institutions (Börzel and Risse 2000: 8). One key question in the context of our enquiry is thus how the new ideas, norms and values emanating from the actors and institutions of the

22 Economic Government of the EU

European Union are being appropriated by national actors and diffused to national discourses and identities. While this is also potentially a cross-cutting account, we should expect to witness these dynamics most strongly when studying the emergence of governing networks and the adaptation of discourses (our intervening variables two and three). Which factors may shape the evolution of policy co-ordination modes? Elaborating the intervening variables Intervening variable 1: compliance with and use of the Treaty provisions and secondary legislation The first, and in many respects key intervening variable looks at how different political actors at European and national levels of governance have followed, made use of and expanded the legal provisions for policy co-ordination. The Treaty articles and secondary legislation generated in the source of their application do not ‘dictate’ certain sets of behaviour, policies, instruments and rules. However, roles and functions of institutions, procedures and sanctions as set down in primary and secondary law do matter, insofar as they provide opportunities and constraints for several groups of collective actors, most notably member state governments. Constraints include sanctions mechanisms such as fines under the SGP, as well as naming and shaming under all three governing modes. Opportunities are gains in knowledge and ultimately performance through peer review and benchmarking, improved access and voice for certain kinds of actors and new means to deal collectively with unexpected problems, as well as the benefits from the preservation of collective goods. We do not expect convergent rule-following and use (or patterns) given that political actors are not only influenced by the new EU constraints and offers, but also by the influence of pre-existing national institutions, both formal and informal, which can shape their cost-benefit analysis of how to pursue their self-interest, their perception of what is appropriate and possible and their perception of what is legitimate (Olsen 2001a: 9). These institutions may differ, of course, among types of collective actors, as well as within these types across national contexts. However, before we can understand the reasons for actors’ behaviour we need to study in detail how they followed and used the rules, and whether we have seen an expansion of their scope and depth. Drawing on the terminology of Europeanisation literature (Radaelli 2003: 38; also Chapter 6), the degree to which national political systems adapt can be classified as retrenchment (increasing the misfits between national and European arrangements), inertia (no response), absorption (minimal adaptation to fulfil objectives), upgrading (moderate change, some novel elements) and transformation (far-reaching changes in national arrangements, also overcompliance). This broad question will be addressed by Meyer and Umbach in their chapter on the Europeanisation of national systems of economic governance and in

Research Design and Theoretical Expectations 23

Le Cacheux’s contribution to understanding compliance problems with the Stability and Growth Pact. More specifically, the empirical research has been structured around three main questions. First, the degree to which political actors at various levels have followed and expanded the procedural and institutional provisions of policy co-ordination. Did the actors follow the timetable, submit accurate information or National Action Plans on time and did they submit themselves to peer review and multilateral surveillance? To what extent did national actors adapt their internal co-ordination and consultation procedures and the institutions in charge of them in order to respond to the new requirements? Did EU institutions and bodies, most notably the EU Commission and the key policy committees (EFC and EMCO), seek to intensify the use of the existing procedures and institutions or make them harder by linkages to the first pillar (for example by linking the EES to programming under the European Social Fund)? Has the European Council set up new institutions and procedures? Second, the degree to which political actors at different levels of governance have followed and expanded the scope of soft law emanating from policy co-ordination by adapting socio-economic policies. Has the scope of EU policy co-ordination expanded to include new policy areas, either through hard or soft policy co-ordination (including the extended scope of OMC)? To what degree have policies and associated institutions changed as a result of commitments and recommendations of self-co-ordination, for instance the setting up of national stability pacts to control sub-national spending? Or have member states paid only lip service to the guidelines articulated at the European level? We are also looking for instances of overcompliance as national executives may have adapted policies and institutional frameworks more forcefully than asked for or recommended, perhaps because political costs of such compliance could be externalised to supranational institutions and processes. Third, we are interested in whether the rules have led to differential empowerment of institutions, political actors and socio-economic interests in the economic governance processes at the European, national and regional level. We are interested in whether the new and existing institutions and committees for decision-making and deliberation such as the EMCO and the EFC have gained in importance and leverage in policy-making. Has the EU Commission managed to upgrade its role vis-à-vis the Council by using its powers of monitoring member states’ rule-following and of proposing recommendations to individual countries? At the national level, we are interested in investigating whether the relationship between national ministries has been altered through the existence of policy co-ordination mechanisms, e.g. have finance ministers been strengthened or did employment ministries gain in influence through their European involvement? The existence of EU co-ordination processes may also have empowered governments against their national parliaments.

24 Economic Government of the EU

Intervening variable 2: impact on interactions between supranational, governmental and non-governmental actors The second variable refers to the impact of the provisions on the extent and nature of the interactions between governmental and non-governmental actors across and within different levels of European governance. Treaty provisions as well as the European Council conclusions of Luxembourg (1997), Cardiff (1998), Cologne (1999) and Lisbon (2000) have stressed the wish to include interest groups, social partners and other NGOs to achieve a broad understanding of policies via deliberations on the EU level. Moreover, in so far as the policy co-ordination process is perceived as important (depending on intervening variable 1), the provisions may have influenced the interest perception of intermediary groups and, in turn, their strategies of projecting these interests. In addition to this rationalist account of change in interactions, policy co-ordination provisions also aim to change informal institutions. Especially, soft co-ordination relies on ‘discursive regulatory mechanisms’ (Jacobsson 2002: 9) geared towards the creation of knowledge and meaning through communication, signalling a dominance of argument over bargaining (Risse 2002). It is against this background that scholars have seen potential for deliberative governance through OMCs (Eberlein and Kerwer 2002; Trubek and Mosher 2003). Finally, the evolution of networks may have come about as a functionally efficient response to the interdependence of the issue areas covered by policy co-ordination provisions, for instance between job creation and fiscal consolidation. Hence, the legal provisions may have stimulated – some more and some less, some directly, others indirectly – the creation or the reinforcement of informal or quasi-formalised networks of public and private actors (Streeck and Schmitter 1991; Héritier 1993: 432–50; Lehmbruch and Schmitter 1983), a form of deliberative supranationalism (Eriksen and Fossum 2000). Jacobsson and Vifell address these dynamics in the chapters on the functioning of committees in policy co-ordination and the involvement of non-governmental actors in the EES, while Linsenmann looks at the following three groups of questions with respect to the Broad Economic Policy Guidelines, that is the co-ordination of co-ordination processes. First, to what extent did the new provisions impact on the nature of the interactions between national and supranational actors within committees and other formal and informal peer review and decision-making fora? Have these interactions been more characterised by bargaining or deliberation as these actors took part in problem-solving processes and were subject to socialisation effects? Do we see the emergence of epistemic communities or advocacy coalitions, which share a common professional background and a commitment to the enterprise of making European policy co-ordination work? Under what circumstances, on what kind of issues and at what stage of the co-ordination process could one expect deliberation to take place rather than bargaining and how does this influence the likelihood of compliance?

Research Design and Theoretical Expectations 25

Second, have the new provisions substantially encouraged the involvement of non-governmental actors in the co-ordination cycles at the national and the European level? What kind of non-state actors (e.g. social partners, private companies and non-corporatist NGOs) were most active and were given access? Do we witness strong or weak players promoting clearly defined interests primarily in the national capital or only in Brussels? Or do we observe, on the other hand, intermediary groups as multilevel players, which are able to perform at both levels using efficiently the offers in the ‘Brussels’ as well as the national arena? Which intermediary actors are particularly active (push-factor) and which are being actively drawn by governmental and supranational actors (pull-factor)? Third, do we see an intensification of interactions and co-ordination attempts across policy areas at the same level of governance as well as across levels of governance? This question is particularly relevant for understanding the extent to which vertical and horizontal network-building is occurring among administrations. In this respect, we need to understand which parts of the national administrations have been actively involved in policy co-ordination and how they have integrated with the higher political echelons on national policy-making. Finally, we will also explore the role the committees play in knitting together different layers and participants of the policy co-ordination processes. Intervening variable 3: impact on public debates within and across member states The third variable draws primarily on sociological institutionalist thinking to explore the contribution of public discourses to political change, in particular how political actors alter perceptions of their interests, how new institutional paths are being established and how new cultural rules are being created (Rosamond and Hay 2002; Schmidt 2001, 2002). Policy co-ordination, on the one hand, relies on mechanisms of peer review and learning to support the process of voluntary deliberation and adaptation. Conversely, increasing public attention to the process and the results of self-co-ordination, leading to a Europeanisation of public debates (cf. Chapter 10 by Meyer and Kunstein) on these policy issues, may impact on the cost-benefit analysis of governments. We may also ask to what extent has policy co-ordination and peer review translated into public pressure and ideational change in member states to support compliance with EU soft law? How have the media portrayed criticism and ideas emerging from EU institutions and other governments? Have, for instance, the European Commission, the Ecofin Council or prime ministers from other countries counted as authoritative and legitimate voices in domestic discourses when they have criticised national governments’ performance or adopted and publicised early warnings, reprimands and recommendations? We also ask whether ideas and messages emanating from policy co-ordination have been diffused from the European to the

26 Economic Government of the EU

national level and debated. If they have, to what extent could we identify ideational change over time? Finally, we are interested in the contribution of soft governance to the increasing synchronisation and Europeanisation of national public spheres. Could we be witnessing the emergence of a European and/or cross-national discourse on issues of socio-economic governance? To what extent did discursive linkage-building between functionally interdependent issues areas and national arenas of political action take place? For instance, have European recommendations and guidelines for labour market reform become part of the discussion over the Stability and Growth Pact or the Broad Economic Policy Guidelines? Fusion or fragmentation of EU economic governance? Outlining developmental scenarios for the dependent variable We pursue a global approach to identify the combined effects of the intervening variables, thus turning away from a disaggregated micro-approach of observing two distinct sets of treaty provisions separately as parallel coevolutions. The primary expectation underlying the research design set out in Table 2.1 is that rule-following, adaptation processes, emerging networks for problem-solving of institutional and intermediary actors and their impact on publicised discourses will not be disjointed. The findings of the distinct research areas will thus be revisited to analyse convergence trends and (new) forms of co-ordination efforts among policy areas, which would themselves indicate the creation of new and distinct modes of co-ordination. The dependent variable is thus a moving target, which needs to be observed during a sufficiently long period of establishing the ‘living constitution’ (1997–2004). We have used in Figure 2.3 the terms ‘fusion’ versus ‘fragmentation’ as two possible ends of the spectrum of potential outcomes for our dependent variable. We should emphasise that these terms are not limited to the causal dynamics of any particular integration theory, including theories of administrative fusion advanced by Wessels (1997). Instead we have used these generic terms in order to capture different potential developmental paths of European economic governance depending on the values of the intervening variables. In Figure 2.4 we have provided an overview of four ideal-type outcomes for the evolution of European economic policy co-ordination – hollow co-ordination, loose co-ordination, tight network governance and supranational government – that we might see at the end of our observation period Hollow co-ordination describes a scenario in which the rules for policy co-ordination become dead letters, at best symbolically followed, at worst openly contested. Substantive policy recommendations will be ignored when formulating national responses to economic policy challenges. The committees at the EU level might be initially heavily polarised as bargaining between the actors dominates, and over time increasingly hollowed out as national administrations send only lower rank civil servants and ignore outcomes of

Research Design and Theoretical Expectations 27

Employment policy co-ordination

Fusion of instruments and policy areas

European level of governance

Vertical fusion of governing levels

National level of governance

Figure 2.4:

Fiscal policy co-ordination

Isolated economic government

Isolated co-ordination

Potential kinds of governance

Supranational government

Tight network governance

Horizontal and vertical fusion of policy areas, levels & instruments

Vertical fusion of governing levels

Cross-policy field co-ordination

Isolated economic government

Loose co-ordination

Hollow co-ordination

Fusion trends and potential outcomes

discussions. The scope of policy-making will diminish over time. Governing networks remain nationally bounded, do not freely share information about their intentions and situation nor do they co-ordinate their approaches, thereby diminishing gains from learning and raising the risks to collective goods (e.g. a stable common currency). Non-governmental interest groups limit their strategies exclusively to the national level, because they do not see the EU sphere as having much influence. Public discourses will be thoroughly nationalised through the symbolic exclusion of European and the foreign voices. We will see examples of ‘blaming Brussels’ and questioning the legitimacy of its ‘interfering’ in national economic affairs. The different governing modes will function largely in isolation from each other and co-ordination procedures will fail to make an impact. This scenario amounts to an informal step back to the status quo ante, that is the situation before the coming into force of the legal provisions of Amsterdam, even if there is no consensus on abolishing or watering down the rules in formal legal terms. Loose co-ordination means that participants follow largely opportunistic strategies and comply when the benefits are obvious and the costs negligible. We will see compliance mostly in the letter, but not in the spirit. Patterns of

28 Economic Government of the EU

co-operation can thus fluctuate substantially across issue areas and time as political actors use the rules in a relatively opportunistic fashion. Although the procedural rules are generally used/followed, we would expect to see little intensification of their use or institutional innovation at the European level. While the responsible committees fulfil their work, we will see a mixture of bargaining and arguing, with the former dominating whenever strong national preferences for the status quo exist. At the national level, European requirements and recommendations will lead to absorption strategies, namely minimum adaptation as only small and relatively minor parts of national administrations will be affected by and involved in policy coordination. Similarly, we will see at best only a moderate rise in interest group involvement in the new procedures and national public discourses will open up very little to other European voices and not engage in transnational debates on economic governance. Naming and shaming strategies will remain largely ineffective for making recalcitrant governments comply with recommendations and we will find only relatively minor instances of learning and ideational change. The scope and depth of primary and secondary law governing policy co-ordination will not change in a significant way. Tight network governance can be seen as an informally upgraded status quo ante scenario, where the EU level institutions, procedures and goals of economic governance enjoy strong support, where participants are ready to accept costs for reaching common goals, and where political actors are adhering to and extending ‘the spirit of policy co-ordination’ as articulated in European Council conclusions. The commitments and recommendations are followed not only if in line with actors’ predetermined preferences, but rather actors are open to change their interest perceptions as a result of intense interaction processes and deliberations with their peers and other actors. Public discourses about policy co-ordination will intensify nationally, raising the effectiveness of ‘naming and shaming’ mechanisms and a degree of public accountability. Policy co-ordination will not be moved up the integration ladder with regard to the level of member state commitments, but we would expect its informal extension to new policy fields, not least because the actors involved acknowledge the usefulness of this approach. There may be also some tightening in the secondary law governing policy co-ordination, in particular with regard to the functioning of the Euro group. Tight network governance might also be viewed as the fulfilment of some of the demands usually associated with the French calls for the establishment of a gouvernement économique (Commissariat Général du Plan 1999; Boyer and Dehove 2001; Jospin 2001; Verdun 2003; Howarth 2005), although the actors of this evolving ‘core network’ would encompass not only national governmental actors but also European institutions such as the Commission and the ECB and European social partners via the macroeconomic dialogue (Figure 2.5). National actors will try to increase their efforts to get access and ‘voice options’ (Hirschman 1970) in those decision-making processes that have repercussions

Research Design and Theoretical Expectations 29

European Council

The core network EFC European Commission

EPC

- DG ECFIN

Employment Committee

- DG EMPLOI Macroeconomic dialogue

Euro group Council of the EU - ECOFIN - Employment and Social Policy

European Parliament European Central Bank Intermediary groups

Figure 2.5:

The ‘core network’ of EMU on the European level

on their own domestic policy cycles. They will also try to influence policymaking processes, if possible, in those cases where treaty provisions do not formally provide for direct points of access (Louis 2000, 2001). Finally, one can envisage a transformation scenario towards a supranational economic government, in which member states, EU institutions, interest groups and public discourses have been socialised in such a way as to support further transfers in competences to the supranational level. In this scenario, the practice of policy co-ordination will have led to deliberative problem-solving rather than instrumental bargaining at the European level, real learning, overcompliance, active involvement and gradual identity change at the national level, not least through a Europeanisation of public discourses. This will increase the level of mutual trust among the key political actors and publics to a degree that allows for a deepening of the national commitments, a saut qualitatif towards the next stage, a supranational EU economic government. The gradual emergence of a ‘Grand Débat Européen’ across national public spheres on issues of economic governance would help to bring about a convergence of economic philosophies and policy strategies, based on the ‘shared commitment to the common enterprise’, that is the common monetary and fiscal policy paradigm (cf. Dyson and Featherstone 1999: 774–82). Such a process may be supported or driven by real or perceived changes in the economic policy environment of member states, which will help to convince them that joint problem-solving is the most efficient response to economic adversity, the threat of regulatory races to the bottom or global competitive challenges.

30 Economic Government of the EU

At the national level, actors will carefully adjust and fine-tune the different processes inside the appropriate institutions by consensus and fit national policy cycles to the European timetable. In this case, adaptation processes at the national level will lead to higher convergence of national policy formulation and policy-making and further orientate national policies to European constraints. As a consequence, horizontal interaction and participation patterns on the domestic and European levels will be fostered. The rules for policy co-ordination will become specific, deliberations will be institutionalised and resources and policy instruments will be pooled to the extent that hard law is produced through qualified majority voting. The case for deeper integration of economic governance: six theoretical expectations At the outset of our studies we asked ourselves the question: which of the above four outcomes for the evolution of economic government is the most probable? In order to formulate subsequent theoretical expectations we needed to go beyond the neo-institutionalist framework, which has informed our research design and the intervening variables in particular. While it is true that new institutionalist assumptions pervade established theories of regional integration (cf. Aspinwall and Schneider 2000),2 this does not mean that traditional integration theory is superfluous. New institutionalism cannot by itself – and, by and large, does not attempt to – answer the broader question of whether and under what conditions further treaty reforms are likely to occur and thus does not provide a theory of integration (cf. Pollack 2004: 151, 154). In the context of European Union studies, they are under-specified in their assumptions about which actors and dynamics matter most, for instance regarding the idiosyncratic role of supranational institutions. Classical integration theory can offer a more elaborate set of causal mechanisms and hypotheses, which can help to better explain and predict the trajectories of these soft governing modes. What do these theories lead us to expect of the future evolution of economic governance within the fragmentation/fusion spectrum? When would we expect a hardening of governing modes and/or their extension to new policy fields through changes to primary EU law? The three most influential bodies of integration theory are liberal intergovernmentalism (Moravcsik 1993, 1998), functionalism and related theoretical approaches (Haas 1958; Lindberg and Scheingold 1970; Schmitter 2003), and socialisation theory as a constructivist approach (Hooghe 1998; Checkel 1998; Risse 2000). In addition, we have hybrid approaches, which weave insights from these three theories into a new coherent whole, such as the fusion thesis of Wessels (1997). Each of these approaches emphasises different causal mechanisms to explain transfers of authority and/or legitimacy from the national to the supranational level and will be used to inform the follow six expectations on the evolution and transformation of EU economic governance. If these causal dynamics can be shown to be operating, we

Research Design and Theoretical Expectations 31

would expect intermediate-to-strong integration trends in economic policymaking, including changes to its legal constitution. 1. Supranational institutions will use their unique position within the institutional set-up to extend the scope of new policy co-ordination procedures, make them informally more binding, and lobby for transforming them into instruments of supranational law-making. According to conceptions of supranational agency (Sandholtz and Stone Sweet 1998) and cultivated spill-over (Lindberg and Scheingold 1970), central institutions will exploit gaps in member state control, their superior expertise, and right of initiative to shape outcomes and extend the reach of supranational law. The legal provisions of political co-ordination provide not only for qualified majority voting in the Council for non-legislative guidelines and recommendations, but give the European Commission new monitoring and proposing powers in those two policy fields as well. The expectation is that the Commission will use these powers to advance informally the scope and depth of policy co-ordination goals. It would also seek to introduce Community instruments through the back door by, for instance, giving the EES more teeth and incentives through linking it strategically to the allocation of subsidies through the European Social Fund. This informal hardening of soft policy co-ordination might then result in growing chances of success for bringing the EES into the realm of the Community method. In the area of fiscal policy, we would expect the Commission (and Parliament) to lobby successfully for new and stricter rules constituting stronger forms of European economic governance to support the Lisbon agenda and underpin monetary union. By criticising accountability and democracy deficits, the European Parliament would gradually build up support to go beyond the ex ante consultation and ex post information rights granted by policy co-ordination. This would require a change in the legal provisions on policy-co-ordination and could open the door for an extended and formalised role for central institutions and a greater reliance on hard law, rather than on soft guidelines and reports. 2. The institution of new European level committees and iterative procedures for monitoring, reporting and peer review across levels of governance will diminish the ability of national governments and administration to act as gatekeepers of the national interest and thus ease the way to further integration. Wessels’ fusion thesis holds that the highly bureaucratised process of European governance draws in ever more parts of national and regional administrations and leads gradually to bureaucratic interpenetration or administrative fusion (Wessels 1997). Formerly purely national administrations are opened up to European procedures, ideas and incentives, becoming increasingly enmeshed in the system of European multilevel governance. As accountability becomes blurred and bureaucratic interdependencies

32 Economic Government of the EU

increase across levels of governance, the different actors in economic policymaking grow together into a core network of economic governance, involving the Euro Group, the Ecofin and Employment Councils, the Commission, and the various committees (Wessels and Linsenmann 2002). The actors will informally pool their respective instruments (Wessels 2000: 122–37), even in those cases where legal provisions foresee procedures and instruments formally allocated to specific institutions; and therefore establish a co-ordinated policy mix with regard to the formal and informal co-ordination of macroeconomic policies. The differences between the modes of governance, to the extent that these are fixed in the legal constitution, will become less relevant in the real world. This network will be extended to and underpinned by a Europeanisation of interest group activity along the lines suggested by the neo-functionalist notion of political spill-over (Haas 1958). Interest groups will increasingly realise the shift in problem-solving activity, use the new opportunities for influence, and, as they benefit from these new opportunities, eventually lobby for a further communitarisation of the respective policy fields. This would provide supranational institutions with more leeway to influence choices and developmental paths for the Union as a whole and could thus explain the gradual emergence of the ideal-type of tight network governance in economic policy-making. 3. Unintended negative consequences arising from previously taken decisions to communitarise a given policy area will prompt member states to go beyond their initially loose commitment to policy co-ordination and move towards a hard law approach or decide to expand its scope to exclusively national policy areas. From the perspective of Haas’ (1958) notion of functional spill-over, the theoretical expectation is that the transfer of one policy area to the European level (here fiscal and employment policy) will create imbalances in another area, which will force the extension of the scope of the European approach in order to realise the original objective or deal with unexpected negative side-effects. Especially in dense, functionally interdependent issue areas, unexpected effects will induce national political actors to delegate more power to central institutions, because of the tensions arising from the functional interdependence of economic sectors covered by one set of instruments. One can expect a further communitarisation of fiscal policy co-ordination as a result of failures to guarantee sustainable public debts under the current decision-making rules, which provide the Council with considerable discretion on whether to approve a Commission proposal (see also the chapter by Le Cacheux in this volume). Furthermore, a hard law approach to employment policy may be supported by member states in order to prevent the unintended consequence of a regulatory race to the bottom in an environment where governments have given up fiscal room for manoeuvre to the Stability Pact, as well as the leverage previously given them by interest rates and currency devaluations.

Research Design and Theoretical Expectations 33

Authors have thus emphasised the alleged ‘asymmetries’ between a highly centralised monetary policy-making authority with the European Central Bank and decentralised but functionally connected national policies (Verdun 2003; Collignon 2003b). The key outcome of these unintended effects and functional asymmetries would be to ‘go all the way’ by creating the legal conditions for more powerful incentives and harder legal constraints for supranational forms of economic governance. 4. The setting up of new committees and procedures for deliberation, information exchange and peer review will promote the transcendence of national instructions through joint deliberation and gradually socialise a growing number of governmental and non-governmental participants into transnational policy communities with a shared commitment to European problem-solving. Building on neo-functionalist accounts of actor socialisation (Lindberg and Scheingold 1970) and engrenage (Taylor 1983: 9), constructivists have highlighted the potential of institutions and committees to bring about an ‘esprit de corps’, a group identity underpinned by a shared commitment to a common cause (Lewis 1998; Joerges and Neyer 1997b; Joerges 2000; Trondal and Veggeland 2000; Hooghe 1998; Checkel 1998), within a ‘framework of shared experience and assumptions’ (W. Wallace 2000: 532–3). Research has shown that the potential for arguing and joint problem-solving is high, if participants share a sufficiently similar personal and professional background, meet frequently, are based in Brussels, and deal with technical issues where the political uncertainty over preferred solutions is high. High civil servants may transcend national instructions from home, as studies of the Committee of Permanent Representatives (COREPER) have shown (Lewis 1998). Employment policy co-ordination appears to be particularly conducive to such a problem-solving approach because it is a new policy area being dealt with at the European level and in which the emphasis is on learning and information exchange, rather than on producing hard law and binding decisions, which might be politically or financially costly. In the run-up to EMU, the Economic and Finance Committee demonstrated its ability to foster a consensus among difficult conditions, push through costly policies and alter unrealisable national instructions. The Euro Group could in the same way develop into a forum for deliberation because of its small size and its informal character, which shields it from publicity. Moreover, the new forms of multilevel co-ordination can be expected not only to affect administrative elites, but also to draw in different types of non-governmental actors in so far as they participate in these processes. The outcome of this type of dynamics would be largely at the sub-Treaty level, creating ever tighter and closer forms of network governance in the economic domain. 5. The provisions for transparency of peer review, benchmarking and naming and shaming will induce a Europeanisation of public debates and will thereby

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gradually increase public support for European solutions in these policy areas, combined with calls for greater democratic participation. Peer review is one of the key elements of policy co-ordination. It operates not only behind closed doors, but the legal provisions also provide for the publication of reprimands, early warnings, rankings and recommendations addressed to individual member states. The expectation is that the public side of these ‘discoursive regulatory mechanisms’ (Jacobsson 2002) will induce not only policy learning and compliance, but should also contribute in a gradual way to a Europeanisation of public discourses and thereby also a Europeanisation of national identities (Checkel 2000). Constructivists argue that socialisation effects of regional integration are not limited to the directly involved actors in committees and institutions, but can also reach down to the level of societies and discourses. The acknowledgement of a greater European interest and the ability to debate key economic issues within as well as across national public spheres – a kind of ‘Grand Débat Européen’ – appear as preconditions for a qualitative shift towards a fully fledged supranational economic government. In so far as Europeanisation trends would be limited to the Brussels public space, they would support the ideal-type of ‘tight network governance’. 6. Economic crises unrelated to the creation of European competences, arising from intensifying global competition or fluctuations in the business cycle will prompt member states to look to the European level for solutions. Liberal intergovernmentalist thinkers such as Andrew Moravcsik (1993, 1998) have argued that deepening of economic integration can be explained as the rational response of member states seeking to realise economic gains in the face of exogenous economic change or adversity. Under conditions of economic recession and a heightened threat to the European welfare state, member state governments will be more easily convinced that deepening their commitments will improve the economic climate and conditions under which their economies have to operate. This assumes that member states are affected in a similar way by changes in economic conditions. Under relatively similar conditions of economic adversity, member states can be expected to deepen and widen their commitments and aspirations to co-ordinate their economic policies, for instance by trying to support a European approach to wage bargaining or by strengthening some kind of ex-ante co-ordination within the Euro Group with the consent of the European Central Bank in order to achieve a more growth-oriented policy mix for the Euro zone. Among the factors which may cause a deterioration of the economic policy environment for the Euro zone members, are intensifying global competition, stark increases in the cost of energy, and global business cycles. Economic crises of a sufficient magnitude that individual member states cannot manage them on their own, could thus lead to a tighter form of economic policy co-ordination as well as to eventual Treaty changes to allow for more effective action through central institutions.

Research Design and Theoretical Expectations 35

On balance, these theoretical expectations suggested to us that economic governance during our observation period 1997–2003 would initially evolve in the direction of tight network governance, but that significant pressures would build up towards Treaty changes paving the way for a more supranational economic government. The likelihood of Treaty changes would depend in particular on whether the theoretical expectations on cultivated spill-over, functional spill-over and unintended consequences and pressures arising from a changing economic environment were borne out in reality. Conversely, if all or some of the above theoretical expectations were not met, economic policy co-ordination would become vulnerable to national strategies of opportunistic use, rule-evasion and open contestation, which would be formulated on the basis of national cost-benefit considerations disconnected from European or transnational discussions of the public good. In that case, the ideal-type scenarios ‘hollow co-ordination’ or ‘loose co-ordination’, would best describe the evolution of these particular modes of governance.

Conclusion In this chapter we have argued that different neo-institutionalist approaches can be usefully combined to understand how new modes of policy co-ordination will evolve and we have outlined two macro-scenarios of fusion and fragmentation as a heuristic device for studying how policy co-ordination modes could in principle develop. This inductive research design is complemented and steered by six sets of theoretical expectations derived from integration approaches about their evolution. Our overall expectation has been that the evolution of the different policy co-ordination modes will not be disjointed, but could turn into a stepping-stone towards a more closely integrated, effective and legitimate EU economic government. We have elaborated how we seek to probe these expectations by adopting a classic research design, with the legal provisions governing policy co-ordination as our independent variables – the ‘legal constitution’ of policy-making – and an empirical focus on a number of intervening variables, which will help to explain the dependent outcome. The dependent variable is the kind of economic governance, which may come about through a combination of institutional, procedural, behavioural and ideational changes at multiple levels of policy-making and opinion formation. We have also distinguished different possible outcomes on the basis of four types of policy co-ordination, each with different implications for the emergence of a EU economic government. In the following chapters we will empirically analyse the intervening variables and probe our theoretical expectations. Our approach will combine a vertical focus on the functioning of the three modes of policy co-ordination with an enquiry into the different thematic dimensions of change and evolution. Le Cacheux has explored in particular intervening variable 1 of our research design to show how the rules of the Stability and Growth Pact have

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been followed over time, with a particular focus on the question of how credible the pact and its sanctions were. Jacobsson and Vifell have looked at the functioning of the European Employment Strategy, in particular its ability to draw in new types of actors and improve co-ordination across levels of governance. Linsenmann’s chapter finally traces the evolution and real use of the Broad Economic Policy Guidelines as the central instrument for the co-ordination of the individual co-ordination processes. All of these vertical chapters are informed by the studies of national use and adaptation conduced by national rapporteurs over a period of two years in ten EU member states (cf. GOVECOR 2004). Given the richness of the empirical material, the findings of this exercise have been summarised, compared and analysed in a separate chapter by Meyer and Umbach on the degree to which national economic policy-making processes and structures have been Europeanised in response to the new legal provisions. Hartwig’s chapter deals with two of our theoretical expectations directly (see 1 and 3 above), namely the degree to which we can observe cultivated and functional spill-over phenomena from hard to soft policy instruments in the form of strategic and functional linkages between the European Social Fund and the European Employment Strategy. The intervening variables 2 and 3 are studied and socialisation theories tested in the second chapter by Vifell and Jacobsson, which focuses on the working of the co-ordination committees, and in the chapter by Meyer and Kunstein, which analyses the adaptation of public discourses. The findings of the different chapters are then synthesised, evaluated and used for further theorising in the concluding chapter. Meyer, Linsenmann and Wessels will return to the research design, the expectations and our findings, and answer the question of what we have learned. Finally, they will attempt a glance through the looking glass in order to theorise about the future evolution of economic governance in the light of the Constitutional Treaty drafted by the European Constitutional Convention and agreed by the European Council, but whose fate remains uncertain at the time of writing.

Notes 1. This chapter builds on and develops further previous versions of the research design of the GOVECOR project (Hartwig et al. 2002; Linsenmann and Wessels 2002; Hartwig and Meyer 2002). 2. Liberal intergovernmentalist approaches (Moravcsik 1993, 1998) are in line with rational choice institutionalism in so far as they acknowledge the influence of supranational institutions and decision-making rules on structuring bargaining processes and limiting the choices of national leaders. Neo-functionalism (Haas 1958; Lindberg 1963) provided the foundations for historical institutionalism, while its notion of political and cultivated spill-over is similar to basic assumptions of sociological institutionalism.

3 To Co-ordinate or Not to Co-ordinate: an Economist’s Perspective on the Rationale for Fiscal Policy Co-ordination in the Euro Zone1 Jacques Le Cacheux

Introduction As the economic slowdown which had hit the Euro zone in 2001 was becoming a period of protracted low growth, tensions in the European Union (EU) concerning both the implementation of the Stability and Growth Pact (SGP) and, more generally, the future of EU institutions, became more apparent. First came the decision of the ECOFIN council, in November 2003, to waive the sanctions recommended by the Commission against France and Germany. Then came the failure of the Brussels summit of December 2003 to agree on the future Constitutional Treaty. Finally, there was the decision of the Commission to take the ECOFIN council to court for not respecting the letter of the treaties with regard to fiscal policy rules in the Euro zone.2 Coming after several years of skirmishes between the Commission and a number of governments from fiscally ‘virtuous’ countries on the one hand, and on the other the governments of a small number of countries, mostly large ones, who were finding it difficult, if not impossible, to meet the stringent requirements of the SGP as laid down in the Treaty and the two regulations, and as interpreted by the Commission, these episodes point to a number of difficulties and misunderstandings concerning the purpose and precise design of fiscal policy rules in a monetary union with decentralised fiscal authorities. Such an institutional setting is not without precedents, as illustrated in many existing federations; but the situation of the Euro zone is made singular by the absence of a central budget of a significant size, the weakness of co-ordination mechanisms, and by the relative lack of political legitimacy of the European central bodies – Commission and Council, on the one hand, Euro Group, on the other – at least compared to the national governments and parliaments. 37

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Controversies over the SGP and the more general issue of economic governance of the Euro zone have gathered momentum at a time when macroeconomic performance of the Euro zone was widely seen as poor, compared to the rest of the world. For the third year in a row, the average growth rate of the Euro zone was close to zero in 2003, with unemployment reaching very high rates in all major countries; and the forecasted recovery is likely to be slow and weak, dampened by the external appreciation of the euro and the oil price hike. In this gloomy context, a number of reports and studies, including the Sapir Report (Sapir et al. 2004) and the Kok Report (Kok et al. 2004), have agreed in concluding that Europe’s economic performance over the past two decades and the prospects for coming years are highly unsatisfactory. One of the possible sources of malfunctioning is the institutional setting in which macroeconomic policies are elaborated and implemented at European level, in particular the lack of co-ordination of fiscal policies and the tendency for national governments to act independently of partners or even to free-ride. The Constitutional Treaty approved by the Brussels Council on 18 June 2004, does include several articles on economic policy co-ordination; but except in so far as it allows for future progress to be made, through the ‘flexibility clause’ (art. I-17) and ‘enhanced co-operation’, the new Treaty mostly ‘cuts and pastes’ existing dispositions and, when it comes to Euro zone members, seems to restrict this ambition to strengthening ‘co-ordination of budgetary discipline’ (art. III-88). And although the SGP was eventually reformed in March 2005 (see Chapter 5), the reformed rule contains no provision that can be seen as improving fiscal policy co-ordination. This chapter provides an economist’s perspective on the dynamics influencing the evolution of European economic governance and the appropriate design of governing arrangements to deal with these dynamics. It tries to clarify the economic rationale for fiscal – and to some extent other – policy co-ordination in a monetary union and to shed light on the sources of current difficulties with the implementation of rules in the field of fiscal policy in the Euro zone. In the first section, we survey the major arguments for policy co-ordination, in particular relating to the notion of spill-over, and discuss the possible objectives of co-ordination, as well as the major devices to co-ordinate fiscal policies. The second section analyses the constraints and incentives that arise from these various tools of policy co-ordination, in order to understand better the choices facing national governments in such settings. In the next section we go on to emphasise one important source of difficulties in the current EU configuration, namely the heterogeneity of national macroeconomic performances, and review some possible sources of this heterogeneity. In the fourth section, we stress that country size is probably a relevant dimension to consider when analysing the incentives facing national governments in a monetary union. Finally, we offer some tentative conclusions about the design of rules and institutions for a better macroeconomic policy mix in the Euro zone.

The Rationale for Fiscal Policy Co-ordination in the Euro Zone 39

Economic interdependencies and the rationale for co-ordination What emerges from the abundant economic literature on policy co-ordination is the generic idea that the need for co-ordination arises in contexts characterised by interdependencies, due either to collective goods or to externalities.3 In such contexts, decentralised decision-making in the absence of co-ordination devices will lead to sub-optimal, non-cooperative Nash equilibria, because each player in the game will act without taking due account of the induced consequences of her actions on the partners’, that is because of the failure by each player to ‘internalise’ properly the external effects of her decisions. In a monetary union with decentralised fiscal authorities, economic interdependencies may arise from different channels. They result from the existence of collective goods, such as monetary stability or reputation on financial markets and vis-à-vis private agents in general, the existence of public goods and common policies (defence, infrastructure building with network effects, and so on), and from economic spill-overs, that is unintended consequences of national macroeconomic policies on other member states’ economies. Such spill-over effects, stemming from the economic and monetary integration process, may be positive or negative. Sources of interdependencies When a group of countries participate in a regional economic integration process such as the European Union’s Single Market, they decide to abolish barriers to private transactions in goods, capital and, in the European case, obstacles to labour mobility, all measures fostering market integration. This in turn increases the magnitude of spill-over effects resulting from the use of national economic policy tools, such as fiscal policies.4 Whether or not this process then spontaneously generates economic and financial convergence, in terms of similarity in market conditions – prices and real incomes – as well as synchronicity and similar magnitude of business cycle fluctuations is still an open issue. Similarly, it is still unclear whether market integration, which generates a lowering of transaction costs, hence a mixture of specialisation in production and agglomeration of productive activities, will make macroeconomic shocks more uniformly distributed across the whole area, or conversely more asymmetric and idiosyncratic.5 When countries form a monetary union, they share a single currency, and therefore uniform nominal variables6 – mostly the short-term nominal interest rate, which is the main instrument in the hands of modern central banks – which may in turn accentuate the reduction in transaction costs and lead to goods and financial market integration. Monetary and financial stability of the currency area is then properly regarded as a ‘collective good’, in so far as it primarily depends on the joint use of their single monetary instrument, even though it may also be influenced by individual countries’ actions or

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circumstances. But members of the monetary union may also decide that other aspects of their joint venture are to be considered ‘collective goods’, be they of the traditional, public good kind, such as defence, or simply goods for which members collectively care, such as economic growth, or even some concept of distributional justice. In all such cases, the ‘collective good’, once it has been recognised as such, is indeed a common concern and henceforth subject to all the difficulties arising in a context of interdependencies.7 The nature of macroeconomic spill-overs from fiscal policies Because the European monetary union was conceived at a time when monetary stability was widely held to be the single, most desirable objective, and with the aim of minimising centralisation, that is transferring only monetary powers at the supranational level, while leaving most attributes of economic sovereignty, especially fiscal and tax policies, in the hands of national governments, interdependencies stemming from the use of these instruments were given most attention in the debate over economic policy co-ordination. Macroeconomic spill-overs from national fiscal policies in a monetary union arise as a consequence of market integration or, due to monetary integration, of the interactions between the aggregate outcome of decentralised fiscal policies and the central bank’s decision process. In the first category, spillovers may be either positive – for example the so-called traditional Keynesian spill-overs, that result from the multiplier effects of fiscal policies and their ‘locomotive effects’ through trade – or negative, mostly through the consequences of deficit financing on financial variables, be they interest rates or exchange rates. Similarly, the spill-overs linked to interactions between fiscal and monetary policies are also negative, resulting in the choice by the central bank of a tighter monetary policy than it would have decided in the absence of budget deficits, in so far as they represent a threat to monetary stability.8 In spite of the relative scarceness of empirical evidence regarding the respective magnitude of these various sources of policy interdependence, the dominant view, and indeed the one behind the choice of imposing fiscal rules – the Stability and Growth Pact (SGP) – is that negative spill-overs tend to be more important. The most commonly cited in the literature (for example Baldwin and Wyplosz 2004) are the induced rise in long-term interest rates and fall in the external exchange rate of the common currency when budget deficits increase, as well as the short-term interest rates hikes that the central bank may want to impose as a retaliatory move when national fiscal authorities appear not to exert enough political will to contain budget deficits. Even though experience to date with fiscal policies in the Euro zone would seem not to validate these hypotheses concerning the channels of negative spill-overs, it is likely that a prolonged period of deficit financing in a context of low growth will result in a process of public debt accumulation in some countries. Such an accumulation process may lead to unsustainable

The Rationale for Fiscal Policy Co-ordination in the Euro Zone 41

debt dynamics, which would in turn threaten long-term monetary stability by eventually imposing monetisation of the debt by the central bank. This may be reflected in higher long-term interest rates for the whole monetary area. Whereas positive spill-overs or collective good situations should be dealt with by a centralised authority or collective action, either by common policy instruments or by incentives for decentralised decision-makers to act in the common interest, negative spill-overs can in principle be fought either by negative incentives or by the adoption of rules imposing limits and constraints on national fiscal policies, in order to prevent the nuisances arising from ‘bad behaviour’ and ‘excessive public deficits’. But these rules have a cost, in terms of lost opportunities or reduced flexibility, and they should be properly directed at making national fiscal policies sustainable, not necessarily through an upper limit on current deficits. Tax competition When considering the various components of fiscal policies, it becomes apparent that spill-overs and channels of interdependencies are indeed more numerous than simply those arising from deficits or debts, and hence that implications for co-ordination are less clear-cut. Tax policies provide a good illustration of such difficulties: whereas tax reforms may indeed be favourable to economic activity, and therefore tax competition may be a desirable mechanism in an economically and financially integrated economic area, it is easily shown that such a competition may also lead to sub-optimal outcomes, in which national governments are trapped in an equilibrium with less taxation than what would be desirable (see OFCE 1999; Le Cacheux 2000; Fitoussi and Padoa-Schioppa 2005; Saint-Etienne and Le Cacheux 2005). Preventing excessive (‘harmful’, in the terminology of the OECD, 1998) tax competition may therefore be an objective of fiscal rules in an economic and monetary union. Fiscal rules should also be designed in such a way as to avoid a bias in favour of fiscal consolidation through tax competition. External effects from domestic public spending and the issue of public goods Just as the tax side of the budget may generate external effects on partners in an economic and monetary union, the precise composition of expenditures is also likely to influence the overall economic performance of the union, hence also the sustainability of individual fiscal policies of its member states. Most recent developments in growth theory (see, among others, Aghion and Howitt 1998), as well as a number of recent empirical studies comparing the growth performance of the EU to that of the US over the past decades, point to the importance of such factors as investment in infrastructures, not only for transports, but also for communications, and spending on higher education and R&D.9 These expenditures are, to a large extent, financed by public funds, either through direct provision or through indirect funding. Again, to

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the extent that such interdependencies are of a relevant magnitude, the rules chosen to constrain fiscal policies should induce favourable choices on the part of national governments. This consideration is actually more generally true for the whole range of public goods that are deemed to provide benefits to the whole union, especially in a context in which it has been decided, for good or bad reasons, that the EU central budget should remain small (this decision corresponds to a conception of federalism in which most of the tasks of public good provision and execution of common decisions are devolved to lower levels of government).10 It may also be argued that the macroeconomic policy mix of monetary union is indeed a public good for its members, so that institutions should be designed in such a way as to elicit individual policy choices that result in favourable aggregate outcomes, including an appropriate orientation of monetary policy by the central bank. Wage moderation, structural reforms and other sources of spill-overs There is also a large array of policies that can be shown to have significant spill-over effects on partners in an economic and monetary union. In particular, all policy instruments that affect production costs for firms located in the domestic economy, such as wage moderation and a whole range of ‘structural reforms’, have consequences that are very similar to those of tax competition, and therefore contain elements of non-cooperative, beggar-thy-neighbour strategies. The institutional framework of the economic and monetary union may, in many cases, lead to an excessive recourse to such policies, especially for small members (see below), or indeed insufficient recourse to them on the part of large ones. The Optimum Currency Area (OCA) analyses also suggest that structural reforms, especially on the labour markets, as well as efforts to co-ordinate employment strategies, may also serve the purpose of substituting for an insufficient central budget in the EU, by easing the adjustment of national economies to idiosyncratic shocks: a greater flexibility of wages and adaptability of labour market conditions will facilitate the adjustment, thus making the use of domestic fiscal policies less necessary. This analysis may explain the insistence of European authorities – Commission and ECB officials – on the necessity of carrying out such structural reforms. It is indeed likely that more flexible labour markets will help adjustment in the face of shocks, in particular asymmetric ones; but labour market flexibility and adaptability is probably not viable unless the macroeconomic environment is permanently offering full employment and income growth. In this respect, the attempt at broad co-ordination that is made in the EU with the Broad Economic Policy Guidelines (BEPGs) may be regarded as a welcome, but insufficient move in the direction of coherent policies. What is lacking, though, is a clear commitment to growth policies and the orientation of macroeconomic policies that would support it.

The Rationale for Fiscal Policy Co-ordination in the Euro Zone 43

Rules vs. discretion: the distrust of democratically elected governments The precise rules and institutions that have been adopted for the Euro zone in the Maastricht and Amsterdam treaties have been decisively influenced by the inflationary context of the 1970s and 1980s in the EU, as well as by the then dominant macroeconomic theories, that is the so-called ‘new classical, rational expectations macroeconomics’.11 In these analyses, interventions by public authorities in the functioning of the economy are at best ineffective and useless, and at worst harmful in that they lead to an equilibrium with a higher than desired inflation rate and an unemployment rate no lower than in the absence of discretionary policies.12 This strand of analysis also emphasises the perverse incentives facing democratically elected governments, due to the problem of time inconsistency of optimal strategies. Natural recommendations from the implications of these theories are therefore to prevent elected authorities from tampering with the currency, by granting independence to central banks, and to constrain their fiscal policy choices by rules and automatic sanction procedures, preferably implemented by independent bodies.

Co-ordination by rules and other institutional arrangements: constraints and incentives on national governments’ choices While the economic rationales for policy co-ordination are numerous, but of unequal and debatable empirical relevance, they leave open the issue of how to design institutions that would foster co-ordination of the kind required according to the underlying analysis, and also the issue of the costs and benefits of the various tools that may be used to elicit favourable behaviour from national governments of member states in a monetary union. Negative co-ordination by rules: outlawing dangerous or harmful strategies Fiscal policy rules, such as the SGP, constitute the minimum co-ordination devices: by setting limits on what national governments are allowed to do, designed to prevent them from embarking on behaviour that is deemed harmful for the union as a whole. As is well known, however, such rules are subject to a number of limitations, some of which have been illustrated by the difficulties in implementing the SGP over the past few years. In particular, if rules have a discretionary element of interpretation, they may suffer from a lack of credibility. But most importantly, it can easily be shown that the SGP has been ill-designed to achieve the kind of sustainability of fiscal policies it is meant to ensure. First, as is by now well understood, the procyclical bias of the current deficit ceiling does not induce enough deficit reduction in good times, while becoming too stringent in bad times, even to the point of impeding the spontaneous functioning of automatic fiscal

44 Economic Government of the EU

stabilisers; second, it does not elicit the kind of expenditure choices that would be most favourable to long-term growth of the monetary union, nor is it particularly in favour of public goods; finally it lacks legitimacy and credibility, so that breaching the rule may not be very costly for national governments. Considered from a cost-benefit point of view, one cannot speak of the SGP framework as at all optimal (see Creel et al. 2002; Fitoussi and Le Cacheux 2003, Buiter et al. 1993). The aggregate policy mix While fiscal rules such as the SGP may be regarded as useful, even if illdesigned and costly, to prevent harmful strategies on the part of national governments, they are clearly insufficient to induce co-operative behaviour in a number of circumstances. To illustrate this aspect, it may be useful to recall the distinction, taken from the theory of optimal currency areas, between symmetric, or common, macroeconomic shocks, and asymmetric or idiosyncratic macroeconomic shocks. The literature has usually concluded that, in the absence of sufficient mobility of production factors or flexibility of relative prices and wages, and barring a significant increase in the size of the central, federal budget, the latter would require some autonomy of national fiscal policies in a monetary union. The SGP may not allow this autonomy to a sufficient extent, at least given the initial conditions in the Euro zone, with high public debts in most member countries and deficits close to the 3 per cent of GDP ceiling even before the economic slowdown of the years 2001–5. But it has also been generally assumed that this problem could be dealt with using the common monetary policy tools. This conclusion may be challenged on the ground that it is often preferable to use a macroeconomic policy mix, so that a desirable feature of common institutions is to induce national authorities and the central bank to co-ordinate on the appropriate mix. This is probably not the case with the current set of rules and institutions in the Euro zone (see Fitoussi 2002; Fitoussi and Le Cacheux 2002). It may, for instance, be argued that the 2001–5 policy mix in the Euro zone was characterised by too restrictive a monetary stance, and too expansionary fiscal policies in the aggregate, while in the US both macroeconomic policy instruments were oriented in an expansionary direction. This in its turn may explain the tendency for the euro to appreciate vis-à-vis the dollar in a period of weak economic activity in the Euro zone. One possible cause of such an inappropriate mix in the Euro zone may lie in the difficulties of co-ordinating small and large countries in matters of fiscal policy, with the former tending to free-ride on the latter – that is to rely on large countries, their automatic fiscal stabilisers or their discretionary fiscal policies, to help support their own domestic activity – in the occurrence of common shocks. Another explanation may be the game situation in which national governments and the central bank are engaged, which on some occasions will lead to a ‘game of chicken’. The central bank may threaten to raise interest rates

The Rationale for Fiscal Policy Co-ordination in the Euro Zone 45

if national governments do not reduce their fiscal deficits; but in the face of an economic slowdown, if national governments let automatic fiscal stabilisers play, the central bank would then be committed to raising interest rates, which may induce governments to increase further their deficits, leading to another round of interest rate hikes, and so on (Fitoussi and Le Cacheux 2002).

Heterogeneity in the Euro zone and its sources In spite of efforts during the transition phase to economic and monetary union, especially through the imposition of convergence criteria – the so-called Maastricht criteria (art. 121 TEC) – the economies of the Euro zone have proved much more heterogeneous from 1999 onwards than had been expected. This is clearly shown in the standard macroeconomic performance indicators, such as GDP growth rates (Table 3.1), measures of price stability, short- and long-term real interest rates (Tables 3.2–3.4), which in turn influence domestic growth rates and unemployment rates, and in the current account positions of the various member states. With identical nominal short-term interest rates and almost equal long-term ones, differences in domestic inflation rates are reflected in different real interest rates: indeed lower real rates not only tend to boost economic growth by making investment and private indebtedness less costly, but also reduce the real burden of existing public debt, thus easing the task of fiscal policy-making. Table 3.1:

Annual growth rates, 2000–2005

Belgium Germany Greece Spain France Ireland Italy Luxembourg Netherlands Austria Portugal Finland Euro zone EU 15 USA

2000

2001

2002

2003

2004*

2005**

3.9 2.9 4.5 4.4 3.8 9.9 3.0 9.0 3.5 3.4 3.4 5.1 3.5 3.6 3.7

1.0 1.2 4.6 3.5 2.1 6.2 1.8 1.5 1.4 0.8 2.0 1.0 1.9 1.9 0.8

1.5 0.1 3.8 2.7 1.2 6.1 0.4 2.5 0.1 1.0 0.5 2.2 0.9 1.1 1.6

0.9 ⫺0.2 4.6 3.0 0.8 4.4 0.3 2.9 ⫺0.1 1.4 ⫺1.2 2.4 0.7 1.1 2.7

2.6 1.6 4.7 3.1 2.3 4.5 1.2 4.5 1.7 2.4 1.2 3.6 2.1 2.3 4.2

1.4 0.8 3.5 3.4 1.5 4.4 0.2 4.2 0.5 1.7 0.4 1.9 1.3 1.4 3.5

*Estimates, November 2005 **Forecasts, November 2005 Source: European Commission, Autumn Forecasts, November 2005.

46 Table 3.2: index)

Consumer price inflation, 1999–2005 (% annual variation of harmonised

Belgium Germany Greece Spain France Ireland Italy Luxembourg Netherlands Austria Portugal Finland Euro zone Denmark Sweden United Kingdom USA

1999

2000

2001

2002

2003

2004

2005*

1.1 0.6 2.1 2.2 0.6 2.5 1.7 1 2 0.5 2.2 1.3 1.1 2.1 0.6 1.3 2.2

2.7 1.4 2.9 3.5 1.8 5.3 2.6 3.8 2.3 2 2.8 3 2.1 2.7 1.3 0.8 3.4

2.4 1.9 3.7 2.8 1.8 4 2.3 2.4 5.1 2.3 4.4 2.7 2.4 2.3 2.7 1.2 2.8

1.6 1.3 3.9 3.6 1.9 4.7 2.6 2.1 3.9 1.7 3.7 2 2.3 2.4 2 1.3 1.6

1.5 1 3.4 3.1 2.2 4 2.8 2.5 2.2 1.3 3.3 1.3 2.1 2 2.3 1.4 2.3

1.9 1.8 3 3.1 2.1 2.3 2.3 3.2 1.4 2.0 2.5 0.1 2.1 0.9 1.0 1.3 2.7

2.7 2.0 3.5 3.6 2.0 2.2 2.2 4.1 1.7 2.2 2.2 1.0 2.3 1.2 0.7 2.4 3.3

*Forecasts, autumn 2005 Source: European Commission, Autumn Forecasts, November 2005.

Table 3.3:

Real short-term interest rates, 1999–2005*

Belgium Germany Greece Spain France Ireland Italy Netherlands Austria Portugal Finland Euro zone Denmark Sweden United Kingdom USA

1999

2000

2001

2002

2003

2004

2005*

1.9 2.4 8 0.8 2.4 0.5 1.3 1 2.5 0.8 1.7 2 1.3 2.7 4.2 3.2

1.7 3 4.8 0.9 2.6 ⫺0.9 1.8 2.1 2.4 1.6 1.4 2.4 2.3 2.8 5.4 3.1

1.9 2.4 0.6 1.5 2.5 0.3 2 ⫺0.8 2 ⫺0.1 1.6 1.9 2.4 1.4 3.8 1

1.7 2 ⫺0.9 ⫺0.3 1.4 ⫺1.4 0.7 ⫺0.6 1.6 ⫺0.4 1.3 1 1.1 2.2 2.8 0.2

0.8 1.3 ⫺1.1 ⫺0.8 0.1 ⫺1.7 ⫺0.5 0.1 1 ⫺1 1 0.2 0.4 1 2.4 ⫺1.1

0.2 0.3 ⫺0.9 ⫺1 0 ⫺0.2 ⫺0.2 0.7 0.1 ⫺0.4 2.0 0 1.3 1.3 3.3 ⫺1.1

⫺0.5 0.2 ⫺1.3 ⫺1.4 0.2 0 0 0.5 0 0 1.2 ⴚ0.1 1 1.2 2.4 0.3

*Forecasts, autumn 2005 Source: European Commission, Autumn Forecasts, November 2005; author’s calculations.

The Rationale for Fiscal Policy Co-ordination in the Euro Zone 47 Table 3.4:

Real long-term interest rates, 1999–2005

Belgium Germany Greece Spain France Ireland Italy Netherlands Austria Portugal Finland Euro zone Denmark Sweden United Kingdom USA

1999

2000

2001

2002

2003

2004

2005*

3.7 3.9 4.2 2.5 4 2.2 3 2.6 4.2 2.6 3.4 3.6 2.8 4.4 3.7 3.4

2.9 3.9 3.2 2 3.6 0.2 3 3.1 3.6 2.8 2.5 3.3 2.9 4.1 4.5 2.6

2.7 2.9 2.2 2.3 3.2 0.9 2.9 ⫺0.1 2.8 0.8 2.3 2.6 2.8 2.4 3.7 2.2

3.4 3.5 1.2 1.4 3 0.2 2.4 1 3.3 1.4 2.9 2.6 2.6 3.3 3.6 3

2.7 3.1 0.9 1 1.9 0.1 1.5 1.9 2.9 0.9 2.8 2 2.3 2.3 3.2 1.7

2.3 2.2 1.3 1 2 1.8 2 2.8 2.2 1.6 4.0 2.0 3.4 3.4 3.6 1.6

0.7 1.3 0.1 ⫺0.2 1.4 1.1 1.3 1.7 1.2 1.2 2.3 1.0 2.2 2.7 2.1 1.0

*Forecasts, autumn 2005 Source: European Commission, Autumn Forecasts, November 2005; author’s calculations.

For monetary policy, the heterogeneity of monetary conditions and transmission mechanisms raises a number of serious problems: the better-known ones relate to the decision-making rules in the ECB council, with the excessive weight of small countries,13 many of which happen to have inflation rates higher than average (see below). With regard to fiscal policies, the ‘one-size-fits-all’ character of the rules may also prove harmful in a number of contexts, as illustrated by the case of Ireland in 2001. The country was then formally in line with the deficit and debt requirements of the Stability and Growth Pact, but in practice had too expansionary a fiscal stance given the high-growth, high-inflation situation of the country at the time. It was also acting in contradiction to its own commitments adopted under the Broad Economic Policy Guidelines. How can such large discrepancies in macroeconomic performances and policy stances be explained? One possible, though not very plausible, explanation would be asymmetric shocks; but why would such shocks have been so numerous and so large, systematically hitting smaller countries? And what would that kind of shock have been? Another explanation would rely on ‘structural’ differences, especially in development levels: most countries having higher inflation rates are also economies that were lagging behind and have been catching up, for various reasons and at different speeds, over the past decade or so. The Balassa–Samuelson hypothesis predicts that such countries would then experience above-average inflation rates, due to the diffusion

48 Economic Government of the EU

of nominal wage increases from the tradable sectors, exposed to foreign competition and benefiting from high productivity gains, to the non-traded, sheltered sectors. In these latter sectors productivity lags behind, with prices initially much lower, but then rising faster in order to accommodate increasing unit labour costs (see, for example, Baldwin and Wyplosz 2004). This hypothesis helps explain some of the observed differences in domestic inflation rates of relatively less developed and catching-up economies. But then what about richer countries such as the Netherlands or Luxembourg? Differences in the preferences of national governments with respect to price stability and growth or unemployment may also be invoked as a widespread cause both of failure to co-ordinate, and of the observed differences in macroeconomic performances. But economists are always reluctant to rely on such explanations; and in spite of differences in discourse, there seems to be a growing consensus – ‘Brussels–Frankfurt’, in the terms of the Sapir Report (Sapir et al. 2004) – in the EU on the virtues of monetary stability and sound public finances. However, there may well be differences in the perceived trade-offs facing national governments in the field of fiscal policies. First, as alluded to above, the time horizon of costs and benefits of the various policies may influence the choice of nationally elected policy-makers. Then there may also be cognitive divergences on the ability of fiscal policies and its various components genuinely to have a significant effect on domestic macroeconomic conditions: this would refer to the ‘power of ideas’ – dear to Keynes – in shaping policies. But perceived differences in costs and benefits of various policy courses may also correspond to genuine differences, relating, in particular, to country size.

Small and large states: coping with differences in incentives Although the equal treatment principle is deeply entrenched in democratic ideals and widely regarded as the only fair organisation rule in a democracy, the recent crises in the implementation of the SGP, with all four large countries of the EU having had budget deficits close or above the 3 per cent of GDP ceiling since 2004, and the initial conflict over qualified majority voting rules that postponed the adoption of the European Constitutional Treaty project, have revealed a profound cleavage between small and large countries in the EU, a distinction that had never been apparent before. For scholars of the history of federal states and institutions, especially of the USA, this should not come as a surprise (see Laurent and Le Cacheux 2004b, 2006). Nor indeed should it be surprising for economists, as it has long been emphasised, that in contexts of ‘collective action’, size matters. Smaller players are more likely to free-ride and exploit larger ones, because larger members in collective settings will have a stronger incentive to provide the public good (Olson 1965). It may easily be shown that the incentives – costs and benefits

The Rationale for Fiscal Policy Co-ordination in the Euro Zone 49

of various courses of action – facing a small open economy are not at all the same as those facing a medium-sized one, such as Germany or France, which may help explain the differences in performances and strategies that seem so systematic in the recent history of the Euro zone. For a small open economy, traditional fiscal policy of the Keynesian kind will usually be of little efficiency, whereas all policies that improve the competitiveness of the national economy by lowering production costs of firms located in the domestic economy are more powerful. This may explain why fiscal consolidations in small countries have been found to have ‘nonKeynesian’ effects (see Giavazzi and Pagano 1996). It also suggests that tax competition, ‘structural reforms’ and wage moderation policies will all have very powerful, positive effects for a small open economy, both because exports represent a major fraction of demand to domestic firms and because the elasticity of the supply of external capital – in particular foreign direct investments – is anyway higher, the smaller and the more open the economy is. In addition, policies that lower production costs in a small economy do not harm domestic demand very much, and they have little effect on domestic inflation. Such policies do not raise real interest rates, as nominal rates in a monetary union tend to be uniform across countries and to be relatively little influenced by the policies of a single, small country.14 For large countries, on the contrary, free-riding is almost impossible, and the various policy choices reviewed above tend to be more costly, or even counterproductive. Traditional, Keynesian-style demand-management policies, especially fiscal policies, are more efficient than for a small open economy, because demand spill-overs are relatively less. On the other hand, all policies tending to lower production costs are less effective, and they all tend to lead to a lower domestic inflation, which then results in a higher real interest rate, costly in terms of economic activity and growth. The fate of Germany over the past few years seems to be a perfect illustration of this difficulty of large countries in an economic and monetary union.

Concluding remarks: fiscal policy co-ordination without an economic government As abundantly illustrated by the vicissitudes of the Stability and Growth Pact and by the poor performance of the economies of the Euro zone over the past few years, fiscal policy co-ordination is still embryonic and not very satisfactory in the European monetary union, after more than five years of existence of the European currency. We will deal with the implementation of the SGP in more detail in Chapter 5. Though not really surprising, when considered in a historical perspective – it took much more than five years for the US Federal Reserve System, created in 1913, and the Federal government to set up the subtle mechanisms of macroeconomic management that are now seen to operate in the US economy – the difficulties arising from the faulty

50 Economic Government of the EU

design of fiscal policy co-ordination are clearly hampering the achievement of other goals and negatively affecting the whole process of integration even beyond the domain of economic-policy-making. Because of the still very large divergences in preferences and perceptions of costs and benefits of the various possible strategies for fiscal policies, and more generally given the divergences in economic policy-making amongst member governments of the Euro zone, the prospects for tighter forms of policy co-ordination or even a genuine supranational economic government of the Euro zone are rather gloomy. It is therefore likely that the current minimal co-ordination set-up, essentially based on rules such as the SGP and a nonbinding set of co-ordination procedures such as the Broad Economic Policy Guidelines (BEPG) (cf. Chapter 8), will prevail for the foreseeable future. The Constitutional Treaty adopted in Brussels on 18 June 2004 promised almost no progress on this front (Le Cacheux and Lechevalier 2004; Fitoussi and Le Cacheux 2006), and the new medium-term financial perspectives for the EU budget over the period 2007–14 finally adopted in December 2005 contain no significant alteration of the central budgetary process. Yet in the absence of a more integrated kind of European economic governance15 that would in some way aggregate preferences over common rules and collective goods and make use of policy instruments to ensure their provision, there may be ways to improve on the current performance within existing institutions. One direction for reform, which is already being explored by the Commission and member states’ governments, is the improvement of fiscal rules by taking better account of business cycle conditions (Fitoussi and Le Cacheux 2003, 2006) and reducing the cost to individual governments of sticking to the rule, while possibly making the enforcement mechanisms stricter. This is indeed the direction taken by the reform of the SGP adopted in March 2005. But, while making the pact less ‘stupid’ from a strictly economic viewpoint, this reform does not constitute progress on the way towards a better co-ordination of national fiscal policies. A more ambitious reflection would try to explore the possibilities of developing an original brand of highly decentralised federalism, which may be labelled ‘Pigouvian federalism’ (Le Cacheux 2004b, 2005), in which the central budget would remain relatively small, but where an appropriate mix of rules and financial incentives in the European budget is set up in order to induce national governments to undertake actions that are collectively considered to be in the common interest. This appropriate mix might include such desirable features as an amended ‘golden rule’ of public finance, whereby expenditures to be encouraged are not counted in the agreed deficit ceiling or target (Fitoussi and Le Cacheux 2003).

Notes 1. Comments by Henrik Enderlein, FU Berlin, and the participants in the GOVECOR workshop in Brussels in February 2004 are gratefully acknowledged. Research

The Rationale for Fiscal Policy Co-ordination in the Euro Zone 51

2.

3.

4.

5.

6.

7.

8.

9.

10.

collaboration with economists of OFCE, especially Jérôme Creel and Eloi Laurent, as well as long-standing exchanges with members of the GOVECOR research network have also been important in feeding my reflection. Earlier versions of this chapter have also been presented and discussed at the Workshop on Fiscal Policies, Siena University, 14–16 May 2004, at the EZONEPLUS final conference, Berlin, 18 June 2004, and at the Villa Mondragone Conference, University of Roma, Tor Vergata, 23–24 June 2004. Of course, I remain solely responsible for any remaining error. The decision of the Court of Justice, made public in July 2004, condemns the Council for the mode of action in terms of procedure, but recalls its competence to block further steps in the implementation of the excessive deficit procedures as specified in the Treaty and the SGP. Rather than a clear-cut distinction between these two generic situations of interdependencies, they may be thought of as pertaining in a continuum, as convincingly advocated by Buchanan (1968), who also points to the similarities between public goods and ‘club goods’, here aggregated under the label ‘collective goods’, and to the subjective nature of such economic interdependencies. They may not be purely ‘technological’, but may also be generated by constructed interdependencies of individuals’ (actors’) utility functions. This is of course reminiscent of the well-established tradition of functionalist analysis of regional integration processes, which does not have to be teleological, as the rest of this chapter endeavours to show. See also the final chapter by Meyer, Linsenmann and Wessels. As emphasised in the economic literature on ‘optimal currency areas’ (OCA), initiated by Nobel Prize winner Robert Mundell, the nature of macroeconomic shocks, and most importantly the distinction between common, or symmetric, and idiosyncratic, or asymmetric shocks, is a major dimension of the analysis of stabilisation policies in a monetary union. For a good synthesis of this literature, see Baldwin and Wyplosz (2004). See also below. But not necessarily monetary conditions and all nominal variables. In particular, inflation rates will usually differ amongst countries in a monetary union, as will be made clearer in the following. A similar reasoning may be used to establish an economic rationale for ‘soft co-ordination’ procedures in other areas, in particular that of employment policies, which is the object of another chapter in this volume. In so far as labour market and employment policies are widely regarded as having an incidence on overall economic performance and well-being in the EU, then there is a case for co-ordinating them, at least to some extent. It should be emphasised that the time horizon of the various effects and spillovers may differ widely, which may help explain why democratically elected governments may put different weight on costs and benefits materialising at different horizons. For a broad perspective and thorough analysis of growth policies in the European Union, see Sapir et al. 2004, who offer radical, and debatable, solutions, as well as references to the relevant literature therein. See infra and Le Cacheux 2004a. A classical line of analysis of these issues is of course the theory of fiscal federalism, which tends to favour centralisation (see, for a synthetic statement, Oates 1999), first applied to issues of European integration by the McDougall Report (European Commission 1977). For interesting insights on various economic aspects of federalism, see also Brennan and Buchanan 1980; Galeotti et al. 2000.

52 Economic Government of the EU 11. An even more direct intellectual foundation for central bank independence and fiscal policy rules is the analysis of recent Nobel Prize winners Kydland and Prescott on ‘time inconsistency’, and the consequent temptation for democratically elected governments to renege on commitments and to cheat their constituency. See the popular application proposed by Barro and Gordon 1983. But for very different conclusions on monetary institutions and the conduct of monetary policy, see King 2004. 12. This is an essential, though highly debatable, ingredient of the ‘Brussels–Frankfurt consensus’ (Sapir et al. 2004), which tends to deny the existence of a trade-off between stability and growth, even in the short run. For a forceful reassertion of these, by now old, arguments, see Lucas 2003. For critical appraisals of this view, see Le Cacheux 2004b and Fitoussi and Saraceno 2004. For a synthetic, formal analysis of the magnitude of interdependencies under various assumptions, see Tamborini 2003. 13. On the over-representation of small countries in the ECB Council and the various ways to remedy it, see Fitoussi and Creel 2002. In prevision of the enlargement of the Euro zone, the ECB has actually adopted a reform of its decision-making rule that reduces the power of small member states (see Laurent and Le Cacheux 2006). 14. The notion of ‘small, open economy’ also refers to the idea that it has no influence on its environment, therefore is a ‘price taker’ and, in game theory terms, chooses strategies without caring about possible reactions or retaliation from partners. Our arguments are also somewhat reminiscent of, though different from, the well-known result of classical trade theory, namely that small countries gain from a unilateral tariff reduction, whereas larger countries are likely to lose. Another way of putting the argument would be to say that a small country faces a much more elastic supply of foreign capital and/or firms than a large one, or else that the former faces a much more favourable Laffer curve than the latter. 15. On this notion, see various other contributions in this volume, as well as Commissariat Général du Plan 1999 and 2003.

4 New Governance Structures in Employment Policy-Making: Loose Co-ordination in Action Kerstin Jacobsson and Åsa Vifell

Introduction The European Employment Strategy (EES) is, thus far, the most developed form of soft policy co-ordination in the EU. Employment policy co-ordination developed gradually during the 1990s (for a history, see Goetschy 1999). With the Treaty of Amsterdam it received a clear treaty base, including a specification of procedures and actor participation. Besides relying on the use of soft law acts, such as guidelines and recommendations, the strategy has some financial backing in the European Social Fund. Having been at work for more than six years, it is timely to make an assessment of the achievements of the EES. This chapter is concerned with the impact of the EES on governance structures in employment policy-making. It asks what the formal treaty provisions have meant for the ‘living’ practice of policy-making and implementation. What opportunities and avenues of influence have been opened for various actors, at various levels of governance, and how have these been used? To what extent have the new procedures contributed to a gradual knitting together of levels of governance in employment policy-making (cf. the theoretical expectations about ‘fusion’ as elaborated in this volume’s research design)? Rather than focusing on the impact on policy output or policy outcomes, we are concerned with the impact on policy-making practices and actor relations. Our goal could be framed as looking at the ‘infrastructure’ of policy-making. This includes networking between policy actors, who might, through European networks, get their policy ideas elsewhere than from traditional national channels and actors. We are interested in potential actor interaction both horizontally, across policy areas, and vertically, across levels of governance. Assuming that the impact of soft policy co-ordination will be mediated by, and thus ultimately dependent on, its capacity to mobilise the relevant actors and action within the member states, an analysis of these intermediate factors must be central in an analysis of soft policy co-ordination.1 53

54 Economic Government of the EU

The analysis is based on ten country studies produced within the GOVECOR project (GOVECOR 2004),2 plus case studies of Spain and Denmark produced by ourselves and/or colleagues (Jacobsson and Schmid 2002; Jacobsson 2005; Rydbjerg and Sand Kirk 2003; López-Santana 2004), other secondary studies (Zeitlin et al. 2005; Umbach 2003) and the official five-year evaluations of the EES (available at http://europa.eu.int/comm/employment_social/ employment_strategy/impact_en.htm). Thus, we have data from twelve out of the fifteen member states (at the time of the study, which was before the enlargement in 2004). We also conducted regular interviews with some 30 EUlevel actors during 2000–3. Our assessment of impact on procedures and actor relations is qualitative, highlighting types of changes taking place. Yet, if we can show that the EES, by empowering certain actors, has challenged predominating equilibriums in the member states, then soft co-ordination is not just symbolic even if it has not fully achieved its goals either. Moreover, if we can show that the EES in some respects has led to strengthened governance capacity for employment policy-making in the member states, then it would be a mistake to dismiss soft co-ordination as a policy tool, even if it may never be able, by itself, to counterbalance the economic integration process given the constitutional asymmetry in the EU with centralised monetary policy, constrained fiscal policy and decentralised labour market and social policy (cf. Scharpf 2002).

An actor-oriented multilevel framework Within the framework of the project we conceive of treaty provisions as opportunity structures, providing actors with new incentives and constraints for their behaviour (see Chapter 2 in this volume), and we are thus concerned with how actors use, and react to, the new provisions. The chapter focuses primarily on what happens in the member states in response to the new provisions for employment policy co-ordination, looking at governmental actors but also actors at lower levels of governance, as well as social partners and civil society actors. While governments are certainly key actors, especially in a largely intergovernmental co-operation such as the EES, in principle we regard EU institutions as actors in their own right. Moreover, we are interested in whether non-governmental actors play an independent role, for instance local actors allying with the Commission to put pressure on, or even bypass, national governments. Consequently, we conceive of the notion of a two-level game (cf. Moravcsik 1998; Putnam 1988) as too narrow an approach to capture and explain all relevant actor dynamics in the EES. A two-level framework is able to capture some of the strategic interactions between the EU level and the member governments, and no doubt, governments try to act as gatekeepers in the soft co-ordination processes. However, they do not succeed entirely, since in employment policy (as in the OMC social inclusion), local actors are involved too. Even if it is true, as remarked by Pollack, that regions and the Commission

New Governance Structures in Employment Policy-Making 55

are part of an ‘intergovernmental play’, in which they are independent actors but constrained by a script written essentially by the member states (quoted in Kohler-Koch 2002b: 3), it is necessary to conceptualise the actor constellation in terms of a complex multilevel and multiactor system. In the multilevel polity, there are loci of decision-making at different levels, and negotiations take place across these levels. Actors explore relations both vertically and horizontally in their attempts to establish rules for governing and distributing power and resources. There are trans-subnational actor ties as well as supra-subnational ties in addition to subnational-national and national-supranational ties (Marks 1993, 1997). Triads – in this case the supranational–national–subnational triad – create opportunities for shifting alliances, where relations between two parties will affect the third (Ansell et al. 1997). Thus, a classic two-level game may be part of the multilevel interactions but is not necessarily the whole story. Moreover, in employment policy, we have networks of public and private actors, some induced by the EU, for instance in relation to the European Social Fund, others stemming from domestic initiatives. Thus, we have a complex set of actors involved. The Treaty of Amsterdam as opportunity structure To what extent have the formal procedures for employment policy coordination in the EU provided actors with new rules of the game, implying incentives or constraints? While in formal terms authority relations are not changed, in practice actors have been provided with new windows of opportunity. The Employment Chapter of the Treaty of Amsterdam (arts. 125–130 TEC) established employment policy as ‘a joint responsibility’ of the member states, and it was, moreover, stated that ‘the Member states and the Community shall work towards developing a co-ordinated strategy for employment’. The Treaty thus provides an institutional framework for mutually reinforcing measures at EU and member state level. The formulas that the member states and the Community shall ‘work together’ to co-ordinate employment policies, and treat employment as ‘a matter of common concern’, legitimise Commission initiatives as well as member state peer pressure. Labour market measures that a member state undertakes (or fails to undertake) are no longer merely a national issue but one of common concern. The Treaty provisions have made possible a common European policy approach. While guidelines and recommendations are formally non-binding, the member states have in the Treaty committed themselves to a number of general objectives, for instance to develop a co-ordinated strategy for employment and particularly for promoting a skilled, trained and adaptable workforce and labour markets responsive to economic change, as well as to a particular monitoring procedure. Thus, the hierarchical element is only present in the monitoring requirements. This means that coercion cannot be the primary mechanism for achieving policy adaptation at national level. Instead, domestic change is likely to follow from two other mechanisms: by changes of domestic opportunity

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structures (changes of rules of the game or strategic positions, resources or incentives of domestic actors), or by changes of beliefs and expectations among domestic actors, that is change brought about mainly through cognitive mechanisms (Knill and Lehmkuhl 1999; Knill and Lenschow 2003). In this chapter, we focus on the mechanism related to domestic opportunity structures, the key argument being that there will be no effect of soft co-ordination unless it is able to mobilise and/or empower the relevant actors in the member states.

Coalition-building in face of member state resistance While the original endorsement of the EES was not uncontroversial (see De la Porte and Pochet 2003), the EES came to be accepted among the member states. However, the member governments have throughout been concerned to remain in control of the process. The European Commission Directorate General (DG) Employment and Social Affairs is of course a key player in the EES, having to wage a ‘two-front war’ – in relation to the economic policy actors at EU level (DG Economic and Financial Affairs of the Commission, finance ministers in ECOFIN) and the member states – to keep the EES on track. Since no directives are adopted, the Commission is dependent on making member states willing to comply with the EES. In order to put pressure on member states and also to counterbalance the economic actors at EU level, it is important to have allies in the process. DG Employment has therefore regular contacts with the European Parliament as well as the social partners and member state representatives from social and labour market ministries. The Treaty granted a consultative and, thus, weak role to the European Parliament, even if, informally, the EP’s relations with DG Employment and Social Affairs are well developed, based on the mutual need to build alliances. The European Economic and Social Committee and the Committee of the Regions, while taking considerable interest in the EES, are less important in this respect. The Commission tries to integrate the member states at an early stage to avoid open conflicts, aware that the strategy can only be successful if the member governments are to some extent agreed and are prepared to take action domestically. Bilateral contacts between the Commission and member state representatives are therefore important. Usually these take place in the drafting of the recommendations and sometimes in drafting the National Action Plans for employment (NAPs). Member state governments attempt to influence recommendations to make them acceptable nationally. There are also examples of other types of bilateral exchanges developed from the EES, such as bilateral meetings between officials from member countries to exchange experiences (Umbach 2003). Moreover, the optional Peer Review Programme, set up in 1999, has contributed to transnational exchanges. It includes the identification, examination and exchange of good practice,

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including site visits in the member states with participation of independent experts. It seems, though, that the experiences derived from these exchanges are not widely disseminated within the member states. The Commission also acts as a policy entrepreneur in relation to the various non-state actors. The Treaty of Amsterdam granted the right to consultation to EU-level social partners. Their support is a resource for the Commission. At the same time, the social partners can use the relevant guidelines and recommendations to support their claims. Especially the trade unions have used the EU guidelines to have a dialogue with the employers’ association UNICE as well as with the Commission. The guidelines have also been useful for the internal European trade union discussion on employment and labour market policy (ETUC representatives at ETUI seminar, 29 October 2003). The macroeconomic dialogue (Cologne process from 1999) and the social dialogue are two other forums where the social partners take part. The tripartite consultation in the Standing Committee for Employment was replaced by a tripartite Social Summit to be held before the Spring summits, formally held the first time in 2003 but informally already in 2001. The national social partners are consulted in the NAP work. While supportive of the EES, the social partners have also issued a joint work programme to set their own agenda, emphasising the role as independent actors and not as implementers of Council policies. Moreover, the Commission has regular contacts with the Platform of European Social NGOs, an alliance of European federations and networks of non-governmental organisations active in the social sector. There is also the conference ‘Round table of the Presidency’, which is a major forum for input for the Commission from civil society actors. Through budgetary programmes, the Commission tries to mobilise representatives from NGOs as an EU-level network as well as supporting their work nationally. Moreover, there are many informal contacts between NGO representatives and DG Employment. The European Anti Poverty Network (EAPN) has specifically encouraged its members to engage in the EES and assess their countries’ employment NAPs from a social inclusion perspective (EAPN 2003, 2004). The Treaty obligation to consult the social partners has encouraged social partnerships in countries where such traditions were weak. The European Trade Union Institute in collaboration with the Industrial Relations Observatory in Dublin and the Commission has collected information from its member organisations on the participation of the social partners in the production of their local NAP (EIROnline 2002). This in turn is used to press for influence, both by the trade unions nationally and by the Commission in the bilateral discussions with the countries. The EAPN does the same with its member organisations in relation to social inclusion under the OMC as well as the EES. The Commission has needed a way around the governments and their rosily edited reporting of national policies as well as around their resistance against implementing the common guidelines. It has tried to secure

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alternative sources of information as well as the mobilisation of other actors, both as implementers of policy and as pressure groups. Struggles about reforming the EES Treaty articles oblige member states to comply with the relevant procedural requirements. For the Commission, in the absence of sanctioning mechanisms, the key task has been to manage the process, an indirect way of securing implementation. This includes collecting and disseminating knowledge, ensuring that reporting functions and trying to activate external actors, which in turn can put pressure on governments. In the Commission’s work of trying to improve implementation of the EES, the emphasis has been on procedural aspects rather than on substance. This is a reflection of the conflicts inherent in the strategy, where the member states have had difficulties in agreeing on policy substance as well as been reluctant in principle to hand over power to European actors in this area. For instance, member states have emphasised that targets may be set at EU level, but that it resides with the national governments to decide how to meet the targets and by what measures. What could be agreed upon at EU level have been the procedural aspects. During the first six years of the EES, instruments have been gradually refined. Targets are more precise, and quantitative goals and benchmarks have been developed. The use of indicators has increased; so that in 2003 there were 64 indicators in employment policy (De la Porte and Nanz 2004). Emphasis has turned to implementation rather than new objectives, together with improved participation and integration of the EES in the member states. This was particularly evident in the revised EES following the five-year evaluation of the strategy in 2002/3. The revision was an attempt to reduce complexity, make the process more effective and avoid fatigue among participants. In 2003, three overall objectives and ten corresponding guidelines replaced the previous large number of guidelines (some twenty guidelines under a fourpillar structure and in addition a number of so-called horizontal objectives), and three-year cycles replaced the annual guidelines, although still with annual reporting on progress. Half of the new guidelines included quantitative targets. DG Employment had proposed considerably more quantitative targets, which during the consultation and negotiation process were removed after member state resistance (Watt 2004). DG ECFIN on the other hand, had fought against quantitative targets in EES, since it feared that EU-level targets might constrain the economic policy. The Commission has largely failed to get the member states to set their own national targets, even if some improvement was reported in the Joint Employment Report 2003/2004 (European Commission 2004a). The governments were concerned to be in control of the five-year evaluation. For instance, it was up to the member governments to assign the institutes to conduct the evaluations. Still, the five-year evaluation created debate around the functioning of the EES, and since the future direction of

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the process was for a moment open, it provided an opportunity for actors to try to exert influence. The EU institutions as well as the member states and the European social partners used this occasion to provide input. Struggles were also going on within the Commission between DG ECFIN and DG Employment. DG Employment partly revised its approach at this time and tried to involve actors in the member states more systematically in the EES – national parliaments, social partners, civil society actors, and local authorities (see European Commission 2002c, 2003a). This was done both in order to improve implementation and increase the legitimacy of the strategy. It had become obvious that the EES was not well integrated in the member states, and knowledge about the EES not well diffused outside the core networks (see below). However, the majority of the governments resisted the wish of the Commission to have wider sections of civil society explicitly included in the implementation of the EES, in the way they are in the OMC on social inclusion (European Parliament 2003b). The member state representatives in EMCO were also resistant to giving an active role to local and regional authorities in the EES, and watered down the Commission’s proposals in this area from the original version of the guidelines. Apparently, member governments were concerned to remain the ‘owners’ of the process, in consultation with the social partners. The national governments are clearly reluctant to accept any pressure ‘from Brussels’ that may be seen as an intrusion of the autonomy accorded them under the principle of subsidiarity. An illustration of this attitude from governments is the fact that the Commission’s idea of launching information campaigns nationally in order to disseminate knowledge about the EES was highly unwelcome to some member governments in the EMCO. The proposal was rejected by a majority of the member states and no joint campaign was launched. However, there are examples of member states pursuing their own information campaigns, such as Sweden, where the government launched a large information campaign on the EES in 2002 aimed at social partners and policy officials at all levels and municipalities (Jacobsson 2005). Since 2004, the involvement of stakeholders in the various member states is explicitly reviewed in the Joint Employment Reports (European Commission 2004a). The Commission has tried to create allies at national and European level as a way of mobilising actors for the purpose of making them pursue the ideas and goals of the EES. This has led to networking and new forms of interaction. However, the economic actors, such as DG ECFIN and the economic committees, are often outside these networks since they feel less need for alliances.3

The integration of the EES in the member states – or rather lack of it Our country studies (GOVECOR 2004) show that there has generally been a high degree of compliance with the co-ordination procedures.

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Governments have been committed to fulfilling the monitoring requirements: producing the NAPs and delivering them on time. Moreover, interviewed civil servants report that participating in the transnational policy exchanges, such as peer review sessions and committee deliberations, is meaningful and valuable, and they believe that there is a potential for learning from others. The process makes sense to the actors directly involved, although civil servants interviewed complained over the workload and supported the revision of the EES into three-year cycles. Policy actors not directly involved, however, tend to express less faith in the process. For governments to fulfil the co-ordination requirements, well-functioning interministerial co-ordination has been necessary, and indeed this has improved in nearly all countries studied. Mostly existing structures for interaction and communication have been used rather than new ones invented (Mittag and Wessels 2003). In countries like Spain and Portugal, the NAP work has necessitated the invention of new interministerial work groups, which in turn has supported a rethinking of employment policy as a concern of many ministries and not just the labour market ministries (GOVECOR 2004; López-Santana 2004). Nevertheless, despite the fairly positive assessment of the government officials directly involved, it is clear that the EES has largely developed as a transgovernmental process, sometimes ‘insulated’ in relation to the day-to-day domestic labour market policy-making. In Sweden and Denmark, the officials responsible for the NAPs have been working at international units at their ministries, being highly involved in the trans-governmental networks, but with little contact with the domestic labour market policy ( Jacobsson and Schmid 2002; Jacobsson 2005). Of course, in producing the NAP, they have received input from other ministries, which is true of all countries studied. However, the EES is not systematically integrated in the domestic labour market policy-making. An example showing the trans-governmental character of the process is the fact that in Sweden and Denmark, the state agencies responsible for implementing labour market policy, the National Labour Market Boards, have been granted a marginal role in the EES, merely as information-providers, to the surprise of the officials there. In most other countries studied, though, agencies are integrated or at least consulted in the NAP work. As to integration of lower levels of governance, federal states have better routines for vertical co-ordination than do the more centralised states, but also more pressing need for such co-ordination. In countries like Austria, Belgium and Germany, co-ordination is reported to work fairly well, and in some cases has been intensified. In Germany, this is true of the Länder level but less so in relation to the local authorities (Büchs and Friedrich 2005). In the UK, regional authorities are reported to participate in the NAP production. There Regional Development Agencies were set up in 1997, which develop regional employment strategies. These activities are reported in the NAPs,

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but the initiatives have developed independently of the EES (Umbach 2003). In Denmark, corporatist bodies, Regional Labour Market Boards, were set up in the 1990s which work out regional strategies (Jacobsson and Schmid 2002). Yet, there is no co-ordination between the NAP and the work of these boards. As to local authorities, they are consulted in Sweden and Denmark through their national organisations. In other countries, such as France, local authorities are not consulted despite playing an important role in welfare policy. The regional and local levels have, with some exceptions, not been systematically integrated in the EES/NAP work, which has to a large extent remained ‘stuck’ at the national levels, as a process ‘owned’ by government departments – even if there has been greater attention to the involvement of lower levels of governance since the five-year evaluation (see European Commission 2004a; Employment Taskforce 2003; Kok et al. 2004). This lack of systematic integration of lower levels is a severe limitation, since municipalities and/or local state agencies are often instrumental in labour market policy implementation, which is decentralised in many countries. Co-ordination of local and regional labour market authorities and initiatives and national labour market policy is sometimes difficult to achieve due to local or regional autonomy in labour market policy (like in Spain, Denmark and Germany). Yet, this makes co-ordination all the more centrally important. The EES has been designed to follow a top-down rather than bottom-up logic, a fact that has been criticised by local actors in such different countries as Sweden and Spain. While in the revision of the EES the role of actors at various levels of governance was underlined, they are regarded mainly as implementers rather than as providers of relevant knowledge and, thus, input for reform.4 Parliamentary bodies have been put to the margin in all countries studied. National parliaments have been informed about the NAP, often after it has already been produced and sent off to Brussels. In exceptional cases, parliament has demanded more information (Portugal, Ireland), but mostly, national parliaments have accepted this subordinate and merely advisory role. There are examples, for instance Austria and Sweden, where opposition parties have used recommendations directed to their country to support their own claims, a tactic also followed by employer organisations and trade unions. However, in general the EES has not led to much parliamentary debate in the member states. Since employment and labour market policy formally remains in the hands of national decision-makers, national parliaments seem not to have enough incentive to become actively involved in the EES. The NAPs are regarded as governments’ reports. They have no operational function as guiding documents or indeed action plans in the member states, but are merely reports on domestic policy for an international audience. This means that there is no mechanism in the EES as such to ensure their integration into effective national decision-making and budgetary allocation, even if governments are required to report implementation, including budgetary

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implications, to the Commission. In the revision of the EES, the Commission underlined the need to involve parliamentary bodies, stating that ‘NAPs should be fully integrated in the national decision making framework’ and ‘good practices in some member states, notably in terms of parliamentary involvement, should be spread’ (European Commission 2003a). The European Parliament (2002a) as well as researchers (Jacobsson and Schmid 2003) and the Employment Task Force (2003) headed by Wim Kok have criticised the lack of integration of the EES in the national policy-making because of the lack of parliamentary involvement. Indirectly allying themselves with parliamentary policy-makers in the member states was a further attempt by the Commission to put pressure on governments to take to the EES seriously. The low policy relevance of the NAPs has also reduced the interest of the social partners in continuing to participate actively in their production. Often understaffed, they have to allocate their resources and may choose to give priority to national policy initiatives, which are perceived as more important. Thus, the EES with yearly NAP cycles showed signs of fatigue, when social partners lost interest in participating and to some extent civil servants saw their task mostly as fulfilling administrative procedures rather than mobilising action in response to the objectives set. The revision of the EES, introduced in 2003, might reduce the administrative overload and the limited diffusion of knowledge beyond the transnational networks. Social partners’ satisfaction with their participation in the NAP process varies between countries. In all countries, they are given the chance to submit their points of view, but this participation is sometimes rather passive, being a matter of information rather than consultation or negotiation. The social partners tend to consider participation in real employment-creating policies in the member states more important. Only in Luxembourg is the NAP a joint product between the social partners and the government, and in about half of the member states, the social partners give a direct contribution by co-writing a section of the NAP (EIROnline 2002; De la Porte and Nanz 2004). Still, the NAP production necessitates some kind of dialogue between governments and social partners, and social partner consultation has improved in several countries where it was not already well developed. In some countries, like the UK, it is not yet fully developed, but the EES has contributed to place the issue of insufficiently institutionalised consultation practices on the agenda. In other countries, the social partner participation in the NAP has diminished following changes of government (Austria, Italy) (EIROnline 2002). There are only a few examples of wider circles of civil society (organisations of the social economy, groups of disabled people, anti-poverty networks) being involved in the EES, Ireland being a notable exception, where this kind of participation was already institutionalised. In Spain and Portugal as well, social NGOs are consulted in the NAP process. Possibly the low engagement of NGOs may change with the increased interest in the EES of the European Anti Poverty Network and its member

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organisations. The first EAPN assessment of the NAPs from a social inclusion perspective gave a discouraging picture of both NGO participation and the integration of the social inclusion objective in national employment policy (EAPN 2004). Despite their compliance with the formal co-ordination procedures, it is clear that governments have tended to keep in control of the processes, considered themselves the key actors, and in some cases been reluctant to open up for wider networks, wanting to decide what impulses to receive or what recommendations to follow. However, they have not altogether managed to function as gatekeepers.

Changes in domestic opportunity structures Despite the attempts of governments to remain the ‘owners’ of the EES, there are a number of examples of EU co-ordination procedures having spurred wider dynamics in the member states. As already mentioned, a common strategy for the Commission for mobilising support for its line is building alliances with other actors, such as the trade unions and local and regional authorities. The Commission’s interest in working with sub-national governments and supporting various networks for bringing local authorities into contact, stems from an interest in obtaining alternative information about policy needs to that provided by national governments, and also from a desire to facilitate implementation. The involvement of regional and local authorities in the EES is instrumentally justified, since in many countries they are important in carrying out labour market policies, sometimes with a considerable autonomy. Giving incentives and structural support for other actors to assume responsibility has been increasingly important for the Commission in the EES, and one way of putting pressure on governments. Thus, the role of local and regional actors has increasingly come into focus. Already during the first years of the process the Commission had informal exchanges with the Council of European Municipalities and Regions (interview at CEMR 2000), who demanded a stronger role for local actors in the EES (CEMR 1999), as did the Committee of the Regions. The need for involvement of local actors was included in a guideline in 2001, following a Commission communication in 2000 on the local dimension of the EES (European Commission 2000c; also European Commission 2001a). The Commission has also deliberately promoted those member states that have been successful in involving regional and local actors, such as Finland. Mobilising and making other actors committed complements the limited capacity of the Commission to pressure national governments in the process of soft co-ordination, when these in turn put pressure on decision-making authorities to live up to the common commitments. In 2000, the Commission launched a campaign on ‘Acting locally for employment’, with the accompanying possibility of applying for funding to

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develop Local Action Plans (LAPs) for employment. By 2002, there had been 33 projects supported by this Commission programme, thirteen of which aimed at developing LAPs. These projects were typically organised by one organisation in collaboration with a number of individual municipalities. Each project thus involved a number of partners. For instance, in Finland, Sweden and Denmark, the National Associations of Local Authorities took up the task of developing LAPs in collaboration with individual municipalities. One Swedish county started in 2003 an EU-funded project aiming at developing local employment strategies in all its thirteen municipalities. In contrast to the NAPs, these LAPs were intended to be operational action plans, with regular follow-up and evaluation (Jacobsson 2005). There have been LAP projects in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Holland, Ireland, Italy, Spain, Sweden and the UK. Moreover, a couple of regions in Belgium have developed Regional Action Plans following the EES format, and the same is true for regions in Portugal, Spain and Finland. Local or regional actors in all member states have thus been involved in EES-related projects. Besides the thirteen LAP projects, the Commission has also supported twenty projects aimed at identifying and disseminating good practices of local action on employment (INBAS 2002). Some of the LAP projects have been national, others transnational. An example of transnational networking developed around the production of LAPs is the work of Eurocities, a network of major cities in Europe, financially supported by the Commission, which has supported its members in producing Local Action Plans for employment and social inclusion. Plans have also been made for individual cities in four countries within the LANE project (Local Agenda Network for Employment) co-ordinated by the organisation ICLEI (International Council for Local Environmental Initiatives). The European Observatory for Local Employment is a network for spreading best practices of local employment efforts, again supported by the Commission. The EES message on the need for improved co-ordination and collaboration between policies and agents apparently corresponds well to perceived local needs. The ESF projects fill the same function: to foster co-operation and co-ordination between local state agencies (like public employment services), municipalities, social partners and other non-state actors, like training institutions and enterprises. This helps to break down traditional boundaries between institutional domains. However, there are also examples of subnational actors being outspokenly negative to the idea of regional or local involvement (for instance production of action plans), fearing intrusion on their autonomy. This has occurred in Germany (Büchs and Friedrich 2005), even if there are also examples of LAPs in Germany. There are cases where the EES has enabled actors in the member states to put pressure on the member states’ governments to develop well-functioning consultation practices or partnerships in relation to the production of the NAP. In Sweden, a recently established network of social NGOs has been pressing for involvement, not just in the production of the NAP on social

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inclusion, but also in relation to the NAP on employment. This has challenged the traditional consultation pattern, where the Ministry of Industry, Employment and Communication only invites the trade union and employers’ representatives. Both the ministry and the social partners were reluctant to open up for this wider network, but eventually in 2003 a first joint meeting was held between the Ministry of Industry and the social NGOs on employment policy to try to develop forms for consultation (Jacobsson 2005). This is an example of the EES inducing the breaking down of institutional boundaries within the member states. Thus, the EES has provided certain actors such as social partners but also wider sections of civil society, with a say, or at least a legitimate claim to be heard. Another example of how the EES has empowered actors nationally and given their requests additional weight is from the field of gender policy. In Ireland, the Equality Division has strategically referred to the EU guidelines and the failure of the Irish government to live up to the EU objectives in order to forward policies to reconcile work and family life, such as child care facilities (Olsson Blandy 2003). This is an example of the EES inducing intraministerial dynamics by empowering certain state divisions or agencies. In Austria, gender mainstreaming issues have gained salience as EU recommendations have empowered domestic actors and interests (GOVECOR 2004). The limitation of a top-down strategy Even if these examples of actor empowerment following from the EES are important, they should not be overemphasised. Engagement in the EES has so far mostly been limited to small sections of national ministries and governmental agencies. Knowledge about the EES is generally not well diffused in the national or sub-national labour market administrations or in civil society. Even among the social partners, it is usually a small number of officials from the peak organisations and their international units that participate in, or are aware of, the EES. Yet the process has improved over time, sometimes in response to Commission and Council criticism, for instance as regards involvement of sub-national actors, and social partner participation, which in the beginning often took place too late to have any real impact on the NAP. This can be expected to improve further with the increased attention to ‘good governance’ in the Joint Employment Reports, which demand, inter alia, ‘stronger involvement of parliamentary bodies, social partners and other relevant actors’ (European Commission 2004a). Policy-making based on soft co-ordination takes time, and is dependent on being effectively integrated into the system of policy-making within the member states. Economic incentives to engage are also important, as in the case of Commission support for LAP projects, and the strategic use of the ESF to support the EES objectives (cf. the chapter by Hartwig in this volume). The EES was initially designed as a top-down and largely technocratic strategy, targeted at governmental actors and to some extent social partners.

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Arguably, the technocratic approach, with the development of EU-level networks of experts and policy-makers, was successful in establishing a common employment policy agenda, but it failed when it came to effective implementation in the member states.5 In its first years the EES indeed took on the character of a two-level game, with the Commission and the Council as the key actors, and where governments tried to stay in control of the processes domestically. European social partners have resisted the role of implementers of Council policy and defended their autonomy and their own priorities. The national social partners in some countries have also been concerned to defend their autonomy (Germany, Denmark, Sweden). More lately, the Commission has, together with the European Parliament, tried to involve a wider set of actors, including parliamentary bodies, local authorities and civil society actors in the member states, sometimes with the governments trying to resist this development. The more recent multilevel development is more promising in terms of effective impact of the EES. Actors must be mobilised and motivated and cannot be pressed from the top to get involved. This is particularly obvious in systems with local or regional autonomy in labour market policy. Nor can social partners be pressed to act. Similarly, soft co-ordination can only appeal to the will of member governments to develop and improve their policies – unpopular measures cannot be ‘pushed through’. EU recommendations are dependent on coalitions and support nationally. Governments are not the only stakeholders in employment and labour market policy-making. In particular, parliamentary majorities must be mobilised to make the decision and budget allocations necessary to fulfil the EU recommendations. A barrier to impact has been the limited diffusion of knowledge of the EES nationally beyond actors directly involved. Few references are made to the European dimension of employment policy in the national policy debate, and policy is often presented as national policy even if it is in line with, or possibly originating from, the EES. Without exception in the countries studied, the EES has low visibility in the member states. But, as we have seen, there are also signs of actors increasingly taking interest in the EES.

The EES and changes in national governance systems Even though governments, in various ways, have resisted full implementation of the EES, the European co-ordination of employment policies has nevertheless supported changes in national governance structures in this policy area. It has led to increased interministerial co-ordination and facilitated links between policy areas. It has favoured the erosion of boundaries between policy domains and stakeholders, and, in some cases, contributed to reconfiguring of policy networks, as in Sweden, where the new network of social NGOs challenged the exclusive position of the social partners in labour market policy-making. The EES has brought together various actors, with the aim

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of establishing a more integrated and holistic approach. Locally, the EES has supported the notion of co-operation, and encouraged integrated local and regional employment strategies. This, however, has been conditional on the willingness of local actors to respond, and economic incentives, from the ESF or other Commission funds or from governments, have been instrumental. The EU funds available are relatively small but they matter for those actors. Supported by the new treaty provisions and guidelines, actors have demanded ‘voice’ and participation, and a more balanced interest representation. This is also true of the inter- and intraministerial representation, where the social co-ordination processes have strengthened the voice of social ministries somewhat in relation to finance ministries and labour market and employment ministries, and gender equality divisions in relation to others. Actors with a more marginalised position in domestic policy-making have tried to use the EES/OMC to make their case (Büchs and Friedrich 2005), while stronger actors, such as finance ministries, have resisted the process. The fact that the EES brings together people with diverse interests, perspectives and standpoints may destabilise existing understandings (Trubek and Trubek 2003), and open the way to the rethinking of policy options. One example of this is Spain, where the EES has helped to establish a wider notion of employment policy and made both public and private actors aware that their actions may have repercussions on employment. Employment, after all, is not the sole concern of the labour market ministry (López-Santana 2004). Moreover, the EES has induced the member governments to reflect on, define and relate to collective objectives. The increased attention to employment rates, rather than levels of unemployment, is one such collective achievement on the level of policy thinking. Another example is the perceived need to widen the policy agenda in order to achieve higher levels of labour market participation, to include, for instance, measures to reconcile work life and family life, such as improved childcare facilities. Structures for joint reflection on problem descriptions and causes of unemployment as well as on the policy options available have been developed, and the sharing of best practices and comparisons with best performers has been institutionalised. It has increased awareness of policy options, and it has encouraged reflection on one’s own policy choices. Member governments continuously have to reflect on their policies in the light of those of others and in the light of the common framework. They must also be prepared to argue for, and try to explain to others, their own policy line, while relating to the EES. Thus, the EES has institutionalised a reflective element in employment policy, as well as added a European dimension to national employment policy-making. Moreover, it has provided a common framework for national employment policy, and an element of structure through the annual planning and review. A more long-term, or at least medium-term, policy perspective has been introduced in some countries where it did not exist before (Belgium, Portugal). The EES, if appropriately used, can provide

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structure and coherence to work already going on, and contribute to the exchange of experiences in the national context, for instance between municipalities. Much creative work already goes on locally, but the NAPs so far reflect little of what goes on at lower levels in the member states. The EES has in several respects contributed to the professionalisation of labour market administration, by putting the functioning of Public Employment Services on the agenda as well as the need for performance indicators and improved statistics. The setting of specific policy targets has been encouraged, even if governments have responded only to a very limited extent to the invitation to set their own national targets. There are some indications of the spread of a culture of evaluation. In Austria, for instance, investments have been made in systems for monitoring labour market policy and evaluating Active Labour Market Policy programmes and ESF policies. In Belgium, a body has been set up for improving co-ordination between the ESF and the EES (the ESF-NAP Impact Assessment Cell), financed by the ESF and involving the federal entities in response to EU criticism. It has developed a common set of indicators for evaluation. Moreover, a database with all regional and federal employment measures has been set up in Belgium, operated by the Ministry of Employment (GOVECOR 2004). Institutional arrangements for implementing gender mainstreaming have been set up in most member states, in many cases induced by the EES. According to Rubery (2005), by 2001 only Spain and the Netherlands had failed to develop significant mechanisms for mainstreaming, even if progress has been put in jeopardy by government shifts in some countries (Italy, Austria). The common strategy has contributed to placing and keeping issues on the agenda,6 and it has functioned to support and reinforce domestic reform strategies, even if these mostly originate in domestic problems rather than in EU guidelines. EU recommendations give national policy-makers, or other interested parties, additional arguments for domestic reform, and can thus function as a power resource in the domestic scene, legitimising certain policy options and/or procedures. Yet the EES can only support national reforms if the ideas find resonance among relevant actors in the member states.

Conclusion: co-ordination of national strategies rather than development of one European strategy We have been concerned with the effective use of treaty provisions and the evolution of governing networks as intermediary and in our view necessary factors to explain any domestic impact of soft co-ordination. To what extent have the new treaty provisions for EU employment policy led to the establishment of governance structures linking various actors together across levels of governance and across policy areas? We conclude that the EES has had a moderate impact on linking European to national levels of governance,

New Governance Structures in Employment Policy-Making 69

stronger impact on strengthening co-ordination between different departments, and a varying impact (depending on countries) on involving subnational authorities and local actors. The treaty provisions have indeed stimulated interaction and exchange among national administrations. Horizontal integration of policy areas (such as labour market policies, social assistance, pensions, taxation) has been improved. The integrated approach has led to better interministerial co-ordination nationally in most countries. Arguably, the integrated approach is also reflected in the setting up of ‘super ministries’, combining labour market and economic or industrial affairs, in a number of countries: Denmark, Sweden, Austria and Germany. Attention has been given to vertical co-ordination between national, regional and local levels of government. However, stakeholders, such as implementing agencies at various levels of government, municipalities, social partners and civil society actors, and also political parties and national parliaments, could be much more systematically involved in the EES than has happened so far. An effective implementation of the strategy would require a far more systematic integration of the EES in the policy-making systems of the member states. Still, the European co-ordination processes has given weak actors a chance to be heard and provided domestic actors with argument and backing of a powerful actor (the EU) in their reform efforts. The EES has activated participants at various levels of governance. For instance there are local initiatives in all member states related to the EES. We can thus see some multilevel dynamics following from the EES. Social partners have been explicitly invited into the production of NAPs. Other actors have increasingly demanded participation, such as civil society actors and local authorities. Moreover, the EES has pressed policy-makers to give a second thought to existing policy choices in the light of new ideas and the agreed common framework, and to accept being compared to better performers. It has provided policy-makers with new instruments: LAPs, which have been considered useful for efficient use of resources locally, and NAPs, which are not important as policy-guiding documents but which nevertheless have provided overviews of existing policies and necessitated improved interministerial co-ordination. However, opportunities provided by the new treaty provisions and formal co-ordination procedures must be perceived as such by actors in order to take effective advantage of them. We have argued that the EES developed as a trans-governmental process and this was also the way it was perceived by other actors in the member states. Governments tried to pursue a gatekeeping strategy in relation to both the EU level and other actors within the member states. Gradually, more actors have come to perceive themselves as affected by the EES, notably civil society actors and local authorities, and have pressed for influence. This has also been supported by changes in the incentive structures

70 Economic Government of the EU

related to the EES, namely the consultation requirements and the review of how consultation functions in the member states, the strategic use of the European Social Fund (ESF) to support the EES objectives, and the Commission funding of trans-national networks of local authorities or civil society actors. To the extent that soft co-ordination processes are perceived as governments’ processes, they will remain without much impact in the member states. There are limits to what a top-down soft co-ordination strategy can achieve. Rather, top-down pressures need to be combined with pressures from below in the member states, and the European strategy interacts effectively with domestic actors and opinions. Guidelines, recommendations and member state peer pressure will be important as far as they are used by domestic actors. Indeed, rather than relying on top-down pressure, an effective soft co-ordination process would have to ensure that the relevant actors and stakeholders are mobilised. The EES can support a reform process if there are actors willing and able to pick up and move the questions forward. The EES can then function as a structure supporting domestic reform, even though usually not being itself the decisive factor. Consequently, rather than a uniform implementation of one European strategy, we see fifteen domestic reform processes, albeit with similarities. The EES supports these processes, by providing ideational input but also by altering actor relations and stimulating governing networks. What we see is not the replacement of national institutions and practices, but in some cases alteration of them, with at least partly new elements introduced (see Mittag and Wessels 2003). Existing practices and institutions structure the response to the EES. Its effectiveness depends – apart from such factors as the type of welfare regime and thus the type of reform pressure; the distribution of responsibilities and the centralisation of the state; and the domestic political priorities and political majorities – on whether there are interests currently marginalised but sufficiently well-organised to be able to use the new openings. It is not certain that all local actors will be empowered to seize the opportunities opened up for them. Existing distribution of resources as well as actors’ self-perceptions and priorities are crucial in this regard. Does soft co-ordination work? The prerequisites for co-ordination in terms of a balanced policy mix at EU level hardly exist, given the institutional asymmetry between monetary, fiscal and social policy. Yet co-ordination in terms of horizontal and vertical integration at actor level has been gradually improved. The EES has intensified transnational exchanges. In the absence of coercive instruments, the Commission has succeeded in fostering networking – in the new committees such as EMCO or the SPC (see Jacobsson and Vifell’s contribution on the role of committees); by the Peer Review programme; and by support to transnational networking. It has fostered alliance-building – between local authorities and civil society actors; by the mobilisation of nongovernmental actors; and by an increased emphasis on the role of national parliaments in the EES in the annual review of the NAPs. Increasingly, actors

New Governance Structures in Employment Policy-Making 71

in the member states – such as local authorities and non-governmental actors – have responded to the new openings. The record of the EES is thus mixed: the EES has induced some actor dynamics in the member states, but has, however, not yet penetrated the policy-making systems enough to make a real difference in national labour market policy-making. The potential of this policy co-ordination is far from fully used by policy-makers, and its effectiveness could be considerably improved by being better integrated in the policy-making systems of the member states. Even if it is more appropriate to speak of fifteen domestic reform processes than a uniform implementation of one European strategy, a platform for co-operation has been established by the common policy agenda as well as the common co-ordination procedures. A door may have been opened for further co-operation in an area which ten years ago was the sole responsibility of the individual member states.

Notes 1. It is difficult to assess substantive policy impact originating from the EES for methodological reasons. Employment performances are affected by a complex set of factors, including cyclical economic developments. In the case of policy output, moreover, the precise importance of the EES, relative to other factors, is difficult to determine with certainty. Our interest in the procedure of implementation stems from the methodological assumption that a policy effect presupposes effective mechanisms of influence from European to domestic level. Hence our interest in intermediary factors (see also Jacobsson and Schmid 2002). 2. These are Austria, Belgium, France, Germany, Ireland, Italy, Netherlands, Portugal, Sweden and the United Kingdom. 3. In 2005, after our study was completed, the employment guidelines and the broad economic guidelines were streamlined and the NAPs were replaced by integrated national reform programmes. At least in theory, these were supposed to be more future-oriented and less a report of measures already taken. 4. If, on the contrary, organised more as a bottom-up process, experiences and perspectives from labour market policy practice could have real influence over the overall strategy (Jacobsson and Schmid 2002, 2003; De la Porte et al. 2001; Zeitlin 2002). 5. One aspect of the technocratic character of the EES is the idea that there is such a thing as an optimal employment policy, which can be measured and operationalised in benchmarks and best practices, as if independent of political choice. 6. The EES has functioned to focus attention on certain themes and place them on the agenda at EU level as well as in all member states (lifelong learning, the need for activation and prevention, the need to increase employment rates, reform of pension systems and early retirement policies, tax reform, measures to reconcile work life and family life, e.g. improved childcare facilities, and improved integration of education and employment policy). The EES has thus had an ideational impact on the understanding of labour market problems (Jacobsson 2004a).

5 The Dismal Record of the Stability and Growth Pact1 Jacques Le Cacheux and Florence Touya

Introduction The seven years of experience since the launching of the European monetary union (EMU) have made clear that the Stability and Growth Pact (SGP) is not functioning as its designers hoped. Though not apparent during the first two years of existence of the Euro zone, thanks to the favourable growth conditions then prevailing everywhere, its defects and weaknesses have been revealed by the slowdown of economic activity that hit the European Union (EU) in the wake of the US recession in 2001. Ever since, its implementation has been a source of tensions, both amongst member states, with, in particular, a cleavage between large countries and small ones, and between member states and the Commission. The crisis of fiscal policy rules under the SGP in the Euro zone reached its climax on 24–25 November 2003, with the ECOFIN Council rejecting the European Commission’s recommendation on French and German fiscal policies, thus effectively waiving the sanctions to be taken according to the letter of the Amsterdam Treaty. Although the European Court of Justice (ECJ) in early July 2004 supported the Commission (on procedure rather than substance), the future of the SGP is clearly uncertain, as the make-believe game that had characterised the previous breaches has at last ended. In March 2005, the Council has adopted a reform of the SGP that is supposed to remedy some of its most conspicuous weaknesses, in particular its pro-cyclical character, and to better take country-specific circumstances into account. Although this reform may be deemed an improvement from a strictly economic point of view, it is not clear that it will make the SGP easier for countries to obey. Recent assessment by the Commission (June 2006) stresses the lack of significant progress in national budget balances over the past year, in spite of a (slightly) better economic growth performance. In this chapter, we first look in more detail at the way the SGP rules have been implemented since the beginning of EMU, and we review the outcome in terms of fiscal performances. Then, we discuss some of the major flaws 72

The Dismal Record of the Stability and Growth Pact 73

that have been stressed in the literature, as well as the weaknesses of the current institutions for fiscal discipline and/or co-ordination in the Euro area. In Chapter 3, we have already investigated the question of economic spillovers (see also Masson 2000; Gros and Hobza 2001) and the degree to which policy co-ordination is needed, and we have also pointed out the asymmetric effects of the SGP rules on small and large economies. Finally, we examine the pros and cons of some reform proposals or modification to the current SGP interpretation, and conclude by discussing the missed opportunity of the Constitutional Treaty.

Implementation of the multilateral surveillance procedure underlying the SGP In explicit reference to the notion of ‘excessive deficits’ introduced in the EC Treaty (arts. 99 and 104 TEC) and restated in the Brussels Constitutional Treaty (arts. III-71 and III-76) adopted in June 2004 by the Intergovernmental Conference, the Stability and Growth Pact was first adopted as a separate protocol added to the Amsterdam Treaty. It contains two distinct procedures. One co-ordinates the economic and fiscal policies of member states (see Chapter 3 and Brunila 2002 for developments over the rationale for fiscal policy co-ordination), within the frameworks of the Broad Economic Policy Guidelines (BEPGs) and the Stability Programmes, in order to promote ‘sound’ fiscal policies, aiming at budgets ‘close to balance or in surplus’ in the medium run (which implies that the gross public indebtedness ratio (debt/GDP) would decline, and eventually tend to zero). The other procedure is the now famous ‘excessive deficit procedure’, imposing a ceiling on member states’ public deficits, the precise figure (3 per cent of GDP) being spelled out in a Protocol to the EC Treaty (see Buti et al. 1998). The genesis of the SGP and the details of the process are spelled out in the chapter by Ingo Linsenmann on the BEPGs. Main features of the surveillance procedure According to the treaties, the role of the Commission is mainly to monitor and analyse macroeconomic and budgetary developments in member countries, to carry out multilateral surveillance, to assess Stability Programmes and to take initiatives and issue policy recommendations. The resolution commits EMU member states regularly to submit to the Commission Stability Programmes, annually updated and giving accurate indications about countries’ medium-term objectives and their intended fiscal policies; about their multiannual strategies of public finances adjustment towards a level ‘close to balance or in surplus’ over four years; and general economic information and projections about the deficit ratio and the debt ratio. They are expected to signal if a member state is likely to breach the reference value for public

74 Economic Government of the EU

deficit. These programmes are submitted to the ECOFIN for approval after the Commission has commented. The preventative function is carried out by regular surveillance of budgetary positions. The second Council regulation embodies the deterrent side of the process. Implementation of these programmes is subject to the scrutiny of the Council, which, based on information and assessments by the European Commission and the EFC, can take concrete decisions. The Council is responsible for the hard core of co-ordination, making formal decisions on recommendations, and in particular deciding on the existence of excessive deficits and the application of sanctions (see Beetsma and Jensen 2003 for developments with respect to the issue of moral hazard and sanctions in the SGP frame). If a member country subject to EMU rules does not comply with the reference values (unless the general evolution of its deficits appears satisfactory), the Commission transmits a report to the Council, which takes into account whether the deficit exceeds public investment spending and ‘all other relevant factors, including the medium term economic and budgetary position’. The Council takes its decisions on the basis of recommendations from the Commission and voting by qualified majority. All EU member states have a vote (including the non-Euro zone countries, but excluding the state under examination). If a country is significantly diverging from its medium-term budgetary objective, the Council will recommend that the Stability Programme be strengthened. As laid down in article 104 of the Treaty, the excessive deficit procedure will be launched if the situation persists and the member state breaches the reference. Several gradual steps constitute the procedure and the Council is permitted some discretion on the application and the content of sanctions. A country is given four months to rectify the situation and introduce the corrective measures suggested. If the recommendations are followed but the deficit persists, the deficit must be reduced within a year following its identification. If the country under consideration refuses to take the corrective steps advocated, a range of sanctions can be applied. Before sanctions are actually imposed, a long and detailed assessment of the country’s situation is made. The sanctions consist first of all in a noninterest-bearing deposit, made of a fixed component (0.2 per cent of GDP) and a variable one (one-tenth of the difference between the deficit ratio and the 3 per cent of GDP reference value), then converted into a fine if the corrective steps are not taken within two years. Escape clauses have, however, been introduced that allow a member state with an excessive deficit to avoid sanction: for instance in case of an economic downturn with output falling by more than 2 percentage points. If output decreases between 0.75 and 2 percentage points the Council can use its discretion when making a decision, taking into account other elements such as the abruptness of the downturn, the accumulated loss of output relative to past trends and whether the government deficit exceeds government investment expenditures.

The Dismal Record of the Stability and Growth Pact 75

Domestic institutional changes and compliance strategies of member states In the 1990s, two simultaneous structural trends can be observed in most EU member states: on the one hand, the degree of fiscal decentralisation increased almost everywhere; while on the other hand, budget rules were set to guarantee sound public finances and make for sufficient leeway for counter-cyclical policies. Some countries have also introduced national mechanisms to help them implement European rules and constraints, such as medium-term expenditure control processes. Member states are endowed with the responsibility of defining fiscal relationships between the various entities that form the general government so as to meet the SGP requirements. It is the central government that is responsible for respecting the Treaty and SGP requirements, but regional and local governments, and other public entities (such as social security) in most countries account for large shares of fiscal aggregates. This is why member states must find solutions to secure sustained discipline at all levels of government in order to achieve the medium-term target of ‘close to balance or in surplus’ (see Atkinson and van den Noord 2001 for an explanation of fiscal relations between central and lower levels of government, or Wendorff 2001 for an example of national stability pacts). The regular reports undertaken by national experts within the framework of this research project show that various co-ordination frameworks have been developed (see www.govecor.org for more information), and some countries have chosen to implement ‘internal stability pacts’ in order to ascertain the precise responsibilities of each government level. Austria implemented the ‘Austrian Stability Pact’, which distributes among lower levels of governments the permissible deficit with respect to the share of population they represent, while a national co-ordination committee gathering the federal government, the Länder governments and the municipalities, was created in order to ensure the co-ordination of fiscal policy, implement the renegotiation of deficit shares, define medium-term objectives and monitor the implementation of public finances guidelines and rules. Belgium signed intergovernmental treaties relating to allowed deficit levels, involving the federal government, the social security system, the regions and local governments; with a High Council of Finance setting the deficit limits. In the Spanish Stability Programme, autonomous regions are subject to constraints with regard to general financing and they have to submit annual debt schedules to the central government (according to the General Law of Budgetary Stability enacted in 2001 and taking effect in 2003, all general government sub-sectors should show a surplus or a balanced budget). In Italy, subnational governments have to respect borrowing limits and a ‘Domestic Stability Pact’ was defined, imposing caps for annual increases in lower government levels deficits. In Germany, the Financial Planning Council defines the relationships between levels of government; and an internal pact was

76 Economic Government of the EU

agreed to ensure joint responsibility for reaching fiscal targets and a balanced budget. In France, although no formal ‘Domestic Stability Pact’ has been enacted, local governments have long been subject to the financial discipline of a variant of the ‘golden rule’: that is, the deficit cannot exceed investment expenditures (see below for further developments) and, since 1996, each year in November, the parliament has had to vote on the budget of the whole social protection system. Before turning to an assessment of what has been achieved under the rules of the SGP over the first five years of its existence, it may be useful briefly to highlight the salient features of fiscal policy developments in some of the protagonist countries and European reactions to these developments.

Major milestones in the history of the SGP Fiscal performance of the member states in the Euro zone During the first years of EMU, the European budgetary system appeared to be reasonably effective. Indeed, in 1999, fiscal performances turned out better than forecast (Table 5.1), budgetary targets were met and sometimes overachieved, in spite of a growth weaker than expected in most member states (chiefly due to a fall-off in external demand). Revenues were higher than expected, and thanks to lower interest payments total expenditures decreased slightly. In 2000, economic growth was again higher than expected in the Euro zone, although with variations. Budget balances continued to improve in most member states, while government debt-to-GDP ratios continued falling (cf. the allocation of UMTS receipts to debt reduction). The cyclically adjusted primary balance did not, however, improve. Overall, indeed, the general orientation of fiscal policies in member states was insufficiently ‘virtuous’ in this phase of relatively high growth for the targets to be met during the slowdown. Moreover, some countries deliberately embarked on expansionary fiscal policies (Table 5.2 and Creel et al. 2002). As a result, the number of countries not complying with the 3 per cent of GDP limit for public deficits has steadily increased over the years: one in 2001 (Portugal with 4.4 per cent of GDP),2 three in 2002 (Germany with 3.7 per cent, Greece with 3.7 per cent and France with 3.2 per cent), four in 2003 (Germany with 3.8 per cent, Greece with 3.8 per cent, France with 4.1 per cent, the Netherlands with 3.2 per cent3), four again in 2004 (Germany with 3.7 per cent, Greece with 6.6 per cent, France with 3.7 per cent, and Italy with 3.2 per cent), and indeed five in 2005 (Germany with 3.9 per cent, Greece with 3.7 per cent, France with 3.2 per cent, Italy with 4.3 per cent, and Portugal with 6 per cent). In 2006, according to the Commission’s autumn 2005 forecasts, the same five countries would again exceed the limit (Table 5.1) (Germany with 3.7 per cent, Greece with 3.8 per cent, France with 3.5 per cent, Italy with 4.2 per cent and Portugal with 5.0 per cent).4 Only days after EU

The Dismal Record of the Stability and Growth Pact 77 Table 5.1:

Public deficits and debt ratios in the Euro zone, 1999–2006 (in % of GDP)

Belgium Germany Greece Spain France Ireland Italy Luxembourg Netherlands Austria Portugal Finland Euro zone

1999

2000

2001

2002

2003

2004

2005*

2006*

0.4 114.8 ⫺1.5 61.2 ⫺4.0 105.2 ⫺1.2 63.1 ⫺1.8 58.5 2.4 48.6 ⫺1.7 115.5 3.6 6.0 0.7 63.1 ⫺2.3 67.5 ⫺2.8 54.3 2.2 47.0 ⫺1.3 72.8

0.2 109.1 1.3 60.2 ⫺4.1 114.0 ⫺0.9 61.1 ⫺1.4 56.8 4.4 38.3 ⫺0.6 111.2 6.0 5.5 2.2 55.9 ⫺1.5 65.8 ⫺2.8 53.3 7.1 44.6 0.1 70.4

0.6 108.0 ⫺2.8 59.4 ⫺3.7 114.7 ⫺0.4 57.5 ⫺1.5 56.5 0.9 35.9 ⫺2.6 110.6 6.4 5.5 ⫺0.1 52.9 0.3 66.1 ⫺4.4 55.8 5.2 43.8 ⫺1.7 69.4

0.1 105.4 ⫺3.7 60.9 ⫺3.7 112.5 0.1 54.4 ⫺3.2 58.8 ⫺0.2 32.7 ⫺2.3 107.9 2.8 5.7 ⫺1.9 52.6 ⫺0.2 65.7 ⫺2.7 58.4 4.3 42.6 ⫺2.4 69.4

0.4 100.0 ⫺3.8 64.2 ⫺4.6 109.9 0.4 50.7 ⫺4.1 63.7 0.1 32.1 ⫺2.4 106.2 0.8 5.3 ⫺3.2 54.1 ⫺1.1 64.5 ⫺2.8 60.3 2.3 45.6 ⫺2.7 70.7

⫺0.0 96.2 ⫺3.7 66.4 ⫺6.6 109.3 ⫺0.1 46.9 ⫺3.7 65.1 1.4 29.8 ⫺3.2 106.5 ⫺1.2 6.6 ⫺2.1 53.1 ⫺1.0 64.3 ⫺3.0 59.4 2.1 45.1 ⫺2.7 70.8

0.0 94.9 ⫺3.9 68.6 ⫺3.7 107.9 0.2 44.2 ⫺3.2 66.5 ⫺0.4 29.0 ⫺4.3 108.6 ⫺2.3 6.8 ⫺1.8 54.0 ⫺1.9 64.3 ⫺6.0 65.9 1.9 42.8 ⫺2.9 71.7

⫺0.3 91.1 ⫺3.7 70.0 ⫺3.8 106.8 0.1 41.9 ⫺3.5 67.1 ⫺0.3 28.7 ⫺4.2 108.3 ⫺2.0 7.0 ⫺1.9 54.2 ⫺1.8 64.2 ⫺5.0 69.8 1.9 41.5 ⫺2.8 71.7

*Forecasts, autumn 2005 Source: European Commission, November 2005.

enlargement in May 2004, the Commission launched the ‘excessive deficit procedure’ against six of the ten new members: Cyprus (5.2 per cent in 2004), the Czech Republic (4.8 per cent), Hungary (5.5 per cent), Malta (5.1 per cent), Poland (5.6 per cent), and Slovakia (3.9 per cent). These overruns have generally been imputed to the faltering in European growth. Actually, in 2001, budget positions sharply deteriorated for the first time since 1993 and budgetary adjustments were suspended, mostly as a result of the working of automatic stabilisers – automatic increases in current expenditures and reductions in public revenue – in this period of weak growth (see also Brunila et al. 2002). The position was aggravated by ambitious tax cut plans in many European countries. With the slowdown experienced between 2000 and 2002, budget balances could only deteriorate further. Austria, Belgium, Spain and Portugal tried to avoid the deterioration through pro-cyclical fiscal policies, whereas Germany and France brought support to activity not

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only by letting automatic stabilisers play, but also with the help of discretionary policies. Likewise, all GDP growth forecasts for 2002 had to be revised downward, and public finance indicators registered a further deterioration (the 3 per cent of GDP threshold was overstepped in Germany and France: on these episodes, see Creel et al. 2002). In 2003 again, the GDP growth assumptions on which the Stability Programmes were based proved to have been far too optimistic, as were the public account forecasts. In addition, the French government had deliberately elaborated a budget that was meant to boost the hoped-for economic recovery, a recovery that did not materialise. In spite of efforts by some member states’ governments, most notably Germany and France, fiscal consolidation in 2004 was not really improved, and the average public debt ratio of the Euro zone went on rising. Once again, in 2005, growth performance, especially in large countries, proved worse than expected and the fiscal indicators deteriorated further. And in spite of a slightly improved prospect for 2006, the fiscal situation in most member states is not forecasted to move significantly closer to budget balance or debt reduction. Only a strong recovery in European growth would give rise to a gradual lengthening of the list of the countries posting satisfactory public finance indicators. Overall, it might seem that non-compliance with the SGP has mostly been the result of a systematic over-optimism about the prospects of economic growth. But the deterioration of the primary balance cannot be exclusively attributed to slowing growth, as shown in Table 5.2 where the estimated theoretical balances – assuming only the working of automatic stabilisers – are compared to observed outcomes: according to this measure, over the period 2000–2, fiscal policy has been deliberately expansionary in at least four countries (Germany, France, Ireland and Italy). Application of warnings and sanctions: conflicts and path dependence It has been part of the research design elaborated in Chapter 2 by Meyer and Linsenmann to look at the first-time application of the new rules of policy co-ordination as precedent-setting events, which will shape their future evolution. In the following, we will look at a number of instances, when sanction procedures were employed for the purpose of enforcing compliance with the rules of fiscal policy co-ordination. The first episode was that of Ireland. On 12 February 2001, the country was warned by a recommendation of the Council because of a lack of conformity between the government’s fiscal stance and the BEPGs: Ireland clearly satisfied its SGP obligations with a budget surplus amounting to 4.7 per cent of GDP and a low and declining public debt ratio, but buoyant domestic economic activity was accompanied by inflationary tensions. For the year 2001 the budget was considered as pro-cyclical (tax cuts, increases in public expenditure) and likely to exert an impact over demand, which could raise risks of

The Dismal Record of the Stability and Growth Pact 79 Table 5.2:

Influence of business conditions on the budget balances Budget balance percentage points of GDP 2000

Germany Austria Belgium Spain Finland France Greece Ireland Italy Netherlands Portugal Euro Area

⫺1.1 ⫺1.5 0.1 ⫺0.6 6.9 ⫺1.4 ⫺1.9 4.5 ⫺0.7 2.2 ⫺2.9 0.1

Output gap in percentage points of potential GDP (1) 2000

2002

1 1.8 1.3 0.4 2.4 1.2 ⫺1.1 6.8 0 2.8 2.1 1.1

⫺1.3 ⫺1.5 ⫺1.9 ⫺0.8 ⫺0.9 ⫺0.2 0.8 5.8 ⫺1.6 ⫺1 ⫺1.1 0.9

Sensibility of the budget balance to GDP: ␣ (2)

0.5 0.5 0.6 0.6 0.7 0.5 0.4 0.5 0.5 0.8 0.5 0.5

Budget balance 2002 (3)

Fiscal policy orientation 2000–2002 (4)

Theoretical

Observed

⫺2.3 ⫺3.2 ⫺2 ⫺1.3 4.6 ⫺2.1 ⫺1.1 4 ⫺1.5 ⫺0.8 ⫺4.5 ⫺0.9

⫺3.6 ⫺0.6 0 ⫺0.2 4.7 ⫺3.2 ⫺1.2 ⫺0.3 ⫺2.5 ⫺1.1 ⫺2.7 ⫺2.3

⫹ ⫺ ⫺ ⫺ 0 ⫹ 0 ⫹ ⫹ 0 ⫺ ⫹

Source: CEPII, The CEPII Letter, June 2003. Notes: (1) Difference between actual output and estimated potential output. (2) Elasticity of the budget balance to a 1% variation of GDP. Source: Buti and Sapir (1998). (3) Theoretical budget balance 2002 ⫽ Budget balance 2000 ⫹ ␣ (Output gap 2002 – Output gap 2000). (4) Discretionary expansion in 2002 with respect to 2000 (⫹) if the theoretical budget balance is higher than the observed one. If both have the same value, it can be said that the fiscal policy implemented reduces to the automatic stabilisers game (0).

‘overheating’ and inflationary tensions. The country refused to follow the demands set out in the recommendations, defended its current budgetary policies and complained about being singled out unfairly. It could soon point to slowing growth and a changing economic environment to argue convincingly that the case for overheating had evaporated. The application of the reprimand under the BEPG was thus a mixed success at best (Meyer 2005). Then, confronted with the budgetary slippage of many countries, the European Commission issued warnings or launched procedures for excessive deficit in a number of instances. First came the case of Portugal, where the budget deficit had reached 2.2 per cent of GDP in 2001 (a higher figure than the forecast number set in the Stability Programme of January 2001). On 12 February 2002, the Council did not follow the Commission’s suggestion of an early warning because of the definite commitments made by the government to reach a balanced budget by 2004. But the budget deficit for 2001 was revised upward in 2002 to reach 4.1 per cent of GDP (mainly because of

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an overvaluation of budgetary receipts, laxity in the budget enforcement, a rise in spending and a deteriorating economic situation). Portugal became the first country to exceed the 3 per cent of GDP limit. In October 2002, after evaluation of the situation and in line with Treaty requirements, the Commission launched the excessive deficits procedure, which was voted by the ECOFIN in November 2002. After a change of government, Portugal substantially revised its fiscal policies, bringing the budget back in line with the SGP requirements. But the protracted slowdown in economic growth may well once again pull the deficit over the 3 per cent of GDP ceiling in 2005. In Germany, the deficit reached 2.7 per cent of GDP in 2001, thus exceeding the target forecast in the update of the autumn 2000 Stability Programme. The Commission suggested launching the early warning procedure. But after the German government’s political commitment to make sure that the reference value would not be infringed and to reach a close to balance budget situation from 2004 onwards, the ECOFIN did not follow the recommendation (and the early warning was dropped without a vote taken). Nevertheless, the Council wanted rigour to reign in the government fiscal actions and appeared concerned about the global indebtedness rate. In 2002, the deficit amounted to 3.5 per cent of GDP and the public debt to 60.8 per cent of GDP. On 19 November 2002, the Commission adopted a report about the fiscal situation in Germany, concluding that the deficit did not result from an exceptional event, even if the summer flooding in that year was taken into account. The Council accepted the Commission’s proposal to declare the existence of an excessive deficit and recommended that the German government put an end to the excessive current deficit as soon as possible. However, both in 2003 and 2004, the German budget deficits exceeded the SGP ceiling and the debt ratio, which resumed rising in 2002, was by the end the year 2004 over 65 per cent of GDP. With respect to France, the sharp increase in the 2002 budget deficit (then expected to be 2.7 per cent of GDP but later on revised upwards to 3.2 per cent of GDP) and the risk of breaching the threshold in 2003, induced the Commission to activate the early warning procedure in November 2002. The Council addressed a number of recommendations to France eager to make the government take all the necessary measures to ensure that the deficit should not exceed the reference value. In 2003, the Council asked the French government to reduce the structural (corrected for cyclical fluctuations, see below) deficit by 0.5 per cent of GDP a year so as to reach a ‘close to balance or in surplus’ situation by 2006. France entered into bargaining with Brussels relative to the steps that had to be taken to reduce the deficit. In the Luxembourg ECOFIN, in October 2002, France was isolated. The French Economy and Finance Minister Mer accepted the minimal reduction of a 0.5 per cent of GDP of the structural deficit, but made this conditional upon economic growth, whereas the other three states with high deficits expressed no such reservations in their commitment to the steps required of them. A year

The Dismal Record of the Stability and Growth Pact 81

later, in November 2003, as the French deficit had reached 4.1 per cent of GDP and was expected to be reduced only slightly in 2004, the Commission proposed to the ECOFIN that France, along with Germany, be subjected to the sanction procedure, a proposal that was voted down by the Council. The sharp deterioration of the central government deficit, comfortably offsetting the improvement in the fiscal situation of the Länder and municipalities, together with the general trends in its economic activity, made unrealistic a return to a balanced budget for Germany in 2005. But France seemed likely to reach that goal if growth returns, thanks to the measures projected in the 2005 Finance Bill and the windfall payments by EDF and GDF.

Has the SGP delivered? Initially conceived to ensure that the nominal convergence and stability criteria embedded in the Maastricht Treaty as conditions for participation in the European monetary union would prevail even after countries had been admitted in the ‘club’, the SGP is in principle focused on two goals: co-ordination of economic and fiscal policies of member states, and public finance ‘discipline’, the latter being summarised by the double objective of preventing ‘excessive deficits’ and aiming at a budget ‘close to balance or in surplus’ in the medium run. The ‘stability culture’ By focusing attention on budget balances, the SGP has indisputably contributed to reinforcing and spreading the ‘stability culture’ (Sapir et al. 2004) in the Euro zone, in particular in countries that had lived with high inflation, as well as high public deficits and debts in the 1980s and early 1990s. In its most current meaning, this ‘stability culture’ refers to two ingredients, which are usually thought to be complementary: stable money and sound public finances. While the first ingredient is being delivered by the independent and stability-minded European Central Bank, the second implies some sort of discipline exerted on the governments of member states, and, in so far as financial markets do not seem to exert sufficiently discriminating discipline, rules have been imposed on national fiscal policies. (See Chapter 3 for a more detailed presentation of the economic rationale of the SGP. Note, however, that financial rating agencies downgraded the Italian public debt in July 2004, as a response to prospects of deteriorating budget balance and debt ratio, thus showing an admittedly mild tendency to discriminate amongst the public debts of Euro zone countries.) As discussed in the first section, in most member states the SGP has induced institutional changes that have tended to reinforce the control of central governments over the overall developments of public finances in their own country. By focusing attention on deficits and the necessity of keeping them

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below a certain threshold, it has also reinforced the position and powers of finance ministers within national governments. Thanks to the mechanisms of ‘naming and shaming’, it has also contributed to making large deficits politically more costly in domestic discourse as the press has been more eager than in the past to report on non-compliance with the European rules (see the chapter by Meyer and Kunstein). On the European scene, the Commission has found allies, particularly amongst smaller member states, to build up peer pressure against ‘excessive deficits’ (more on this in Chapter 3. Note that a coalition of the Commission and a majority of smaller member states’ governments is usually not enough to enforce the rules). The persistence of high indebtedness ratios Despite all this, the outcome in terms of public finance developments in the member states of the Euro zone does not come up to expectations. SGP ‘authorities’ have not succeeded in compelling member states to keep their accounts disciplined. Deficits and debt ratios did indeed diminish in the member states of the Euro zone in the 1990s, but no more than elsewhere. And most of the reduction happened as a result of the application of the Maastricht convergence criteria in the run-up to EMU. These improvements occurred at a time when the rules were more explicitly aiming at cutting public debts in those countries that had been the least ‘virtuous’ and when the sanction for non-compliance appeared unambiguous and drastic: compliance was the price to pay for participation in the Euro zone. (Though some countries were admitted in without full compliance, in particular with respect to debt ratios, the credibility of the sanction was high, as it was not clear until the Council meeting of May 1998, that countries not fulfilling all criteria would be let in.) Public deficits and debt ratios went on declining in the first two years of existence of the Euro zone, but the reduction was mostly due to stronger than expected growth. Instead of taking advantage of unexpected extra revenue to accelerate consolidation and reach the medium-term objective of ‘close to balance or in surplus’, governments yielded to popular pressure to cut taxes and embarked on ambitious tax reform plans that proved extremely costly for further consolidation afterwards. The French episode of ‘cagnotte’, when the government reluctantly had to give back unexpectedly buoyant tax receipts, and decided to cut the normal VAT rate by one point, is a perfect illustration of such difficulties. As soon as the slowdown in economic activity swept over the Euro zone, not only was consolidation brought to a halt, but deficits started skyrocketing again in most member states, especially in the larger ones. The trend towards smaller debt ratios, which is arguably the most important aim of the SGP, was actually reversed, notably in those countries where it was still much above the 60 per cent of GDP figure that had been regarded as a maximum in the Maastricht Treaty. In particular, France and Germany did breach the Maastricht ceiling for debt from 2002–3 onwards.

The Dismal Record of the Stability and Growth Pact 83

Paying lip-service to co-ordination and the Lisbon objectives Although the SGP has undoubtedly made fiscal policies a ‘common concern’ of the Euro zone by focusing attention on fiscal aggregates of member states, it cannot be said to have significantly improved economic policy co-ordination, in so far as the focus has been exclusively on ‘excessive deficits’, with almost no progress being made on other issues. Hence, for instance, in ‘good times’ – in the years when the European economy was enjoying relatively high growth – there was little co-ordinated effort at reducing deficits. There has been even less co-ordination in the various national tax cut plans, which have been mostly used as tools for tax competition, rather than in a co-operative strategy to promote growth. Similarly, in spite of the existence of a broad agreement on the so-called ‘Lisbon objectives’ for promoting growth and competitiveness, there is no common or even co-ordinated strategy to deliver on the objectives. After almost two decades of mediocre performance, when the catching-up process vis-à-vis the US slowed down, the Euro zone has gone through more than three years of very slow growth. As a result, the gap with the US economy has been widening again and, in spite of an economic recovery underway, the Euro zone is now the region of the world with the lowest economic growth rate. It is difficult not to suspect that economic policies are, at least in part, responsible for this poor performance (the Sapir Report of 2004 has the same diagnosis on performance, but does not seem to blame macroeconomic policies).

The relevance of the SGP instruments questioned Many works emphasise the need to revamp the initial rules of the SGP (see Buti et al. 2003a, 2003b) and various ways of reforming it have been thoroughly debated. A critical analysis of the SGP rules A substantial reproach addressed to the SGP lies in the implementation of the rules regardless of the countries’ debt situation and without taking into account their position in the budget cycle. As emphasised by many analysts (see, for instance, Brunila et al. 2001; von Hagen 2003; Fitoussi and Le Cacheux 2003; see also Chapter 3 of this volume and references therein), the ultimate and only important goal of fiscal rules in a monetary union should be public debt sustainability, which implies the stabilisation of the debt ratio around some agreed level (see, in particular, Buiter 2001; Cœuré 2002; Pisani-Ferry 2002). As far as the debt criterion is concerned, arguably it should bear on net, rather than gross debt, and, according to the Commission, include all implicit debts of the public sector, most notably pension liabilities. But the level at which it should be stabilised does not matter very much, provided it is not zero – for which there is no justification – nor so

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high as to entail a large interest burden. For well-known reasons, the SGP could not target debt ratios and is therefore formulated in terms of ‘excessive deficits’, which not only entails a disadvantage in that it confuses the underlying economic message, but also makes the SGP less effective since it does not set the right kind of incentives for policy-makers. Those countries with large debt ratios do not feel compelled to reduce them so long as their deficit remains below the SGP ceiling. And the medium-term rule of ‘close to balance or in surplus’ position is very much subject to interpretation. The ‘significant divergence’ clause stipulates that budgetary positions should not depart consistently from the medium-term target or from the path of adjustment towards it; to the extent that this clause is applied to cyclically adjusted balances, it would prevent the typical relaxation of fiscal policies in periods of high growth, while letting automatic stabilisers play freely in periods of recession. If the clause is applied to actual rather than structural budget balances the result would be exactly the opposite, namely a pro-cyclical bias of budget monitoring as underlined in Brunila (2002) or in Balassone and Monacelli (2000). (A definition of what should relevantly be considered as a cycle is given in Hemming and Kell (2001).) The SGP, therefore, turns out to be highly pro-cyclical, because it is mainly focused on fiscal discipline during cyclical downturns and thus provides wrong incentives: it does not tackle the tendency to make heedless choices and run expansionary procyclical policies in good times and does not reduce the political inclination to ‘spend the money when it comes in’. When member states enjoy high growth and buoyant tax receipts, there is a clear political pressure to alleviate the tax burden, while the incentives to speed up fiscal consolidation and seek budget surpluses are weak, to say the least. When on the other hand they face mounting deficits, the trade-off they are offered is the following: either they abandon discretionary anti-cyclical policy (perhaps even blocking automatic fiscal stabilisers) or they neglect the SGP’s rules. As Bean (1998) puts it, the SGP is ‘all sticks and no carrots’. It could be usefully complemented by fiscal policy guidelines encouraging EMU members to avoid fiscal laxity in periods of upswing and buoyant activity, which would also leave margins of manoeuvre for automatic fiscal stabilisers in ‘bad times’. Moreover, the SGP has appeared ill-suited to situations of persistent stagnation. In the second half of the 1990s, efforts to consolidate public finances and meet the Maastricht requirements involved all member states, except Greece and Portugal, in a sharp reduction of public investment. It is likely that the SGP has intensified this trend, especially in times of low growth. The achievement of a broadly balanced budget may negatively affect the public investment level, since most capital expenditure will have to be funded from current revenue (the cost of an investment will not be spread over the generations of taxpayers whom it is supposed to benefit) and, as a consequence, have a negative, lasting impact on the productive and growth potential of the economy.

The Dismal Record of the Stability and Growth Pact 85

A discussion of reform options of the SGP In 2001, the ECOFIN adopted a code of conduct over the form and the content of stability and convergence programmes, which specifies that mediumterm fiscal policies must also take into account non-expected risks and other variability and uncertainty sources likely to modify public accounts (Council of the EU 2001). In the text of the SGP itself, be it article 104 of the TEC or the Council resolutions, the emphasis is put on the medium-term (see Artis and Buti 2001 for an analysis over how medium-term targets should be set), and the possibility of taking account of public investment expenditures is also explicitly mentioned, thus opening up a space for reform without having to amend the treaties. Hiebert et al. (2000) mention the trade-off between automatic stabilisation properties of budgets and long-run fiscal positions, and Wyplosz (2002) hints at short-term and long-term objectives. Besides, as emphasised in Canzoneri and Diba (1999), debt is part and parcel of the second aspect and must be taken into account. In order to promote long-term public finance strategies, Pisani-Ferry (2002) suggests using a debt sustainability criterion (see Balassone and Franco 2000a or Wyplosz 2002) and elaborating a longterm public finances sustainability pact (see Missale 2001 for a comment on public debt management and the choice of debt instruments), which would make it compulsory for member states to keep their debt below a 50 per cent of GDP threshold and publish data relative to one-off commitments. Likewise, Gros in the CEPS Report (2002) is in favour of some kind of a ‘SGP for public debt’: each country would be set a debt-to-GDP target, and proposed a transition path based on the calculation that one-twentieth of the difference between the initial debt ratio and the target be eliminated each year (see also von Hagen 2003). Balassone and Monacelli (2000) provide a debate about how flexibility and soundness should be taken into account and about the most appropriate definition of budget balance. Likewise, Hiebert and Rostagno (2000) pay attention to long-run sustainability and compare a debt targeting approach with a deficit benchmark approach. Recently, the Commission itself recommended that attention be paid to the sustainability of public finances. Ambitious long-term debt reduction strategies should be adopted by countries that face high debt levels, and if they cannot manage to achieve a pace of debt reduction towards 60 percentage points of GDP then the debt criterion of the excessive deficit procedure should be activated. In general, member states that post a high indebtedness ratio should, in the Commission’s view, be treated less indulgently. However, long-term debt projections are very sensitive to the assumptions made with respect for instance to growth scenarios, interest rates and the valuation of pension liabilities. The ECOFIN Council of March 2003 modified its interpretation of the stability programmes in the frame of the SGP so that member states could use automatic stabilisers, and made it clear that one-off measures exerting

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a transitory effect should be examined and taken into account: the Council thought it important to define precisely which criteria should be focused on, and how strict an application or interpretation of the rules was appropriate. Henceforth, the goal of a ‘close to balance or in surplus’ budget account should be appraised over the whole cycle, and the rhythm of public finances consolidation must be assessed through developments in the structural budget balance (the Commission suggested a 0.5 per cent of GDP annual reduction of the structural deficit). At the initiative of the Economic Policy Committee, it was also agreed to change the measure of the output gap from a purely statistical methodology to a more economically based one. However, whereas considering only nominal current deficits could lead to serious errors such as pro-cyclical effects, focusing attention on structural accounts would, in principle, tighten the adjustment requirements in phases of higher-than-potential dynamism and loosen them in contrary situations. This norm would allow automatic fiscal stabilisers to play their part, since the norm automatically relaxes as soon as economic activity falls under the potential growth path. Thus growth slowdowns, and not only sharp recessions, would allow more expansionary fiscal policies. The Euro zone finance ministers meeting at The Hague, on Friday 10 September 2004, expressed support for some of the reform options put forward by the Commission a few days before and justified by a ‘better economic logic’ (European Commission 2004c). The ministers concluded that a longer period of grace should be granted to those countries that experience sluggish growth or recession and that are asked to bring their public deficit under the 3 per cent of GDP threshold. Underlying economic conditions (the position in the cycle) could also be given more attention when examining the particular situation of a country. One unsolved problem is to find a consensus over the methods to estimate structural budget balances, which implies agreeing on potential output and potential growth, a difficult task, especially if the latter depends on the economic and fiscal policies being conducted by member states and the ECB. Theories of endogenous growth suggest that potential growth depends on some types of public investment. (Balassone/Franco 2000b argue that the rules set in the SGP may negatively affect public investment since it encompasses disincentives to undertake large projects producing deferred benefits, and a reduction of public investment will jeopardise the productive and growth potential of the economy.) One suggestion for reform of the Pact (Creel et al. 2002; Fitoussi and Le Cacheux 2003) would be to apply a golden rule (inspired by the British (see Kilpatrick 2001), the German (see Wendorff 2001), or even by the French practice in local public finances), but amended to take the cyclical component into account. The budget would be divided into a current and a capital account; the former would have to be balanced or in surplus while the latter would be allowed to run a deficit, so long as an appropriate measure of indebtedness is stabilised over the medium term.

The Dismal Record of the Stability and Growth Pact 87

Such an amended golden rule would allow for both growth and automatic fiscal stabilisers; it would also preserve heterogeneity among member states in terms of public investment, which is not the case in the current SGP, under which socially desirable public investment projects might well be cancelled. As pointed out by Balassone and Franco (2000b), by Buiter (2001) or by Föttinger (2001), there are possible drawbacks to such a rule. First, there is no dual-budget accounting system in EU countries and the calculation of amortisation is complex, so that it would be necessary to reach beforehand an agreement on accounting methods. Second, a golden rule could lead to a bias in expenditure decisions in favour of physical capital and against spending on human capital or other productive items which also contribute to growth and employment. The inclusion on the other hand of human capital could lead to the opposite outcome and generate a risk of unsustainable public finances. This might suggest that such a mechanism is not workable. It is worth underlining that the Commission, in September 2004, recommended that countries breaching the rules but undertaking useful structural reforms should be granted more time to lower their deficit under the 3 per cent of GDP limit. This recommendation, along with a better appraisal of other country-specific circumstances, as well as the use of a ‘structural’ (cyclically corrected) deficit indicator, was indeed taken on board by the Council in the spring 2005 reform of the SGP. The incentives and credibility issue The institutional organisation of the SGP is based on a model combining notice assessments from experts and political peer-pressure, a feature emphasised again in the September 2004 Communication of the Commission, along with the necessity to tie more narrowly the BEPGs and the Stability Programmes. The lack of clarity of rules and positions of the institutions is harmful, and the game that follows may undermine the mechanism’s credibility. The Commission tends to be very watchful and the Council follows its proposals when it deals with making the doctrine clearer – as in the case of conduct codes – but each member is tempted to depart from the rule when seeking a balance between a credibility (which implies accepting the experts’ opinion) and diplomatic constraint (which implies a trade-off of economic rigour against a concern for political equilibrium). If in theory the Council is given the last word, the Commission’s reports and assessments receive much publicity and are given equal status with the Council’s decision. The Commission benefits from its own reputation, since it is seen as an independent organ of expertise, enjoying a greater objective authority than the Council. The credibility of the SGP has been eroded by the relative inefficiency of the disciplinary mechanisms set up by the treaties and the lack of success of the procedure of ex-post penalties. In reality, credibility rests on the ability of the Council to impose sanctions on the unruly state. The Council is

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responsible for fiscal surveillance even though it consists of fiscal policy actors who are themselves subject to surveillance: an important risk exists that any decision on sanction be regarded as politically motivated. The incentive to conform is not perceived as a strong one since the involved country can try to change its behaviour just enough so that no majority in favour of sanctions emerges. States in the dock can also try to form alliances with other countries by establishing linkages with countries’ interests in other policy areas to be dealt with by the Council. Representatives of member states in the Council will tend to behave with understanding towards their counterparts’ lack of fiscal discipline, since it is the best way for them to guarantee a similar treatment for themselves in times of fiscal difficulties. The fact that the enforcement of sanctions requires many votes spread over a long period of time increases the probability of recourse to such coalitions. As a consequence, the plausibility of the enforcement of sanctions directed towards sovereign countries is questionable (fines seem perverse and not politically credible). In general, the SGP reduces the weight of sound economic judgement. The ECOFIN vote against the Commission proposal to tighten the EDP against Germany and France in November 2003 is a particular illustration of this difficulty, with governments like the Italian expecting to run soon into the same trouble as those criticised by the Commission. As a result, only four countries were in favour of a strict application of the SGP (Austria, the Netherlands, Spain, Finland). The lack of credibility was also emphasised by the lack of reaction of financial markets to the autumn 2003 events. The SGP is an institutional compromise, which tries to conciliate political governance logic and the logic of governance by experts. This could work if rules were clear and actors credible, which is not the case (as stressed by Buti and van den Noord 2003, the SGP provides weak mechanisms to prevent politically motivated fiscal policies). One possible way out would be to increase the role of the Commission and to improve the mode of operation of the Council, as suggested by Pisani-Ferry (2002). The Commission would be allowed to address directly to states notices, recommendations, warnings relative to their economic policy orientations and the problems they may induce, while the Council would be strengthened and be given the capacity to decide in the case of difficult situations. If credibility were the only objective of a possible reform, a real audit system could be created (Wyplosz 2002). It could not be the role of the Commission because of its current part in the European system and its right of proposal as regards economic policies. It should therefore be entrusted to an independent organism submitted to peer-evaluation and obliged to report its conclusions to political institutions of the Euro zone; it could even suggest sanctions. But of course such an institutional solution would not solve the problem of incentives, with the natural tendency for governments of member states to balance pros and cons of the various strategic options open

The Dismal Record of the Stability and Growth Pact 89

to them. As argued in Chapter 3 of this volume, the costs and benefits of obeying the SGP rules may not be the same for large and for small member states.

Conclusion In light of the preceding review of the track record of the SGP and the reasons behind it, the ideal set of rules ought to be sophisticated enough to satisfy economic concerns but also simple enough for enforcement to be made easier and more credible. Choosing fiscal rules, be it in the quasi-federal context of a monetary union with a strong commitment to subsidiarity in fiscal matters or in the national context, is a highly political choice, and the tradeoffs it implies should be clearly spelled out and carefully considered. In addition, it is probably the case, as suggested in Chapter 3, that the costs of abiding or breaching the rules are not the same for all countries in all contexts. In particular the incentives may be stronger for large member states not to obey, quite independently of considerations of power or influence within the Council. Because of the prospective increase in heterogeneity of the Euro zone, following enlargement and the desire of some new members to join the Euro zone soon, this issue of incentives should be carefully studied before of the SGP is proposed. Considering this backcloth and taking into account the European challenges, the overhaul of the SGP’s modus operandi to remedy its shortcomings and improve its efficiency that was undertaken in March 2005 clearly improves on some of the most glaring weaknesses of the fiscal rule, but still appears insufficient to make it more growth-friendly, or even to provide governments of member states with sufficient incentives to obey the rule. Given the poor track record of the existing fiscal rules, and the ever more apparent need for improvement in the institutions and procedures for co-ordination of economic policies, especially amongst member states of the Euro zone, the final version of the Constitutional Treaty adopted in Brussels in June 2004 cannot but elicit mixed feelings. On the one hand, a number of dispositions have been introduced to reinforce the powers of the Council, and to strengthen the status of the Euro Group, which could potentially become the core of a future economic government of the Euro zone, or at least promote more active forms of economic and fiscal policy co-ordination. On the other hand, the SGP, although it is not explicitly mentioned in the new Treaty, has been reproduced, almost untouched, and all the flaws and ambiguities of the ‘excessive deficit’ concept and procedures are still to be corrected. The wording of the 2005 reform emphasises the need to ground the implementation of the SGP on sound economic logic, hence apparently admitting that it had not been so during the preceding years. In agreement with most analyses and with the interpretation recommended by the ECOFIN Council,

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the Council’s conclusions clearly stress the need to take better account of the debt criterion, and even perhaps to make the deficit criterion stricter for countries with high debt to GDP ratios. By emphasising the cyclically adjusted criterion, another step in the direction of a less ‘stupid’ pact has been taken, but it implies a general agreement on the measure of potential output and output gaps, an issue that economists themselves find hard. The reform would, in principle, also mean tightening the conditions imposed on national fiscal policies during upswings, a seemingly sound, but politically delicate commitment.

Notes 1. This is a revised version of the paper presented at the GOVECOR Brussels workshop in January 2004. We are grateful to the discussant, Laurent Moulin, and to the participants in the GOVECOR project for criticism and suggestions. All remaining errors are ours. 2. The case of Greece is peculiar: it joined the Euro zone only in 2001, with public accounts allegedly in conformity with the Maastricht criteria. However, it was revealed only in 2004 that the official accounts transmitted to Eurostat had been deliberately manipulated and the figures were flawed. The table here includes the revised deficit and debt figures for Greece, which therefore appears to have been violating the Pact from the time it joined the Euro zone. 3. Italian public accounts were improved thanks to temporary measures preventing the government from posting an excessive deficit. The Commission has, at the end of 2004, raised doubts on the validity of the Italian official figures, which have been put under close scrutiny. In addition, the UK, which is not a member of the Euro zone but is theoretically submitted to the fiscal discipline of the Pact, was also breaching the 3 per cent ceiling in 2003, at 3.3 per cent. 4. But according to the latest macro data, France managed to bring the deficit under the 3 per cent of GDP ceiling in 2005, and the figure for Germany in 2006 may be lower than expected.

6 Europeanisation of National Economic Governance Through Policy Co-ordination? Gains and Pains of a New Policy Instrument Christoph O. Meyer and Gaby Umbach

Introduction Policy co-ordination seeks to promote policy learning through the exchange of information, best practices and policy effectiveness, as well as the achievement of certain policy goals or adherence to rules through multilateral surveillance and peer review. Yet compliance with Council guidelines and recommendations in the fields of fiscal and employment policy cannot be taken for granted in the same way as in the case of EU regulations and directives, where non-compliant member states can be taken to the European Court of Justice under the treaty infringement procedure. Policy co-ordination relies primarily on voluntary action on the part of national and sub-national decision-makers and intermediary actors, backed up by what Jacobsson has called ‘discursive regulatory mechanisms’ such as reporting to time-tables, peer review, information exchange, benchmarking and public naming and shaming (Jacobsson 2002). In order to achieve their aims effectively, the new instruments of policy co-ordination require either explicitly or implicitly a high degree of openness, trust and co-operation from political actors; changes in the way administrations engage in policymaking processes and which procedures and institutions they use; and finally they expect from civil society and the public at large a receptiveness towards information, ideas, arguments and criticism from the EU and its member states. It will depend on the interpretation and real use of the EU legal provisions for policy co-ordination at the national level, whether these new governing modes (Héritier 2003; Trubek and Mosher 2001; Hodson and Maher 2001) will remain a primarily Brussels-led enterprise of guideline writing, ritualistic national reporting, and inconsequential peer reviewing, or whether they will be fully incorporated into national policy-making structures, institutional designs, policy outputs, political deliberation and public discourses. We regard the legal provisions for policy co-ordination in the area of employment and fiscal policies as both incentives (opportunities) and constraints 91

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(restrictions) for political action. It has been argued in more detail in Chapter 3 that the evolution of policy co-ordination modes will depend crucially on the how these incentives and constraints will be ‘fractured’ by both European and national policy-making structures and institutions in different ways. In particular, we will explore how formal institutions, political actors and public discourses have adapted to and mediated the pressures of policy co-ordination. We will also explore whether differences between the hard and soft policy co-ordination or between different member states will come into play and how we can account for any such variation. Given the explicit top-down approach, we will draw on and develop further the terminology and the insights from Europeanisation literature in order to better conceptualise, measure and compare forms of impact and adaptation at the national and sub-national level. Developments at the European and between European and national levels of governance, which may be the result of bottom-up pressures, are covered primarily in the chapters focusing on the different governing modes by Jacobsson, Le Cacheux and Linsenmann. The empirical backbone of this chapter is a series of reports by national experts on how policy co-ordination in the two fields has been used in and impacted on ten member states between 2002 and 2004. These reports provide not only empirically rich accounts of Europeanisation effects arising from the legal provisions, but will also be the basis for an aggregate assessment of member states’ practice of policy co-ordination in order to open up opportunities for comparison beyond country case studies. Given the difficulties of doing justice to the rich empirical findings of the reports, the reader is advised to consult them directly on the project’s website, which continues to be available after the publication of this volume (www.govecor.org).

National adaptation to policy co-ordination: outlining the theoretical and empirical approach How the European level institutionalisation of new rules for policy co-ordination affects economic governance at the national level is a core question to this research project and represents a central variable in this volume’s research design. The present approach differs from most other studies of Europeanisation not only in its empirical breadth and scope (observing adaptation trends in ten member states between 1997 and 2004), but also in its focus on the ‘impact’ of soft modes of governance. In contrast to governing processes under the EU’s Single Market pillar, such as the implementation of directives in the field of labour law (Treib 2003; Falkner et al. 2005) or environmental policies (Börzel 2000), policy co-ordination does not produce directly binding supranational law and lacks hard sanctions elements, except in the case of the excessive deficit procedure of the Stability and Growth Pact (SGP). Member states have not shed their competences in fiscal and employment policies, but are nevertheless subject to three types of adaptation pressures

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arising from the legal provisions of policy co-ordination as elaborated in more detail in Chapter 2 of this volume by Meyer, Linsenmann and Wessels: (i) reporting requirements to be executed by national administrations, which ought to submit reports and information to other member states, the EU Commission and the Council according to certain time-tables, provide statistical data and review other member states; (ii) substantive policy requirements in the sense of striving for qualitative or quantitative targets set for the Union as a whole (guidelines and so on) and for individual member states through their own commitments or Council recommendations and decisions (cf. article 104(7)ff TEC); and finally (iii) ideational requirements regarding the willingness of different actors within the policy co-ordination cycle to be open about mistakes, critique of others, ‘best practices’ and other kinds of information. What are the incentives and constraints, which could help to translate these requirements into adaptation? The constraints concern the risk of being faced with peer pressure behind closed doors, or, in case of persistent noncompliance, through public criticism by the Council and the Commission. The excessive deficit procedure of the SGP may even result in the imposition of substantial fines on member states, even if this has not occurred so far. Incentives are constituted primarily by the gains in knowledge about what works best and what to avoid in public policy formulation, a greater voice for interest groups in some formerly strongly bureaucratised policy-making fora, a greater chance to attract money from EU structural funds by following the policy guidelines and recommendations of the EES, and the hope that by following stability oriented reform policies governments can influence positively economic growth. The national experts sometimes found it hard to determine whether a given form of political change was attributable to the relatively soft constraints and incentives of policy co-ordination. Despite these empirical difficulties, they have tried to examine closely the roots of national political life to separate out, by process tracing and practitioner interviews, which causes were the most important for the evolution of which branch of the economic policy-making system. In order to take better account of the process character of rule-interpretation and adaptation, national reports were drawn up every six months over a period of two years, so that the relative influence of the EU in bringing about changes became clearer. Moreover, national experts spoke with different kinds of practitioners to ascertain various viewpoints, interviewing civil servants, journalists, parliamentarians and decision-makers about their perception of the EU’s role in national arenas. Rapporteurs were asked to analyse three main dimensions of Europeanisation effects arising

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from policy co-ordination. The purpose was to empirically study the topdown national and sub-national level impact across all the three variables elaborated in more detail in the research design of Chapter 2. The first dimension concerns institutional and procedural adaptations of those parts of the administrations, which are involved in the policy-making processes. ‘Procedural adaptation’ measures the extent to which member states have responded to the reporting and monitoring requirements of the policy review cycles, including secondary legislation, in letter and in spirit. ‘Institutional adaptation’ looks at the extent to which European provisions for policy co-ordination have caused institutional changes, specifically in terms of new units in existing institutions or the creation of entirely new institutions to deal with particular policy problems. The second major dimension concerns the changes in the way political actors, both governmental and non-governmental, have acted within, complied with and used the new constraints and responded to the incentives offered by policy co-ordination. Have they changed their policy preferences and acted upon them in response to EU guidelines and recommendations or did they treat the rules as dead letters or illegitimate infringements of their policy sovereignty? With regard to non-governmental actors, we have sought to assess the extent to which the opportunities for deliberation and participation have been used at national level, and in particular whether social partners and other interest groups are now paying more attention to EU policy co-ordination and are increasingly voicing demands for specific policy measures and participation in drawing up national policy responses. Thirdly, policy co-ordination in individual policy spheres is underpinned by a number of foundational policy ideas, which are complemented by more specific policy recommendations coming out of peer review, the search for best practices, and benchmarking exercises (for example the sound money paradigm, balanced budgets over the business cycle, focus on employment rates, employability and adaptability). Following the assumption that public discourses are a relevant variable to explain domestic adaptation of policies, institutions, procedures, ideas and identities to European integration and governance (Schmidt 2001), we are looking at the extent to which these ideas are diffused to debates within policy communities and public discourses. Can we identify a greater public visibility for the instruments, procedures and rules of policy co-ordination? To what extent have the principles, policy goals, best practices and benchmarks articulated at the European level spilled over to national deliberations about policy-making? Of course, a change in policy ideas or paradigms may not automatically result in policy change, but it indicates a general willingness of political elites and intermediary actors to learn from European/transnational deliberations. How can we measure different degrees of Europeanisation in these different areas of national political life in response to economic self-co-ordination?

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And how do they relate to four ideal-type outcomes specified in Chapter 2 by Meyer, Linsenmann and Wessels? In the Europeanisation literature (Héritier and Knill 2001; Börzel 1999; Cowles et al. 2001; Radaelli 2003) one can only usually find the distinction between five different outcomes of Europeanisation processes, namely, retrenchment, inertia, absorption, upgrading and transformation.1 Retrenchment refers to the process by which a member state becomes ‘less European’ as a result of European adaptation pressure. This could be the case when EU pressure makes policy change less likely than before because it mobilises intra- or extra-parliamentarian resistance not only against changes suggested by the EU, but also in favour of initiatives which run counter to those suggestions and demands. Because of the nature of policy co-ordination as a soft governing mode, we decided not to use this criterion in our empirical studies, but started with the null-hypotheses of inertia. Inertia refers to the absence of changes, either because adaptation pressure is very weak or because bringing domestic arrangements in line would be too costly given a high degree of adaptation costs. We would interpret such a finding as being at the lower end of loose co-ordination. Inertia may also involve open or silent contestation of the rules and would conform to the outcome of hollow co-ordination. Absorption can be described as largely superficial forms of change as actors and institutions seek to make domestic arrangements work without changing their core organisational principles, routines and discourses or having to meet substantial costs. This outcome would be at the upper end of loose co-ordination. Upgrading can be seen as a moderate form of adaptation towards tight network governance in so far as some aspects of organisation, practice or ideas are changed in a way that is novel, while other parts remain essentially the same. Finally, transformation can be witnessed ‘when the fundamental logic of political behaviour changes’ (Radaelli 2003: 38), when for instance new institutions are being set up, new policy paradigms are established and implemented, or identity discourses and constructions shift in a way that changes dramatically the behaviour of a given arrangement, actor or system. We would expect such a change to result from a move towards forms of economic governance through supranational decision-making. In addition to these measures of adaptation, one can also identify relational and aggregated Europeanisation outcomes, when we seek to investigate how member states have adapted vis-à-vis each other. Are domestic institutions, both formal and informal, becoming more similar (converging) when they adapt to similar constraints and incentives? Historical institutionalism and results of previous studies of Europeanisation would lead us to expect that national arenas will adapt in their own idiosyncratic ways depending on earlier choices of the evolutionary path (Pierson 1998; Mittag and Wessels 2003). Therefore, not only is divergence a distinct possibility, but so are clusters of convergence or divergence if variations between some member states decrease with regard to one dimension but not with regard to another. Indeed,

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a whole range of analytical distinctions can be drawn when analysing Europeanisation outcomes in member states. It must be emphasised that Europeanisation outcomes are not necessarily stable but can be very transient. Over time, inertia may become unsustainable as the pressure on domestic arrangements increases the costs through accumulation or the threat of sanctions. Conversely, one can theoretically conceive of cases of when absorption swings to upgrading as the full consequences of adaptation become more visible to powerful political constituencies only after some time-lag. Changes of government are another factor, which may explain shifts in how at least national administrations respond to EU constraints and incentives over time.

The pains of the Stability Pact: adaptation, contestation and evasion in fiscal policy co-ordination Impact on procedures and institutions Fiscal policy co-ordination makes procedural and institutional demands on national governments, some explicit, some implicit (Linsenmann 2003b: 10; Chapter 2). Explicit requirements concern primarily compliance with the monitoring procedures for the timely submission of accurate data, reports and deficit estimates, without which SGP could not work. Implicit adaptation pressure concerns the ability of member states to put procedures and institutions in place that enable them to control their own and sub-national authorities’ fiscal policies in order to stay within the SGP’s annual and businesscycle adjusted deficit limits. Generally speaking, member state administrations have sought to comply with the reporting requirements of the SGP. This is subject to important qualifications. A number of countries have delayed the submission of deficit figures and stability reports, partly because of political expediency. In 2001, Austria submitted its report three months late, and so did France and Germany before national elections of 2002. The German Finance Ministry, for instance, postponed the publications of its estimates for the budget deficit for the running year (due on 1 September 2002) until after the election date (22 September 2002), to avoid negative electoral repercussions of a figure which contradicted its earlier statements that Germany would remain under the 3 per cent threshold. Another departure from explicit requirements concerns the accuracy of the data submitted by administrations. The Portuguese administration was forced to revise its figures for 2001 by more than 3 per cent when the Bank of Portugal released the official figures of 4.1 per cent in July 2002 (Courela 2002: 3). More recently, an even more serious case of ‘creative accounting’ emerged when the Greek government was forced to admit that Greece had fudged the deficit figures since 2000 by understating spending for the military and the Olympic

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games (EurActiv, 28 September 2004). But Germany and France as well have repeatedly submitted markedly over-optimistic budget deficit estimates. It is true that general problems of forecasting are not easily distinguished from either sloppy analysis or deliberate political massaging of the figures. However, the consistency of over-optimistic estimates and the magnitude of some countries’ miscalculations suggest that political evasion tactics are at work. But we have also seen that criticism by the Commission and domestic actors can contribute to bring about substantial changes in how a country monitors, analyses and controls its public accounts. In Portugal, for instance, the government introduced a new revenue management system for more accurate and speedy information about the revenue situation, including demands on the National Statistics Institute (INE) to publish quarterly, not only annually, accounts of public administrations (Cadeiras 2004: 4). Another form of procedural adaptation at least partly attributable to the EMU/SGP framework can be seen in a shift towards multi-annual budgetary programming, which has occurred in seven countries (Ireland, Italy, the UK, Finland, Belgium, the Netherlands and Sweden) (European Commission 2001b: 38; Plasschaert and Pochet 2004). This can be interpreted not only as a response to the incompatibility with the planning horizon of the Stability Pact, but may also be caused by a reinforcement of policy ideas through EU policy co-ordination such as the argument for sustainable and anti-cyclical fiscal policy in an era of ageing populations. Institutional adaptation has occurred primarily in the area of monitoring and co-ordinating fiscal policies of national, regional and local budgetary authorities. Federal states were naturally more strongly affected, given that sub-national authorities’ fiscal policy choices are more important for a country’s overall budgetary stance. Yet again, the SGP is not always the only or decisive factor. In Belgium, for instance, profligate expenditure of sub-national entities had been identified as a serious problem before the SGP was instituted. In Belgium the ‘High Council of Finance’ (‘Conseil Supérieur des Finances’ or ‘Hoge Raad van Financiën’), a semi-technocratic advisory body staffed by representatives from the regions, central banks and economists, existed before 1997, but was over the years adapted and strengthened to ensure efficient supervision of the convergence and the stability programmes. Even though it cannot impose sanctions, its ‘high authority’ in policy communities has ensured that its non-binding recommendations are generally heeded by the relevant Belgian authorities (Plasschaert and Pochet 2004). In the case of Austria, a national stability pact was agreed in 1999 and revised in 2001, covering the period 2001–4. It foresees sanctions if the budgetary authorities at different levels (federal, regional and municipal) do not stick to their commitments. While the federal government is committed to reducing its deficit and keeping it at the 2002 level, municipalities need to balance their budgets over the period and regions need to generate together a surplus of 0.75 GDP (Balassone et al. 2002: 19–21).

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The pact also led to the setting up of so-called vertical and horizontal co-ordination committees, which can discuss national and intra-regional issues of budget implementation as well as short- and medium-term budgetary goals (Huber 2004: 50). In Italy, a national stability pact was agreed in 1999 (Patto di stabilità interno), which requires local authorities to reduce deficits and submit themselves to regular monitoring. Even though fines are foreseen as sanctions against non-compliance with the Economic and Financial Planning Document (DPEF), their credibility is considered low and the recommendations non-binding (Fantacone 2004). The Commission has observed that the ‘Domestic Pact has been revised almost every year of its existence [in 2000 and 2001] and has so far consistently failed to achieve its stated objectives’ (European Commission 2002a: 196). Finally, the move to strengthen budgetary surveillance of sub-national expenditure in Germany in 2002 was clearly driven by the EMU framework in general (Linsenmann 2003b) and the political upheaval caused by the proposed early warning letter under the SGP of January 2002 in particular (Meyer 2004). While amendments to the Law on Budgetary Procedures for Federal and Regional authorities (Haushaltsgrundsätzegesetz) and the operation of the ‘Financial Planning Council’ (Finanzplanungsrat) had been discussed for years, it was only in the aftermath of the early warning crisis that an agreement on the allocation of the allowed budget deficit between Bund (45 per cent) and Länder (55 per cent) was reached. However, recommendations of the ‘Financial Planning Council’ are not binding and no sanction mechanism has been instituted. Given that their performance ‘exclusively depends on the good will of the actors involved’ (Linsenmann 2003b: 16), many observers doubt that these changes are sufficient. Impact on policies and actors’ behaviour To what extent has fiscal policy co-ordination affected the way in which political actors conceive and conduct their fiscal policies? This question embraces the explicit goals of balancing budgets over the business cycle and of staying below the 3 per cent of GDP deficit limit as well as compliance with the specific recommendations arising in the context of the excessive deficit procedure. We are also interested in changes relating to the differential empowerment of domestic actors through the SGP framework, particularly to the role of the executive vis-à-vis the parliament as well as the intra-executive balance between the minister/ministry responsible for budgets and fiscal policies and those dealing with other socio-economic policies. For the observation period most member states have geared their fiscal policies to heed the fiscal rules, but often not to the extent required, with considerable national variation and lessening over time as SGP compliance became more costly. Generally speaking we can identify different groups of countries based on their adaptation patterns. The first contains countries that could continue their budgetary policies without any major adaptation

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largely because domestic arrangements, institutions, procedures and policy strategies were already in line with the EU rules and recommendations. Until very recently (2003/4), this has been the case in the UK, which follows its own self-imposed ‘golden rule’ (‘Code for Fiscal Stability’ of 1998) for fiscal policy; government has committed itself to borrow money over the medium term only to fund investment and to a ‘sustainable investment rule’ of maintaining net public debt at a ‘stable and prudent level’ over the business cycle (Hodson 2004: 299). In Sweden, which is not part of the Euro zone but is nevertheless required to submit convergence reports, the government has committed itself to generate a budget surplus of an average of 2 per cent of GDP over the business cycle (Jacobsson and Vifell 2004). Belgium is also aiming consistently at creating budget surpluses to reduce its extraordinarily high debts (hovering at around 102 per cent in 2003) and created a cyclical buffer fund in 2000, which ought to support the working of automatic stabilisers and thereby avoid violating the pact (Plasschaert and Pochet 2004). Ireland and Belgium have also set up funds to deal with rising pension liabilities (see section below). The Netherlands, Austria and Spain have conducted fiscal policies which have been broadly and consistently in line with the European fiscal policy rules. Some countries have, however, behaved quite differently. On one end of the spectrum, we have Portugal, which substantially changed its fiscal policies in 2002 and 2003 after it was (almost) given an early warning for its excessive deficit of 2002 (Cadeiras 2004). The coalition government between the Social Democrats (PSD) and the Christian Democrats (CDS-PP) initiated a number of measures to stem the rise of expenditure, to raise tax revenue, and to conduct a number of structural reforms, such as a budgetary stability law and a new revenue management system (Cadeiras 2004: 264). If Portugal can be seen as a ‘repenting’ country coming back into line, others are walking at the margins of the pathway (Italy), or constantly putting one foot outside while pronouncing it was not intentional (Germany) or exploring how far they can get away with it before being criticised (France). The Italian government, especially after the election of the Berlusconi administration, has followed an ‘opportunistic approach’ in so far as ‘the Commission will have to tolerate Italy’s violation of the SGP because the problems with the French and German public deficits persist’ (Fantacone 2004: 211). Germany is a special case to the extent that a mixture of deep-seated structural problems and economic ineptitude have pushed its deficits beyond the threshold for three years in a row (2002–4), even though everybody in Germany professes to be in favour of SGP compliance and claims to have followed all the Council recommendations (Thiel 2004). In France, however, the president and his prime minister conducted an election campaign in 2002 with the promise of tax reductions, which were clearly in violation of the SGP. Only after substantial peer pressure in the ECOFIN Council did France agree to very moderate compromises, which did not in fact bring the country back

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into ‘a compliance corridor’. Ultimately, it was not only the national governments but also the legal provisions of the pact which came under adaptation pressure, partly through informal reinterpretation, partly by Council decisions to cancel the early warning (February 2002) and to ‘suspend’ the excessive deficit procedure (November 2003).2 It seems therefore that the constraints of the SGP have failed to induce far ranging changes in national policies and strategies, even though it can be argued that fiscal expansion would have been greater in its absence as Jacques Le Cacheux argues in Chapter 5. Finally, we found some evidence for differential empowerment. Fiscal policy co-ordination has certainly strengthened national governments at the expense of parliaments in the budgetary procedure. With the exception of the UK, where the pre-budget report is discussed extensively in parliament before its content is reflected in the convergence reports, in many EU countries the stability reports are not properly scrutinised in national parliaments. Even more unfortunately, if the finance minister agrees in the framework of the Broad Economic Policy Guidelines to reduce the structural deficit by 0.5 per cent annually without consulting beforehand with parliament (as happened in Germany in 2003), the legislative arm has been de facto entirely deprived of its ability to scrutinise and adapt the national fiscal policy stance. Another dimension of differential empowerment concerns the position of national finance ministers, which has been politically and institutionally strengthened in a number of countries. In Italy, for instance, the Bassanini decrees of 1999 reduced the number of ministries from 22 to 12, creating a SuperMinistry of Economics (Treasury, Budget, Economic Planning and Finance) and establishing a clear hierarchy, which places the minister of economics in charge of overall socio-economic policy-making. Impact on ideas and discourses The third dimension to be considered concerns the way in which fiscal policy co-ordination has impacted on domestic ideas and norms about fiscal policy-making after the coming into force of EMU. The rationales and objectives of the SGP are contained not only in the legal framework itself, but also in the annual guidelines, early warnings, and recommendations agreed and published by the Council on the basis of Commission proposal as elaborated in more detail in the chapter by Ingo Linsenmann. In particular, we are looking at the maintenance and promotion of what Dyson has referred to as ‘a stability culture’ (Dyson 2000; Dyson and Featherstone 1999), putting price-stability first and focusing primarily on supply-side economics as factors for economic growth. We are also concerned with the manner in which ‘requirements’ and ‘commitments’ of fiscal policy co-ordination have been used in public discourses by elite political actors to justify unpopular policies and reforms. As with other indicators of change, we do not find a uniform pattern of adaptation with regard to ideas and discourses. In four countries – Italy, France

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and to a lesser degree Germany and Belgium – a certain ‘stability fatigue’ has been setting in and demands have emerged for a ‘pay-back’ after austerity measures, which some commentators believe to have stifled growth and hindered job creation. Election campaigns in France and Germany were partly won on a ticket of tax-breaks and scepticism regarding a ‘rigid’ or ‘inflexible’ interpretation of the rules and the need to ‘kick-start’ the economy and provide a ‘stimulus’. Indeed, the overriding rationales for fiscal policy co-ordination played less of a role in public debates than the discussion about the rule of law (compliance with 3 per cent criterion), which may be partly due to the appreciation of the euro vis-à-vis the dollar from 2002 onwards. However, there has been widespread disagreement in national debates with the ‘official EU message’ that fiscal consolidation was not pushed hard enough in 1999–2001. Furthermore, economic policy co-ordination has provided a new impetus to budgetary consolidation by highlighting the ‘demographic time-bomb’ and the need to ensure the sustainability of pension systems. This issue has reverberated in national arenas and strengthened the case for the goal of cyclically adjusted budget surpluses. This has been the case in Germany, Belgium and Ireland, where pay-as-you-go pension systems are increasingly seen as endangered by high national debts and the ageing population. All three countries reacted to this problem by lowering pensions and encouraging private pension schemes (as in Germany) or by instituting buffer funds such as the ‘Silver Fund’ in Belgium, which receives surpluses from the budget (Plasschaert and Pochet 2004: 72), and the ‘national pension reserve fund’ in Ireland, which ‘receives 1 per cent of GNP annually from central government finances’ (Lynch 2004: 176). The new French conservative government successfully tackled the problem of pension reform early on in its period of office through a number of measures and thus covered an open flank in its argument about why it had some flexibility in compliance with the fiscal rules. While France, Italy and Portugal (before the change of government) are clearly cases of countries in which the ‘stability culture’ has been gradually retreating, the majority of countries studied maintain their ‘sound money’ orientation, such as the Netherlands, Belgium and to a lesser degree Germany. This orientation was for the most part domestically generated and entrenched, as in the case of Belgium, where a strong elite consensus had emerged quite independently from EMU (Plasschaert and Pochet 2004). National rapporteurs confirm the findings of Meyer and Kunstein in this volume that fiscal policy co-ordination has become an increasingly important topic in national public debates. However, discussions centre on the economic rationale of the pact (following remarks by President Prodi in a newspaper interview calling the Stability and Growth Pact ‘stupid’) and on the political conflict over the application of the excessive deficit procedure and ultimately fines. In contrast to these EU-centred debates, the rapporteurs found that the Stability Pact is hardly used in domestic discourse to justify unpopular

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measures. One explanation for this may be that the threat of fines cannot replace the incentive of joining monetary union, or the costs of being excluded from it. Similarly, the Portuguese government, for instance, did not blame its radical shift in fiscal policies after March 2002 on the SGP and the need to avoid ‘punishment’ from ‘Brussels’, but mainly ‘as a way to correct disastrous effects of economic policy carried out by the previous government and a way to ensure sustainable growth . . . The absence of reference to European guidelines weakens co-ordination between different policy areas and public awareness of European co-ordination processes’ (Cadeiras 2004: 273). The Italian rapporteur wrote that ‘European provisions have ceased to represent an objective capable of gathering general consensus and of avoiding the insurgence of domestic political opposition. The institutional model of the 90s, thought of as a means to better cope with European objectives, seems to have lost its driving force’ (Fantacone 2004: 206). In countries like the UK, and to some extent also France, the EU is generally not a very effective justification tool, partly because of negative popular reaction and partly because there is no elite consensus on the monetarist rationale for fiscal policy co-ordination in the form of the SGP. The national reports indicated also an intensification of discussions between finance ministers and their colleagues about the need to comply with the SGP and how (Thiel 2004). In sum, in comparison to the preceding and partly overlapping convergence process leading up to EMU, the Stability and Growth Pact has been less successful in maintaining the ideational framework underpinning a ‘stability culture’ and in externalising the political costs of national adaptation to EU institutions. Socialisation processes emanating from fiscal policy co-ordination generally impinge on limited parts of the administrative spectrum and do little to turn political elites away from previous choices or convince the public of the necessity of specific measures. In the ideational and communicative domain, absorption and inertia are the dominant trends to be observed.

The gains of the employment strategy: peer review, learning and neglect in employment policy co-ordination Impact on institutions and procedures Employment policy co-ordination under the EES is essentially inter- and trans-governmental. It brings together key actors of several institutions, networks and bodies at the European and national levels to establish a co-ordinated policy-mix with regard to the formal and informal co-ordination of national employment policies. With a view to the process of setting up the National Action Plans (NAP) that should on an annual basis summarise national actions taken to comply with the European employment guidelines, most member states apply central co-ordination procedures, with a leading role for the national ministries of labour and a relatively low number of civil servants directly involved. In

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Sweden, for example, only one official in each ministry co-ordinates the NAP related work of the entire department (Jacobsson and Vifell 2004). Given that responsibilities for employment and labour market policies are divided between different ministries in most member states (for example Austria, Belgium, France, Germany and the UK), ministries such as those of finance, economic affairs, education or public health are also involved. Hence, in most cases the central co-ordinating departments are located at the ministries of labour, while other ministries contribute to parts of the NAP falling under their specific area of competence. An exception is Italy, where a high-level expert group within the Ministry of Labour with only limited connections to other administrative bodies is responsible for producing the NAP (Fantacone 2004). The EES supported the creation of horizontal inter-ministerial working groups and ad hoc co-ordination meetings. In Portugal an inter-ministerial NAP monitoring commission has been set up, while Belgium, following its national co-ordination traditions, added consultations of various ministerial cabinets to this model of inter-ministerial co-ordination channels (Plasschaert and Pochet 2004). In France, the EES is perceived to have contributed to the modification and procedural innovation of employment policy elaboration and implementation with the establishment of a new reference frame for policy-making (Le Cacheux and Touya 2004). Additionally we found a strong role for the ministries of finance in many member states, such as Belgium or Germany before the establishment of the Ministry of Economics and Labour in 2002/3 (cf. Plasschaert and Pochet 2004; Thiel 2004). In Belgium the declining quality of co-ordination between the Ministries of Employment and of Finance has been hindering the integration of national employment and economic policies (as also is the case in Italy) as well as the streamlining of the BEPGs and the EES. Even though the central co-ordination mechanisms under the EES follow the domestic decision-making logic of the individual member states, the co-ordination strategy offered a window of opportunity to actors formerly not directly involved in national employment policy-making. The involvement of ministries and administrative units such as the Austrian Ministry of Education (Huber 2004) or units for gender mainstreaming such as the French State Secretary for women’s rights and professional formation (Le Cacheux and Touya 2004), suggest institutional innovation arising from the EES. An exception to the centralised national co-ordination process is Germany (Thiel 2004) where the federal structure impacts on the composition of the network. Here more actors are involved, creating a more decentralised process. The Länder furthermore play a stronger role than sub-national entities of other member states. Constitutional provisions state, for example, that education policy falls into their competence. Their main point of contact here is the national Ministry of Education, while concerning other aspects they are co-ordinated via the relevant line ministries for the respective policy areas,

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resulting in a considerable multiplication of contacts and co-ordination processes. The EES has also contributed to the establishment of territorial or regional employment pacts. In Austria and Portugal, for instance, these pacts were set up to institutionalise closer co-ordination of traditional labour market and economic actors at sub-national level (Huber 2004; Cadeiras 2004). In Belgium, due to a lack of internal vertical co-ordination, the European Social Funds/ESF-NAP Impact Assessment Cell (ENIAC) was created to allow for dialogue between national and regional actors. Furthermore, the Belgium Ministry of Employment set up a database on regional and federal employment measures (Plasschaert and Pochet 2004). In the Netherlands and in Austria we found a close connection between the guidelines and the ESF programme and an increased attention to supervision and control (Hoetjes 2004; Huber 2004). Hence, in many countries a trend towards strengthening vertical co-ordination and co-ordination between the NAP and the ESF measures can be recognised, even though in cases like Italy, or to a lesser degree in Sweden, we found weak functional links between the NAP/EES and the ESF. Nevertheless, this trend towards improved vertical co-ordination seems to be strongest in federal member states such as Germany. With reference to social partner involvement, the EES has brought about institutional innovation in some member states while the procedural modes of consultation largely followed national traditions. In countries with longstanding social dialogue traditions, operational social dialogue bodies, such as the Portuguese Standing Committee of Social Dialogue (CPCS), the Belgium National Employment Council or the French Committee on Social Dialogue for European and International Issues (CDSEI) were used to comply with the EES. Given the relevance the EES attributes to social dialogue and to the involvement of social partners, it has hence – especially in countries with a weak social dialogue tradition like the UK – nationally reinforced the institutionalisation of social partner consultation (Hodson 2004). In Germany, Sweden and the UK social partners were also invited to draft parts of the NAP in guidelines 13 (‘Modernisation of work organisation’) and 15 (‘Supporting adaptability in enterprises as a component of lifelong learning’). In 2000, social partners in Sweden did so, while in Germany and the UK they refused to draft parts of the NAP. In these two countries they stated that the NAP was a government document and not the result of a national social dialogue process. Generally, the integration of social partners’ positions into the NAPs does not seem to be sufficiently guaranteed, as for example in Germany and the UK social partners complained about the missing integration of their comments into the NAP. Some countries, like Portugal, established further tripartite institutions for technical monitoring of the NAP implementation. National social partner organisations nevertheless concentrate their activities on the involvement in national policy-making and do not perceive the European

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level as a relevant point of access for national employment policy-making. Moreover, with a view to the co-ordination mechanisms at central state level, the NAP process is throughout all EU member states characterised by a very low degree of parliamentarisation. This adds to the problem of its low public visibility and recognition. Only in Ireland did parliament decide to discuss the NAP, in 2001 (Lynch 2004). As a result of the research conducted under this project we found a varying, but altogether low impact of the institutional innovation potential of the EES on the national policy-making systems, largely due to the pathdependency of administrative developments. Main features of the national institutional structures to deal with the EES are in line with and pathdependently follow national routine co-ordination methods as well as national institutional and decision-making logics. Nevertheless some of them have been partly adapted to the EES (for example social partner contacts in the UK; inter-ministerial co-ordination in France) even though they have not been entirely redesigned to comply with the structural demands of the EES. Furthermore, hardly any new institutions have been set up. Existing lines of interaction are used. The NAP process strengthened on the other hand horizontal and vertical co-ordination mechanisms. In this context, the institutional impact relates most strongly to vertical employment policy co-ordination within member states for which new institutional arrangements have been set up at the regional level. Formal institutional change is rather weak or tending towards inertia in all countries besides Belgium and Austria where it is upgrading (see Annex, Table 6.1). The procedural impact of the EES has been stronger in many countries and can be regarded as upgrading in Sweden, France and Belgium. To a certain degree this also holds true for the UK and Portugal, as monitoring and evaluation of policies and the co-ordination of the NAP with ESF became important topics of adaptation (see Annex, Table 6.1). In the other countries our research nevertheless revealed a weaker degree of impact. The involvement of intermediary actors has been categorised as strongly upgrading or close to transformation only in Italy in the 1990s, in Austria, in Germany and partly in Sweden. In Germany, nevertheless, it is strong in established frameworks so that one can speak of upgrading participation rather than of a transformation of policy-making styles in this area. In the other member states the involvement can be regarded as absorption or even inertia. Impact on policies and actors’ behaviour General shifts in national employment policies and priorities accompanied the establishment of the EES in the late 1990s. In some countries these shifts went hand in hand with government changes from conservative to social democratic governments like in Germany (Thiel 2004) or the UK (Hodson 2004). Policy shifts were largely in line with the priorities of the EES even though it is difficult to relate them directly to the establishment of the EES.

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Topics like tax and pension reforms, preventive approach and activation measures, measures to promote gender equality and lifelong learning or to reduce youth unemployment became priorities of all member states’ employment and labour market agendas. Some countries, like Sweden (Jacobsson and Vifell 2004) or the UK, did not have major difficulties in complying with the EES and its targets as their approaches to employment and labour market policies were similar to those of the EES. Others, like Italy, had problems of compliance because of the fact that ‘traditional labour policy-making in Italy was rather incompatible with the model inherent in the EES’ (European Commission 2002b) with its domestic traditions of hyper-regulation by legislative means, separation of bureaucratic competences, neglect of the real labour market situation and centralisation of the political process. Especially in those countries confronted with special labour market problems – like Austria, Germany and Portugal with a traditionally low female participation rate or with an excessive use of early retirement mechanisms – the EES might have been gradually supportive to policy changes due to learning from other EU member states’ practices (Huber 2004; Thiel 2004; Cadeiras 2004). But also in other countries like Ireland the EES has ‘in a small but significant number of cases . . . influenced the content of . . . labour market policy – for example the Preventative strategy, the Lifelong Learning strategy and the Gender Mainstreaming strategy’ (ESRI 2003: 7). In the course of these general changes Austria increased expenditure on active labour market policies to include nearly 20 per cent of the unemployed in active labour policy measures. In the mid-1990s the country introduced measures to make early retirement less attractive (Huber 2004). Furthermore Austria adopted a special policy package for older workers in 1998, a pension reform in 2000 and increased its gender mainstreaming activities with the creation of a gender mainstreaming co-ordination office and the reform of the child benefit system in 2002. France strengthened its approach to youth unemployment with the adoption of its New Start Programme in 1998 and 2001. Furthermore, the programme ‘New Services for Youth Employment’ and the 2001 reform of the French tax and benefit system (measures on free universal public health insurance for low incomes, reductions of housing tax, reform of housing allowance, changes in income tax, and the introduction of a work-related, reimbursable tax credit) point in this direction (Le Cacheux and Touya 2004). The German government also strongly focused on tax reduction. Income tax rates were gradually lowered based on the tax relief legislation of November 1998 and the tax reform of 2000. The basic tax rate was reduced from 25.9 per cent in 1998 to 19.9 per cent in 2001 and will fall to 15 per cent in 2006. The top tax rate will fall to 42 per cent in 2006, while corporation tax has been cut to 25 per cent in 2001. Additional tax relief for small and mediumsize enterprises (SMEs) was introduced in January 2001. One of the most

Europeanisation of Governance Through Policy Co-ordination? 107

important legal acts to reform German labour market and employment policy was the Job-Aqtiv act in 2002, which explicitly quotes the EES in its preamble. The act underlined the shift from reactive to preventive and activation measures. Private agencies were allowed to participate in job placement with the agreement of local employment offices. Programmes promoting labour market integration and reintegration became better adapted to specific target groups, like young people, disabled, women, elder persons or low skill workers (Thiel 2004). In most member states governments and political parties did not directly refer to the EES in the context of national employment policy-making. They concentrated on outlining national priorities, even though the categories or targets of the EES were taken up. Nevertheless, some governments, like the Belgian, the Dutch or the German, directly referred to the targets of the EES in official documents or policy proposals. The 1999 Belgian government policy statement included elements in line with the EES. The new government declaration in 2003 foresaw the creation of 200 000 new jobs and increasing the general activity rate up to 65 per cent. The ten broad action areas of the declaration were in line with the Lisbon targets and (a novelty) an entire section on the EU was integrated into the statement (Plasschaert and Pochet 2004). The new German government’s coalition treaty and reform activities in 1998 also took up the main priorities of the EES established the same year. The Dutch government explicitly mentioned the EES in its 1998 programme to prevent long-term unemployment, in which it justified new policy measures by relating them to EU guidelines and the Commission Social Action Programme 1998–2000. Despite the further institutionalisation of social partner contacts the real impact of social partners on the NAPs, according to their own perception, has weakened over the lifetime of the EES. In Austria, for instance, the practice of inviting social partners to discuss their contribution to the NAP with the Ministry of Economics and Labour was abolished in 2000. Especially employees’ representatives perceived this as a loss of influence on the NAP (Huber 2004). The same holds true for Italy, where social partners ‘feel the abandonment of the concertation model as reducing their role in the [national employment policy related] decision making process’ and in the NAP process (Fantacone 2004: 32). This might have been reinforced by the fact that social partners did not regard the EES as strongly adding to national employment policy changes. Generally, problems concern its ex-post character and the fact that the NAP is not negotiated in the same way as national employment policies and has no real connection to the domestic political process. Furthermore the NAP is perceived as a government document with no formally binding character for social partners. Belgian and French social partners consider their involvement as positive, even though they recognise shortages such as the late submission of the annexes in the case of Belgium or the missing tripartite body for NAP consultation in France, which hampered any

108 Economic Government of the EU

deep involvement of social partners in France (Plasschaert and Pochet 2004; Le Cacheux and Touya 2004). In countries where social partners are traditionally strong, such as Germany or Italy, the NAP process is furthermore regarded as a diminution of social partner autonomy. Social partners here perceived the EES as an intergovernmental process and the NAP as a government product and thus do not want to be bound by commitments made in this context. In summing up, the impact of the EES on policy change and adaptation can in nearly all EU member states be characterised as formulated in the fiveyear evaluation of the EES in the case of Ireland: ‘The impact of the Guidelines has been most significant in terms of ensuring a continuing focus on labour market and employment policy at national level, particularly in terms of encouraging regular reviews of such policy and related activities’ (ESRI 2003: 7). Hence, we observe absorption and partly upgrading trends with a convergence of policy agendas rather than concrete transformation of policies. Real policy change can be regarded as strong only in the Netherlands and France while in all other member states under scrutiny it is perceived as medium to weak (see Annex, Table 6.1). Impact on ideas and discourses Given the relevance of public discourse for national policy formation it is important to analyse how far the EES has led to a convergence of ideas and public as well as political discourses through drawing attention to European level activities and by the creation of a common perception of joint European labour market problems and employment policy solutions. Even if – especially after the Lisbon summit – there was an initial media interest in the EES, as in the case of Austria (Huber 2004) or Italy (Fantacone 2004), it faded during the lifetime of the strategy. This initial interest focused on the discussion of selected labour market indicators such as the employment rate in contrast to the former concentration on unemployment rates. The first Austrian NAP was widely discussed in the media and also the 1999 NAP was referred to in news coverage, but afterwards and especially with the government change the public debate became less intensive. Because of its technocratic and complex nature, the EES found little attention in the public discourse in Belgium, Ireland and Portugal (Plasschaert and Pochet 2004; Lynch 2004; Cadeiras 2004). In Germany and the UK reporting and coverage was mainly event-driven in the context of European events like European Council summits (Thiel 2004; Hodson 2004). In addition, the public debate on the EES in the UK was very limited. Generally, public discourse on employment policies is still mainly influenced by national priorities, reforms and strategies. As a response to this weak perception of the EES, only Sweden launched an EES information campaign in 2002 (Jacobsson and Vifell 2004). Real and lasting incorporation of the topic into the national discourse could thus not be established.

Europeanisation of Governance Through Policy Co-ordination? 109

Incorporation of new ideas and changes of attitude due to the EES is most noticeable in relation to topics such as the increasing relevance of employment levels, gender mainstreaming, education and lifelong learning issues and their connection to labour market policies, policy co-ordination with a broader approach to labour market policies and evaluation of employment policies. Thus, the EES may have ‘made it more popular’ to reflect on and introduce certain policies for issues such as gender equality, older workers, flexibility of working arrangements, activation measures, with a shift of attention to the individual or the integration of disabled people and ethnic minorities into national employment policy agendas. With a view to the transposition of these ideational changes into national employment policies, a main problem for a greater visibility of the EES in national public discourses seems to be that new policies or reform initiatives are not rhetorically related to the EES. National perceptions and definitions still dominate concrete employment policy-making at the national level. Nevertheless, national officials perceive the EES positively when it comes to the aspect of information and best practice exchange. Hence, while ideational change can be located between absorption and upgrading in most member states and upgrading to partially transforming in Austria and the Netherlands, the adaptation of the national political deliberation to the EES tends towards inertia or absorption in all member states except the Netherlands, where it is regarded as closer to upgrading (see Annex, Table 6.1).

Making sense of the findings: comparing Europeanisation effects across governing modes and countries This section summarises the findings of the previous two sections and highlights differences in Europeanisation effects among two main modes of governing as well as among countries. Moreover, it advances some explanations of the observed variations among member states. In order to systematically compare the findings elaborated above, we asked national rapporteurs to translate their analysis into standardised measures of impact (‘Inertia’ ⫽ 0, ‘Absorption’ ⫽ 1, ‘Upgrading’ ⫽ 2, ‘Transformation’ ⫽ 3). While the scope for the interpretation of such figures is necessarily limited, they do provide a useful complement to the rich empirical analysis in so far as they point to important differences in impact across governing modes and member states.3 When surveying the extent of adaptation to Europeanisation pressures and incentives across the different categories, we found that absorption and upgrading were the most common phenomena. In terms of our ideal-type outcomes, this would mean that the national experts see the national practice of economic policy-making somewhere in the middle between loose co-ordination and tight network governance. None of the different dimensions of political change exceeded on average the assessment of moderate Europeanisation in

110 Economic Government of the EU 3 2.5 2

1.8 1.85

1.85 1.7 1.45 1.6

1.5

1.8 1.8 1.7

1.71 0.8

1

1.7

1.47

1

0.5 0 Fiscal policy co-ordination

Employment policy co-ordination

Institutional

Procedural

Governmental

Discourse visibility

Attitudinal change

Average

Non-governmental

Measurement: 0 = inertia, 1 = absorption, 2 = upgrading, 3 = transformation Figure 6.1: in 2003

Standardised Europeanisation measures across policy co-ordination modes

the form of upgrading, some important differences among member states notwithstanding (see further below). The second finding is that hard policy co-ordination has caused a greater degree of adaptation than its softer counterpart (see Figure 6.1). The national experts’ assessment was that fiscal policy co-ordination has on average led to a mixture of absorption and upgrading of national systems (average value of 1.71). Upgrading was most pronounced in the area of institutions as well as in the area of discourse and ideas. This was primarily due to the establishment of national stability pacts and cyclical funds whereas the second is caused by the intensification of debates concerning compliance with the 3 per cent deficit limit and the excessive deficit procedure. In sum, however, the provisions for fiscal policy co-ordination have led only to very selective upgrading of national policy-making processes, actors and institutions, and not to the kind of transformative changes which would have been needed to make fiscal policy co-ordination work at the domestic level, such as changes in the relationship between Bund and Länder in Germany. Employment policy co-ordination was mostly characterised by weak to moderate adaptation trends (average value of 1.47, that is more absorption than upgrading). Upgrading was most pronounced in intra-administrative policy-making procedures, which is largely due to the need to comply with the requirements for inter- and intra-ministerial co-operation for the production and implementation of the NAPs. In contrast to its fiscal counterpart, employment policy co-ordination did not lead to much institutional innovation. It did, however, encourage greater participation and involvement of social partners and interest groups, even if changes were at best moderate. In some countries, like France, Portugal or Sweden, the EES offered the trade

Europeanisation of Governance Through Policy Co-ordination? 111

unions an additional platform for consultation on employment policies. Based on the four pillars of the employment guidelines (see also Chapter 2), which in turn are underpinned by different economic policy philosophies (improvement of the working of labour markets through deregulation, supply side reform, active labour market policies) the EES thus empowered different actors. We could observe also some ideational changes, but not via public discourse where the impact was very weak, but via the EES’s influence on administrative elites and expert networks. When comparing the Europeanisation effects of different governing modes across the dimensions of our enquiry, we see some, but certainly no pronounced differences. Fiscal policy co-ordination has made on average a moderately stronger impact on member states in the range of half a unit value. Therefore, the two policy co-ordination modes are not worlds apart in their potential to Europeanise member states. Yet, when looking closer, we do note that their ‘genetic’ differences as spelled out in more detail in Chapter 2 by Meyer, Linsenmann and Wessels, especially the hard sanction element, the quantitative targets, and the stronger peer pressure element, did translate into differences in Europeanisation impact. For instance, we saw stronger effects for fiscal policy co-ordination in the area of ideas and discourses and institutional changes, whereas soft co-ordination caused more procedural changes and a greater involvement of non-governmental actors. However, these differences did not translate into more policy-related or strategic change at the level of governmental or non-governmental actors. Indeed, we have found evidence for policy changes in a number of cases even if they were not very costly and went almost unnoticed in the broader public sphere. In the area of fiscal policy co-ordination, policy change is more difficult to trace back to the SGP, but was clearly much more contentious and often resisted by national policy-makers. Therefore, the degree to which the legal DNA of a policy co-ordination mode is considered ‘harder’ does not allow us to make a credible forecast of its impact across all Europeanisation dimensions, but only with regard to some of them. We also noted that differences between member states were more pronounced than between governing modes (see Figures 6.2 and 6.3). This observation applies particularly to fiscal policy co-ordination where the standard deviation among member states was much higher than in the case of employment policy co-ordination. About half of the member states responded quite strongly to the fiscal policy constraints and reacted through upgrading and even in some cases transforming in some respects (for instance in Portugal, Germany, Belgium, Ireland, Italy) whereas in others Europeanisation has been fairly limited (France, Netherlands, Sweden, Austria and the UK). In particular, one can see significant differences in Europeanisation with regard to the institutional/legal dimension of domestic fiscal policy-making, which has been altered in significant ways in Belgium, Portugal, Germany and Italy.

112 Economic Government of the EU

3 2.5 2 1.5 1 0.5 0

A

B

F

D

Institutional & procedural

IRL

I

NL

P

Policies & strategies

S

UK Average

Discourses & ideas

Measurement: 0 ⫽ inertia, 1 ⫽ absorption, 2 ⫽ upgrading, 3 ⫽ transformation Figure 6.2: Standardised Europeanisation measures across member states: fiscal policy co-ordination

3 2.5 2 1.5 1 0.5 0

A

B

F

D

Institutional & procedural

IRL

I

NL

Policies & strategies

P

S

UK Average

Discourses & ideas

Measurement: 0 ⫽ inertia, 1 ⫽ absorption, 2 ⫽ upgrading, 3 ⫽ transformation Figure 6.3: Standardised Europeanisation measures across member states in 2003: employment policy co-ordination

How can one account for these differences? Even though we did not set out to test the misfit thesis (see Börzel and Risse 2000: 5; Risse et al. 2001: 7, Treib 2003), according to which the likelihood of change depends on the degree to which national arrangements are incompatible with European demands, we can see their utility as a functionalist starting point for the likelihood of change, which would need to be further unpacked. For instance, one would have to consider the wider implications of certain policy commitments and

Europeanisation of Governance Through Policy Co-ordination? 113

restrictions, such as the degree to which some countries’ fiscal balances were dependent on sub-national authorities’ taxing and spending policies. This kind of interdependence increased pressure on authorities to take concrete steps to introduce new institutions and procedures to bind lower levels of governance into the fiscal discipline requirements of EMU and the SGP. Yet, at the same time, the existence of such a misfit does not constitute a sufficient explanation of the strength of change. The impact tended to be stronger in those countries which had contemplated change already for some time before the coming into force of the SGP and for primarily domestic reasons, as in the case of Belgium. In other countries, such as Germany and Italy, weak national stability pacts were introduced without dramatically strengthening central government or constraining sub-national authorities’ ability to run deficits, because of missing or unworkable sanction mechanisms. The real puzzle for the misfit thesis concerns the area of fiscal policy co-ordination: Why did countries like Germany and France come under so much adaptation pressure and why did they choose to evade the constraints at a certain point, instead of implementing costly changes? One answer to this question seems to be asymmetric vulnerabilities: on the one hand, it has been argued by Le Cacheux in Chapter 3 of this volume that larger economies are more vulnerable to restrictions of their fiscal policies within the SGP framework in comparison to small and open economies, which can more easily influence their fiscal balances through trade and benefit more from joining monetary union through lower interest rates. At the same time, larger economies are politically less vulnerable to both formal and informal sanctions. In comparison to small member states, they perceive themselves to be less at risk of being outvoted and isolated in the Council – and at the same time as more legitimate in pursuing their own national development path even if it conflicts with European demands and criticism (as in Italy and France). A complementing factor is the existence of strong informal or formal veto positions within a political system, which may severely constrain executives’ ability to push through certain measures. Strong trade unions, fragile coalition governments, constitutional obstacles, joint-decision traps and the blurring of accountability between national and sub-national authorities have all contributed to the perception that some large countries (especially Germany) are inherently unable to implement any kind of farreaching reform agendas. When accounting for the national differences with regard to public discourse and ideas (as in Ireland, Italy and Germany), the degree of support for European integration in public discourses becomes an important variable. In all three countries the political and media elites are generally quite pro-European and may be therefore more receptive to guidelines, recommendations and criticisms coming from ‘Brussels’ than other countries such as France and the UK. Indeed, concern over national sovereignty is an important factor for

114 Economic Government of the EU

understanding relatively weak Europeanisation in the UK, and also in France. Indeed, a precondition for these differences to emerge in the first place is the existence of a conflict between EU and national level over complying with the rules, because only EU criticism would provide opposition parties and interest groups with attractive ammunition in domestic discourse. Therefore, moderate or strong Europeanisation trends regarding this dimension of political change depend on a combination of what we would call a structural policy misfit and a general receptiveness at the level of elites for EU criticism in domestic debates. In the area of employment policy co-ordination we find that the differences in member states’ adaptation are considerably less pronounced, with the exception of the UK, which has successfully shielded domestic political debates from the few potentially controversial European recommendations, while at the same time having most of its main policy concepts in the area of employment legislation in line with those of the EU level. Impact on discourses and ideas was upgrading only in the Netherlands, while impact on policies and strategies seems to be strongest in the Netherlands, Ireland, Germany, France and Austria, where we witnessed upgrading effects with some limited trends towards transformation. Apart from this case we generally find mostly moderate Europeanisation effects of employment policy co-ordination with instances of institutional and procedural upgrading in Portugal and Austria. Both are comparatively small countries with relatively strong involvement of social partners. Portugal has been particularly committed to the structural reforms as part of the Lisbon strategy, which was launched by the Portuguese presidency. The pace of reforms in various sectors, including the labour market, accelerated further after the coming into power of the Social Democrat/ Christian Democrat government, following growing dissatisfaction with the Socialist government’s record in running the economy, particularly after the sudden jump in public deficit figures from 2000 to 2001. In Austria, the change of government in 1999, after four decades of Social Democrat rule, prepared the ground for a greater readiness to contemplate a reform of existing employment legislation.

Conclusion: soft governance, weak Europeanisation? This chapter has drawn on the key findings of successive rounds of national reports on the practice of policy co-ordination in two policy fields in ten member states between 1997 and 2003. The studies do not yield a single, but many, answers to this question, as one needs to differentiate between the different policy co-ordination modes, types/characteristics of countries, and kinds of adaptation and reactions. Yet there is also scope for cautious generalisations, which indicate that Europeanisation has been at best moderate, and on balance smaller, than those actors who signed the legal provisions for policy co-ordination in Amsterdam in 1997 seem to have expected. Policy

Europeanisation of Governance Through Policy Co-ordination? 115

co-ordination modes have only in a small number of countries led to transformative changes in the administrative set-up, actors’ policy preferences and strategies, and domestic public debates and policy ideas. On average therefore, domestic arrangements for economic governance are thus too ‘sticky’ for the incentives and constraints of these softer governing modes to bring about the kind of changes necessary to observe the ideal-type of tight network governance, not to mention a transformation towards supranational decisionmaking in economic policy. This part of the findings may not come as a surprise and differs from other Europeanisation studies on first pillar issues such as the area of labour law (Treib 2003; Falkner et al. 2005), where EU directives have to be transposed into national law, even if some leeway is given as to how and when that can be done. It is also extremely hard to predict, given the importance of domestic factors such as changes in governments and partisan politics, which country is likely to adapt to what extent in which area. Given the weakness of both EU sanctions and incentives, persistent or repeated non-compliance remains a distinct possibility, especially for the larger countries. Yet there are important qualifications to be made. Policy co-ordination, both in its hard and soft form, has caused upgrading effects with regard to some dimensions of national political systems. For instance, employment policy co-ordination did help to introduce some changes in national agendas, policies and ideas in a number of countries and with regard to some issues. It also helped to bring about changes in national consultation and policy-making procedures and interactions among political and non-governmental actors, as Jacobsson and Vifell elaborated in more detail in Chapter 4. Moreover, the provisions for fiscal policy co-ordination were capable of contributing to the setting up of new institutions for the conduct of fiscal policy as well as influencing the course of national fiscal policy, even if there can be legitimate doubts as to how effective these new institutions are likely to be (as in Italy and Germany). We have accounted for these differences in Europeanisation by highlighting the asymmetric vulnerabilities between large and small countries in Europe, focusing on their varying ability to comply with the fiscal rules of the SGP on the one hand, and the credibility of threats of political exclusion and sanctions on the other hand. Moreover, we have noted that some countries were generally less able to implement transformative changes against political resistance given the existence of informal or formal veto positions within the national political systems. Finally, the attitudinal attachment to European integration in general and the purpose of fiscal policy co-ordination under EMU was seen as a factor in explaining differences in Europeanisation beyond a ‘goodness of fit’ test. This means that stronger Europeanisation phenomena could be found in the small and more federally organised states with strong domestic veto players. The impact was strongest in the area of discourses and ideas, and to a lesser degree in the area of institutions, where national stability pacts (with weak

116 Economic Government of the EU

sanction mechanisms) were set up. Finally, member states traditionally more concerned about a loss of national sovereignty found it more difficult to use ‘Brussels’ as a stimulus for reforms. Since European Union voices carried relatively little influence in domestic politics and public discourse, as shown in more detail in Chapter 10 by Meyer and Kunstein, reforms through the back door of Brussels were hardly ever initiated in these countries, or if they were, they were done without any reference to the origins of such changes. In marked contrast to the convergence process with the strong incentive of becoming an EMU member, we could see that even in the area of hard policy co-ordination, governments hardly ever used EU guidelines or recommendations to further contentious policy proposals. Given that soft policy co-ordination in the field of employment policy has failed to bring about more than moderate changes, our study raises doubts about whether selfco-ordination modes can be more than a supplement to the national process of formulating, deciding and implementing national socio-economic policies. This should be reason enough to caution against bold statements by the European Council associated with the relaunch of the Lisbon strategy, which aims to bring about such kind of transformative changes of national economies, thereby raising expectations towards policy co-ordination that cannot be met. A greater sense of realism underpins the report by Wim Kok (2004) to the European Council on the reform of the Lisbon strategy but then goes on to propose reform steps aimed at fostering implementation and national ownership. Our findings seem to indicate that national adaptation will remain very limited unless heads of governments are prepared to touch the genetic code of policy co-ordination by bringing the ‘shadow of hierarchy’ (Héritier) or finding stronger incentives to foster compliance and reform.

Notes 1. We have added ‘upgrading’ as an additional measurement, agreeing with a comment made by Thomas Christiansen concerning the need for a further intermediate grade to ensure equidistance between the four values. 2. The legality of this move of 25 November 2003 has been challenged by the European Commission on procedural grounds in the European Court of Justice (European Commission 2004b). The Court declared member states’ decision to suspend the application of the pact as void on procedural grounds, but emphasised that the Council was free in its decision on whether or not to follow the Commission’s recommendations. So no decision on the substance has been taken. 3. We had to make sure that the criteria on which the experts’ assessments were based were made explicit, so that their assessments were comparable and consistent. At times this meant adapting the evaluations in order to ensure consistency with the empirical accounts contained in the text. An overview assessment of how the different member states adapted according to the indicators can be found in the concluding section and the annex.

Annex Table 6.1:

The impact of the EU employment policy co-ordination at the national level

Indicators of national adaptation

Sweden

Netherlands

United Italyi Kingdom

Ireland

Germany

France

Portugal

Belgium

Austria

Average

Procedural change Institutional change Governmental actors (policy) Non-govern. actors Adaptation of public discourses Change of ideas Average

2 0.5

1 0

0 0

1 1

2 1

1 0

2 0

3 2

2 1.5ii

2 2

1.7 0.8

0.5

3

0

1.5

2

2

3

2

1.5

2

1.8

2.5

1

2

2

2

2.5

2

1

1

3

1.8

1

2

0

1

1

1

1

1

1

1

1.0

1 1.25

2.5 1.58

0 0.33

1.25 1.29

2 1.66

2 1.41

2 1.66

2 1.83

1 1.33

2.5 1.92

1.7 1.47

i Average value of adaptation during the period until May 2001, when the Berlusconi government came into power and adaptation went down by an average of 1 value. ii A new body has been created (ENIAC), but mainly for co-ordination with the structural funds. Its position within the administrative system is still weak.

117

118

Table 6.2:

The impact of the fiscal policy co-ordination at the national level

Indicators of national adaptation

Sweden

Netherlands

United Italyiii Kingdom

Ireland

Germany

France

Portugal

Belgium

Austria

Average

Procedural change Institutional change Governmental actors (policy) Non-govern. actors Adaptation of public discourses Change of ideas Average

2 0

1 0

0 0

2.5 1.5

2 1

2 3

1 2

3 2

3iv 2

2 2

1.85 1.45

2

1

0

2

2

2

1

3

3

1

1.60

1

1

2

2.5

2

2

2

1

1

3

1.70

2

0.5

0

2.5

3

3

2

3

1

1

1.80

2.5 1.58

0.5 0.66

0 0.33

2.5 2.25

3 2.17

2 2.33

2 1.66

3 2.5

2 2

1 1.66

1.85 1.71

iii

Average value of adaptation during the period until May 2001, when the Berlusconi government came into power and adaptation went down by an average of 1 value. iv Especially regarding co-ordination with sub-national entities.

7 European Employment Strategy and Structural Funds: Spill-overs Towards Communitarisation? Ines Hartwig

Introduction1 Modes of self-co-ordination, especially the Open Method of Co-ordination (OMC) have become very prominent in recent years both among researchers as well as politicians. In particular during the Convention on the future of Europe, a number of Convention members called for an introduction of the OMC into the Constitution as one of the decision-making procedures.2 Without being explicitly labelled OMC, Article III-213 of the Constitution signed in October 2004 stipulates co-ordination and benchmarking for areas such as social protection, vocational training and health-related areas. As reasons for the support of OMC in these policy fields Convention members often stated that OMC does not entail supranational legislation, and that it leaves the decision-making competences to the national level. OMC in employment policy is ‘mostly relying on each other to act as mutually supporting agents, rather than handing over policy-shaping powers to an independent institution’ (Wallace 2001: 592). The area where policy co-ordination is used extensively is the European Employment Strategy (EES). Employment policy is considered to be a very sensitive area because it touches upon dominant beliefs, values and traditions of society (Esping-Andersen 1990; Moravcsik 2002; Scharpf 2002; Schmid 2002). Therefore OMC was considered to be particularly suitable for the EES because it establishes ‘structures and arrangements that marry established systems of national governance with overarching (but not monolithic) EU regulatory frameworks’ (Teague 2001: 21). The EES thus remains in the intergovernmental sphere of the EU (De la Porte and Pochet 2002), in that it was thought to constitute a separate compartment in the EU system of governance. This understanding of OMC is the starting point of this chapter’s research which focuses on the following questions: Does the EES, five years after its creation, continue to function in a separate compartment of the European system of governance? Or can we observe growing interlinkages and spill-over with Community policies also targeting employment? In financial terms, 119

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the EU’s most important policy instruments to combat unemployment are the structural funds. In particular the European Social Fund (ESF) is often referred to as the main financial instrument at European level contributing to EES objectives. Based on article 146 TEC it is the oldest of the four structural funds,3 put in place in 1960. It is tasked ‘to render the employment of workers easier and to increase their geographical and occupational mobility within the Community, and to facilitate their adaptation to industrial changes and to changes in production systems’ (article 146 TEC). Consequently, the EES and the ESF are linked together in a functional relationship in a way that could lead to a gradual upgrading, or ‘hardening’ of soft policy co-ordination as suggested in the theoretical expectations elaborated in Chapter 2. Among students of European integration, there is little dispute that governance beyond the level of the individual member state is a fact (Puchala 1999: 327). This European system of governance has developed shared norms, routinised practices, and formalised rules and procedures, which are part of the acquis communautaire (Banchoff 2002: 18; Shaw and Wiener 2000). In addressing questions on the European system of governance and its changes, a large group of scholars adhere to the concept of institutional stickiness or robustness and path dependence (Alexander 2001; Crouch and Farrell 2002; Offe 1995; Pierson 2000; Thelen 19994). In recent years, however, theoretical reflections and empirical research on the EU system of governance has moved from the question ‘who decides what’ (Kohler-Koch 2002b: 3) to ‘trace the precise conditions that induce relevant actors to support a new logic of appropriateness, reorient their behaviour, accept formerly excluded actors as legitimate partners in the policy making arena and engage in different patterns of interaction’ (ibid, p. 6). In trying to explain changes in governance structure different schools have evolved. A group of researchers around Börzel and Risse argue that the EU exerts adaptive pressure to close the gap between norms and practices of the EU and its member states (Börzel 2002; Börzel and Risse 2000; Knill et al. 1996). Others suggest a slightly less strong impact of the EU on national politics and polity. They argue that domestic reform processes are often complementary or convergent to EU processes and can therefore not be distinguished from the adaptation to EU norms (Conzelmann 1998; Goetz 2001a, 2001b; Grabbe 2001). Yet other studies distinguish between policy and polity convergence. Adaptation or convergence in the former does not necessarily lead to similar effects in the latter (Héritier 2001). In particular in those policies where EU norms prescribe an elaborated institutional structure for the national level, a considerable degree of convergence between the member states has been observed (Knill and Lehmkuhl 1999; Radaelli 2000). In order to detect possible differences between policy and polity changes in the relationship between EES and ESF, this chapter will distinguish between three dimensions of policy-making, namely: the legal, the strategy formulation and the administrative dimension (Le Roy 1999: 388). The legal dimension

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is primarily linked to and shaped by the EU level of governance and actors involved at that level. However, in broadening the analysis beyond this level, the chapter assumes that the legal basis will not be the ‘basis of all actors’ behaviour’ as Garret and Tsebelis argue (2001: 356). Instead the legal basis will provide a kind of skeleton for the other two dimensions of EU policy-making to develop. The latter two dimensions, that is strategy formulation and the administrative dimension, have largely been interpreted as the result of ‘the “pressures for convergence” coming from above’ (De la Porte et al. 2001: 302; Biagi 2000: 159). Convergence at these two dimensions of policy-making is seen to be the result of policy learning and policy co-ordination at all levels of EU governance (Philippart 2002; Girerd 2002). The neo-institutionalist approach explains changes within but not between certain policy areas. The neo-functionalist school of thought has referred to the concept of spill-over in explaining governance changes and changes in the relationship of different sectors. Traditionally, scholars have distinguished two types of spill-over: those which are essentially technical or functional, and those that are more of a political nature and result from political linking of agendas (Burley and Mattly 1993: 55; Stroby-Jensen 2000: 74). The concept of functional spill-over is based on the assumption that the different sectors of modern industrial economy are highly interdependent and that any integrative action in one sector creates a situation in which the original goal can only be assured by taking further actions in related sectors (Lindberg 1963: 10). ‘Political’ spill-over however refers to the shift of expectations, and the changing of values (Miles et al. 1995: 180). In the words of Nye (1971: 202) political spill-over occur when ‘[p]roblems are deliberately linked together into package deals not on the bases of technological necessity but on the basis of political and ideological projections and political possibilities’. For our purposes, another type of spill-over, cultivated spill-over, can be usefully identified (Tranholm-Mikkelsen 1991; Niemann 1998; Bradbury 2003; Dapaah-Agyemang 2003). Cultivated spill-over refers to the ‘independent role of new centres of authority in moving the integration process forward’ (Porter 2003: 526). In theoretical terms, the main research question of this chapter is, whether and what type of spill-over has occurred between the EES and the ESF. Did functional spill-over result in linking the policy output, co-ordination procedures, or institutions of the two processes? Or can we observe political spill-over in the sense that the two distinct policy agenda and interests came to be strategically linked? Following from that overarching research question the chapter will also explore whether spill-over mainly stemmed from the EES process or from the ESF. The direction of the spill-over is indeed important because in the longer run it may lead to a communitarisation of the EES or – if spill-overs take the opposite direction – a de-communitarisation of the ESF. Which actor or group of actors was the main supporter or opponent of spill-over? Did actors’ preference towards communitarisation change over time?

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Different frameworks of policy-making: the European Employment Strategy and the structural funds The Amsterdam Treaty and the 1997 Luxembourg European Council meeting established the European Employment Strategy (EES) which was thought to accommodate the different traditions and values of the EU member states (see also Chapter 4 by Jacobsson and Vifell). The EES is based on policy co-ordination and benchmarking rather than on legally binding acts. It focused on four thematic pillars: employability, adaptability, entrepreneurship and equal opportunities. The EES is implemented by a rolling programme which essentially consists of five stages: (1) following the Council’s decision on the Employment Guidelines for the member states and country-specific recommendations (2) every member state draws up a National Action Plan (NAP) which describes how these guidelines are put into practice nationally. Based on (3) a Joint Employment Report of the Commission and the Council, (4) the European Council examines the employment situation and adopts conclusions on the Employment Guidelines. The Commission then (5) submits proposals for revised Employment Guidelines and country-specific recommendations. Until 2003 the EES continued to evolve along the lines set out in 1998. However, following growing criticism and in the light of enlargement, it was fundamentally revised both with regards to its targets and its calendar. In July 2003, the Council decided to replace the four thematic pillars by three overarching objectives: full employment, quality and productivity at work, cohesion and an inclusive labour market (Council of the EU 2003, Annex). As regards the calendar, the European Council of Barcelona in March 2002 had decided to synchronise the adoption of the Broad Economic Policy Guidelines (BEPGs) and of the annual EES. In July 2003, the Council decided to give the EES – together with the BEPGs and the Internal Market Strategy – a three-year perspective (Council of the EU 2003, point 6). Annual revisions of the guidelines should only take place in case of major change. Although the structural funds have always been considered as the main financial instrument to support the EES objectives, they nevertheless differ significantly from the EES in terms of their legal status, decision-making competence, objectives, procedures and instruments. The structural funds have a long-standing tradition in the EU. Although regularly reformed, the current principles were introduced as early as 1988. Consequently, the procedures and institutions are well embedded in the European multilevel governance structure. The structural funds are governed by supranational legislation. Hence not only does the Council decide about the regulations but also the European Parliament is a powerful actor in this legislative process.5 The regulations themselves also stipulate a much stronger role than the EES for both the EU institutions as well as regional actors in the member states. The funds are allocated via Objective 1, 2, and 3 programmes6 or via the four Community initiatives.7 The structural funds are

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very much rule-driven by being enshrined in multi-annual programming documents prepared by the member states and adopted by the Commission. In order to modify these programmes, member states have to follow a cumbersome procedure. Structural funds are much broader in scope than the EES. They are geared towards all elements of regional development and not just employment. The financial means allocated to the structural funds are programmed in multi-annual financial perspectives and drawn from the EU budget with co-financing from national budgets required. In spite of these fundamental differences between EES and structural funds, the last structural funds reform of 1999 codified a previously informal functional relationship between the EES and the structural funds. Namely, it formally endorsed the proposition that the structural funds should contribute to achieve EES objectives. Given the fundamental differences between the EES and the structural funds outlined above, this functional relationship is essentially based on a ‘constitutional asymmetry’ (Scharpf 2002: 645).

The legal-constitutional level: setting the basis for a functional relationship? Primary legislation envisages employment both as a horizontal principle of the European integration process as well as a sectoral policy. Employment as a horizontal objective can be found in article 2 of the Treaty establishing the European Community (TEC), which sets out that all Community policies should strive to achieve a high level of employment. Employment thus constitutes one of the horizontal objectives of the EU.8 Employment as a sectoral Community policy is codified in Title VIII TEC that includes the provisions governing the Luxembourg process. The rules governing the structural funds are to be found in various Treaty articles. Title XVII TEC sets out the general principle of economic and social cohesion. Fund-specific provisions on the European Agricultural Guarantee and Guidance Fund, Guidance Section (EAGGF) and the ESF are outlined in the respective sectoral Treaty chapters. Remarkably, the ESF is not linked to the employment provisions but to the provisions governing the EU social policy. Article 146 TEC sets out that the ESF ‘shall aim to render the employment of workers easier and to increase their geographical and occupational mobility within the Community’. This provision has remained the same since the Treaty establishing the European Economic Community of 1957. At Treaty level, the structural funds and the EES are thus linked by the strategic priority of achieving a high level of employment. This is a rather indirect link, which is not limited to the structural funds but refers to all EU policies. Beyond that link the Treaty does not include any sector-specific references to a functional relationship between the EES and the structural funds. In contrast to primary legislation, secondary legislation does stipulate such a specific functional relationship. The preamble of the general structural funds

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regulation calls for a revision of the regulation governing the European Social Fund in order to take account of and implement the EES. Consequently, every member state ‘shall demonstrate . . . that the priorities planned are consistent with the prevailing national employment plan.’9 The ESF regulation strengthens that link by stating that the ESF should in particular contribute to the actions undertaken under the EES. Although this leaves the concrete allocation of funds to individual employment objectives up to the member states, the regulation makes it very clear that the ESF is indeed targeted to support EES objectives. As regards the other three structural funds, none of the other fund-specific regulations stipulates such a strong link to the EES. Only the European Regional Development Fund (ERDF) and the EAGGF regulations include a reference to the policy objective of creating sustainable jobs without explicitly mentioning the EES.10 The Financial Instrument for Fisheries Guidance (FIFG) regulation does not include any reference to job or employment creation as an objective of FIFG activities. At first sight, these provisions seem to be straightforward. Following the principle of subsidiarity, they leave member states the choice as to what extent they want to link the structural funds with their national strategy to implement the EES. Although this is certainly true at an operational level, the provisions nevertheless are incoherent with regard to their inherent logic. Primary legislation and the preamble of the general legislation envisage a high level of employment as a horizontal objective, which should consequently be taken into account by the activities of all structural funds. In contrast, the fund-specific provisions follow a sectoral or vertical approach to the four funds. They establish the ESF as the sole financial instrument of the EU to support the EES objective at European level. The other funds’ activities may – if at all – contribute to EES objectives in an indirect manner. Thus in spite of the horizontal principle, which covers all structural funds, the vertical and fund-specific provisions only refer to the ESF. To conclude, the legal-constitutional level does not establish a clear approach to the functional relationship between EES and structural funds. On the one hand, it shows signs of political spill-over, in the sense that the decision-makers when adopting the 1999 regulations formally allowed that the ESF tasks include support for EES objectives. On the other hand, it includes a deliberate compartmentalisation and separation between the EES and the structural funds. Given the constitutional asymmetry between the EES and the structural funds, these mixed messages are likely to create frictions or at least different interpretations during the strategy formulation and administrative phases.

The strategic level: synergies or patchwork? Consistently since the very introduction of the European Employment Strategy, the European Commission has clearly considered it necessary that the EES and the ESF priorities should be co-ordinated and that there should

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be ‘consistency of assistance from the structural funds with employment policy’ (European Commission 2002e: 5). The ‘plans, drawn up on the basis of common Employment Guidelines adopted by the Council, will serve as the overall framework for measures to support employment policies under the structural funds’ (European Commission 1999a: 2). The Commission also used its powers under the structural funds to encourage the member states in linking the ESF and the EES. When the Commission negotiated the structural funds programming documents for the period 2000–6 with the (old) member states, it also aimed at ‘better quality programming [by] taking account of the Commission’s horizontal priorities’ including employment (European Court of Auditors 2003: 29). With regard to the new member states, it seems that the Commission emphasised the linkage between ESF and EES even more strongly. The ESF programming ‘documents must . . . clearly demonstrate the coherence of human resource development strategies and priorities identified in the Joint Assessment Papers’ on employment policies (European Commission 2003c: 12). Consequently, when it comes to programming and strategy development, the Commission’s role is not of an administrative or managerial nature (Olsson 2003: 294). During the strategy formulation phase, the Commission rather acts as an ‘ideational entrepreneur’ (Kohler-Koch 2002b: 7) promoting the functional relationship between EES and structural funds and thereby actively promoting spill-over. At the level of strategy formulation, the Commission pushed for spill-over from the EES to the ESF. It thus considered the EES as a pre-determined strategy which should be incorporated into the respective member state ESF strategy. But not only the European Commission, also the European Parliament (EP) and the European Court of Auditors called for a more pronounced functional relationship. Both institutions thus supported cultivated spill-over from the EES to the ESF by calling for better incorporating EES’s objectives in structural funds programming documents (European Court of Auditors 2001; European Parliament 1999, 2002b). The EP did, however, not only criticise the member states for not sufficiently linking the ESF and the NAP but it was also very critical of the Commission’s approach. It noted in particular that the guidelines for the programming period 2000–6 link the ESF only very loosely to the EES. The NAPs and the ESF interventions should be more integrated. Furthermore, the EP asked the Commission to analyse the possibility of a conditional link between the allocation of structural funds and the performance of the member states in regard to the recommendations in the framework of the EES. Member states that follow the recommendations should receive more structural funds than those that do not (European Parliament 2003c, point 4). Yet the EP’s role in strategy formulation and implementation of the structural funds is very limited. Only when it comes to adopting the next generation of structural funds regulations will the EP be a powerful player. Then, its view on how to interpret the functional relationship between the ESF and the EES will become highly relevant for the Commission as well as for the Council.

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In contrast to the above institutions, the Council did follow a more reluctant and a rather inconsistent approach towards linking the ESF with the EES. When looking at the first five years of the EES, the Council changed its approach to the functional relationship between EES and ESF almost annually. In its decision of 1999 it called upon the member states to strengthen the ESF support for the EES. In 2000 and 2001 the Council resolutions abandoned this dynamic vision of a functional relationship between the EES and the ESF and took a static view. ‘The contribution of the European Social Funds to the European Employment Strategy in the new programming period should be highlighted’ (Council of the EU 2001, point 17). In that formulation the ministers merely called for a more accurate account of the state of affairs. The wording does not aim for a stronger functional link between the EES and ESF. Neither did they address the coherence of the policy output. In 2002, the guidelines do not mention the structural funds at all. In 2003 the approach changed again. The wording of the guidelines suggests that the Council returned to its understanding of a functional relationship between the ESF and the EES. They also called for a coherent approach with regard to policy output. Member states are told they should ‘fully exploit the potential contribution of the Community Structural Funds, in particular the European Social Fund, to support the delivery of policies and to strengthen the institutional capacity in the field of employment’ (Council of the EU 2003). The fact that the ministers took a more cautious approach in 2000 and 2001 than in 1999 and 2003 may be explained by the fact that the negotiations of the structural funds programming documents for the period 2000–6 were at their height in 2000 and 2001. Consequently, the member states’ representatives in the Council were acutely aware of the Commission’s preference for a close link between the structural funds and the EES. They may have opted for a cautious wording in order to rein in the Commission’s ambitions and not to give it another means to interfere in the use of the structural funds in the member states. An alternative explanation for this constantly changing attitude towards the link between ESF and EES could be that the Council itself does not have a clear vision and follows a more ad hoc approach. If this latter explanation is correct, it implies that spill-over processes need to be codified in the legal text in order to be stable over time and to be protected from political ‘mood swings’. As regards the individual member states, all of them have linked their ESF spending strategy to the EES and their individual NAPs. Since 2000 all NAPs include references to the ESF and outline how the NAP takes structural funds priorities on board. Most member states’ structural funds programming documents reflect the EES objectives and include explicit references to them. Figure 7.1 shows the division of ESF funds between the four pillars. In spite of taking on board EES objectives in ESF allocations, most member states included in our research seem to implement this functional relationship in a formal rather than a strategic manner. In particular, the role of the

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NAPs in drafting the structural funds programming documents was very limited. Interviewees from Sweden, Italy, Belgium and the Netherlands confirmed that the NAPs are not seen as a strategic but to a certain extent as an ex-post document stating what the member state has done in the field of employment (Chapter 4). In spite of the Commission’s efforts to establish the EES as the strategic framework for the structural funds in general, and the ESF in particular, it is thus not perceived to have a major impact on priorities and the strategy of the current programming documents. Although the EES may not have triggered changes to the ESF strategy in the different member states, it may nevertheless have influenced the allocation of funds to the different priorities. In order to be able to identify more clearly the impact the EES may have had on the ESF allocation during the programming period 2000–6, it is necessary to compare the current allocation with the one during the previous programming period during which the EES was not yet adopted. Figures 7.2 and 7.3 illustrate the allocation of funds to the different priorities under the former Objectives 3 and 4 during the programming period 1994/5–1999. When the member states drafted the programming documents and their priorities in 1993/4, the EES was not yet adopted. The programmes therefore

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obviously do not include any mention of the EES. Within the limits of the structural funds regulations they only reflect the respective national strategy. The ESF priorities were nevertheless related to the EES guidelines. Under Objective 3, ESF priorities 1 (Long Term Unemployment), 2 (Young), and 3 (Exclusion) relate to the employability pillar. Under Objective 4, the ESF priorities relate to the adaptability pillar. Priority ‘equal opportunities’ under Objective 3 reflects of course pillar 4 of the EES. Based on this broad relatedness in strategic orientation, three observations can be made with regard to the EES impact on fund allocation: (1) The former Objective 3 received a much larger share of the ESF money than Objective 4.11 Translated into EES priorities, this means that employability has received much more money than the adaptability pillar. This corresponds to the fund allocation during the current programming period, where most member states allocated a larger share to employability than to adaptability. Consequently, in the current programming period the decision of most member states to allocate the largest share of ESF funds to the employability pillar seems to result from long-standing

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priorities of national employment policy which does not necessarily coincide with the spirit of the EES (Group van Miert report 2003). (2) Looking at the two programming periods, most member states allocated a similar small share of funds to the equal opportunity priority. However, a few member states increased their share for this pillar considerably. (3) The entrepreneurship pillar had played nearly no role in the previous ESF programming period. This is still the case in the current programming period. Apart from a few exceptions such as France, Spain, Greece and Ireland, the entrepreneurship pillar continues to play a relatively limited role in ESF spending. This may, however, also be due to the very nature of this pillar, which mainly addresses tax and structural weaknesses and is thus less apt for ESF interventions. Although member states made sure that the ESF programmes were coherent with the NAP and EES objectives, they did not fundamentally modify their ESF priorities because of the EES or their NAP. The only exception is the equal opportunity pillar where some member states considerably shifted the funds to this pillar. Whether, however, this change resulted from the EES – as the

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Italian, Belgian or Austrian national reports produced in the framework of this research project suggest – or whether it is induced by the stronger wording on gender mainstreaming in the structural funds regulations of 1999 remains an open question. Overall, however, the comparison of fund allocation of the two programming periods confirms that the guiding principle in allocating the ESF remains mostly a national priority and only to a lesser extent an EES objective. This confirms the interviewees’ overall impression that the EES does not play a strategy formulating role. The EES and the NAPs are built into the programming documents only after drafting the documents. Hence it is an ex-post rather than ex-ante exercise. In terms of linking the two processes together, member states seem to accept the linkage between ESF and EES codified in the regulations and further supported by the Commission. They do not, however, actively push for further spill-over; they simply respect the legal requirement by absorbing them with minimal changes. One reason for the limited strategic link may stem from the different strategic orientations of the ESF on the one hand and the EES on the other. Until 2003 the EES was divided into the following four pillars: employability, entrepreneurship, adaptability, and equal opportunities. In contrast, the 1999 ESF regulation stipulates five policy fields of intervention: (1) active labour market policy, (2) social inclusion, (3) lifelong learning, (4) adaptable workforce, (5) women’s participation. During the programming of the structural funds, member states allocate their ESF share on the basis of the five policy fields. It is only afterwards that member states demonstrate the strategic overlap between the five ESF priorities and the four EES pillars. This ex-post link between ESF and EES creates friction losses. It is also not entirely objective because it leaves member states some room for interpretation to which specific pillar they want to attribute the relevant ESF measure. For instance, the EES pillar ‘employability’ is related to the following three ESF priorities: active labour market policy, lifelong learning and social inclusion. The EES pillar ‘equal opportunities’ relates to the ESF policy fields of women’s participation and social inclusion. The ESF policy field of adaptability is not only to be found in the EES adaptability pillar but also in the entrepreneurship pillar. The revised EES guidelines of 2003 do not close this coherence gap between strategic orientations of the ESF and the EES. Although they reduce the number of pillars, the scope of the ESF still differs from the scope of the EES. Thus, any overlap or linkage between the two will still have to be demonstrated ex-post since the new guidelines do not mirror the five policy fields of the ESF. A second reason for this limited link between the ESF and the EES may be that in most countries the overall financial importance of the ESF in supporting member states’ active labour market policy is relatively limited.12 That may lead to the conclusion that ‘the link between the ESF’s role as a financial instrument [to] support the EES is particularly evident in the relatively

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poor countries’ where the ESF share in contributing to an active labour market is relatively high (European Commission 2003a). Our findings confirm this conclusion, for example with regard to Portugal. In Portugal, the ESF share of the country’s active labour market policy amounts to 40 per cent (European Commission 2001c, Annex 3). Therefore in this country, the close link between the NAP and the ESF could indeed be explained by the large ESFshare contributing to national employment measures. The NAP is to a large part financed by the ESF (Cadeiras 2004: 269). Yet we have also found cases where this reasoning does not hold. For instance, in Ireland we have found a close link between the NAP and the structural funds strategy. Yet the ESF only contributes to a relatively limited extent, namely to 8.8 per cent of the country’s total expenditure on active labour policy. In Ireland the reason for accepting the link between ESF and EES rather seems to be the overall importance attached to the ESF in comparison to the other structural funds. Ireland has consistently allocated an above-average share of its structural funds to the ESF (Bollen et al. 2000). In the programming period 2000–6, the ESF share represents 33 per cent of Ireland’s total structural funds allocation. The EU average in Objective 1 regions is about 10 percentage points lower than the Irish share (European Commission 2001c, Annex 2). The great importance Ireland attaches to the ESF among the structural funds suggests that employment is not only a national priority but also a priority when it comes to allocating the structural funds. Moreover, the public does not seem to perceive the NAP as a document prepared solely to satisfy EU requirements but as a national policy document (Lynch 2004: 179). This is an exception from the rule, as Meyer and Umbach argue in Chapter 6 of this volume. While the adaptation of the mainstreamed programmes to the EES thus remains rather limited (see also Figure 7.1), the current programming documents of the Community initiative EQUAL show a greater closeness to the EES objectives. Figure 7.4 shows the allocation of EQUAL funds to the EES pillars. This figure leads to the following observations: (1) None of the member states has allocated the same ESF share of funds to the four pillars under EQUAL and the mainstream programmes. (2) Under the mainstreamed programmes all member states allocated relatively more funds to the employability pillar than under the EQUAL programme. For instance, the Netherlands has allocated 94 per cent to employability under its mainstreamed programmes but only 32 per cent of the EQUAL funds. (3) All member states, except France and Finland, have allocated a smaller ESF share to the equal opportunities pillar under their mainstreamed programmes than under their EQUAL programme. The largest differences occur for Denmark (with 31 per cent more under the EQUAL scheme), the Netherlands (19 per cent) and Spain (with 26 per cent difference).

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Adaptability Figure 7.4: EQUAL – breakdown of allocation to the four EES pillars (2000–2006) Source: Figures extracted from the Community Initiative Programmes adopted under EQUAL, 2000–2006.

One reason for these differences between mainstream and EQUAL programmes may be that EQUAL allows more flexible procedures and encourages member states to test innovative approaches. In contrast, the mainstream programmes rely much more on traditional procedures. The EES pillars and the guidelines such as concepts of lifelong learning or active ageing are perceived to require innovative approaches rather than ‘old-fashioned’ training measures. Another reason for these differences may also be that drafting the programming documents for mainstreamed programmes usually involves a wide range of ministries and regional authorities. For Objectives 1 and 2, the Ministry of Employment usually plays a much less prominent role than, for example, the Ministry of Economic Affairs or Finance (Plasschaert and Pochet 2004: 86). The structural funds regulation stipulates that the planning process should not only involve the central level but also the regional and local level as well as representatives of civil society. This is not the case in the EQUAL programming process because it is often solely orchestrated by the Ministry of Employment. A further reason may be that the European Commission is a more powerful player under EQUAL than under the mainstream programmes. In the

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framework of EQUAL, member states can allocate the funds only to those priorities identified by the Commission. For the mainstream programmes, the member states or the regions determine the priorities within the framework of the regulations. Therefore, it can be assumed that the EQUAL allocation of funds is not entirely the result of national priorities but also reflects Commission priorities. This confirms the above finding that the Commission acts as an ideational entrepreneur in strengthening the functional link between the ESF and the EES and promoting further spill-over between EES and ESF. It also leads to the conclusion that the Commission uses the EES to increase its influence on the member states’ allocation of funds because it provides the Commission with the necessary arguments to support its strategy. The member states own the EES. It is based on soft co-ordination and therefore not considered to be a Commission initiative. Taking the EES on board gives the Commission a much stronger negotiation power than, for example, a Commission report or a communication. We can thus clearly observe cultivated spill-over between the ESF and the EES supported by the Commission.

The administrative level: towards a European administrative space When looking at the administrative level and the way in which the functional relationship is managed, it becomes clear that the differences between the EES and the structural funds are deeply rooted in different administrative traditions at national level. In most member states, the Ministry of Employment governs the EES process and is responsible for drafting the NAPs. Nevertheless, other ministries are involved to different degrees depending on their specific areas of competence. Yet independently of the way the NAP is drafted in the different countries the process mostly follows the decisionmaking logic of the respective member state (cf. Chapter 6). This EES structure clearly differs from the multilevel governance structure of the structural funds. Not least because of the broader scope of structural funds’ interventions, their management structure relies on a broader interministerial co-ordination involving different levels of governance. This interministerial co-ordination became increasingly important and intensive after the last structural funds reform in 1999. One might have assumed that this already existing inter-ministerial co-ordination would have been used to contribute to or at least facilitate the process of establishing the functional relationship between the structural funds and the EES. Our findings, however, do not confirm this assumption either with reference to the structural funds in general or with reference to the ESF. During the preparation phase many countries reported some sort of co-operation, although in particular Italy and Sweden reported that this co-operation was mostly initiated by the ESF managers and to a lesser extent by the authorities in charge of the NAP. As

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regards the implementation, co-ordination is much less developed. Only Austria reported that the same departments are responsible for the implementation of the NAPs and the ESF (Huber 2004: 56).13 In the other cases responsibility for the NAPs rests with the departments in charge of national employment policy and not with the department in charge of the ESF. The structural funds implementing structures function in parallel to NAP administration.14 The notable exception to this system is Belgium. Due to its special federal structure, co-ordination between the EES and the ESF was particularly weak. Following a Commission recommendation, the ESF-NAP Impact Assessment Cell (ENIAC) was created. It is tasked to establish a link between the different governance levels and to better integrate the ESF in Belgium’s overall employment strategy. Overall, no new formal institutions have been created to facilitate or serve co-operation between the ESF and the NAP. Thus the dominant national response to the policy requirement was a mixture of inertia and absorption (see also Chapter 6). Moreover, the existing institutions have not formally been adapted to implement the functional relationship and respond to increased co-ordination needs. In theoretical terms we therefore could not observe functional spill-over with reference to procedures or institutions at member state or regional level. Although not formally, some member states such as Ireland, Germany and the Netherlands have responded to the needs of co-ordination by relying on informal procedures. This type of co-ordination is output-oriented and does not require codified procedures or special institutional arrangements. These member states have opted for an ad hoc, pragmatic, and output-oriented approach to linking ESF and EES. Whether this is co-ordination in a formative stage in the sense that it will evolve into a formalised form of co-operation as the fusion thesis suggests will depend on, firstly, the national administrative culture, and secondly the overall acceptance of the functional relationship between ESF and EES. Although for example Ireland seems to accept the functional relationship, its administrative procedures are widely based on informal co-ordination. Therefore it seems unlikely that it will evolve into formalised co-ordination structures in the short run. Another example is the UK where the political elites seem to be less inclined to accept the functional relationship in general. In the UK, formalised co-operation is unlikely to develop in the short run. Our findings suggest that both formal and informal co-ordination are vulnerable to changes in the political environment. The reasons for change seem, however, to be different. Formal co-ordination seems to be more dependent on political changes (Cadeiras 2004: 268; Fantacone 2004: 205). In contrast, informal co-ordination depends on the vested interest of individual civil servants or departments involved. Given this current weak administrative link in the implementation phase it is remarkable that a number of member states seem to accept the link between EES and structural funds

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when it comes to monitoring and evaluation. For most member states’ public administrations, evaluation procedures are a relatively new technique, only introduced with the structural funds (Bollen et al. 2000; Huber 2004: 56). Member states did not need to adapt previously existing procedures in order to follow structural funds rules. A special feature of structural funds evaluation is that it assesses not only quantitative data but also the impact of the interventions both in economic terms and on the system itself. Ireland, for instance, uses the structural funds evaluation system for its national regional policy as well (Lynch 2004). Therefore, when the EES introduced the requirement to evaluate the implementation of the NAP, some member states used the structural funds approach to evaluation. The Austrian and Irish reports state that they use the data for monitoring and evaluating structural funds interventions for the EES too (cf. ibid.). Italy has established a common database for the ESF and the NAP (Fantacone 2004: 219). However, this exchange concerns mostly quantitative data; qualitative data such as the impact assessment or added value of the ESF is hardly given (European Commission 2002f). Again the situation is slightly different for EQUAL for which the Commission defines the rules and procedures to a much larger extent than under the Objective 1, 2 and 3 programmes. The Commission has defined rules which deliberately promote a close link of the management structure between NAPs and EQUAL: • First, it has set up an evaluation mechanism geared to assess the implications of EQUAL in achieving EES objectives. • Second, a database of good practice has been developed which can be used for periodic assessment of the actual and potential impact of EQUAL on the NAP. • Third, for the EQUAL activities ‘thematic networking, dissemination of good practice and making an impact on national policy’, member states are required to establish mechanisms facilitating mainstreaming at both the horizontal and the vertical level, including the NAP (European Commission 2000b: 10). This clearly shows that the Commission does not only act as an ideational entrepreneur in promoting spill-over with regard to policy output but also with regard to procedures. It actively supports the institutionalisation of the functional relationship. In that it seems more to meet the characteristics of cultivated spill-over than functional spill-over. In contrast to the strategy formulation phase, at the administrative level the Commission favours spill-over from the ESF to the EES. It thus takes the ESF procedures and institutions as the benchmark and seeks to introduce them into the EES processes. This confirms our findings that the Commission acts as ideational entrepreneur supporting an incremental linking between ESF and EES.

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Another opportunity to co-ordinate or link the EES with the ESF could be to use communication channels already built up in the structural funds context and integrate the EES into them. Overall, scholars of European integration have underlined the importance of a well-developed system of communication as a tool for consensus formation and propagating common views (KohlerKoch 1999, 2002a). In the framework of the structural funds, the most vivid formal communication channels between a large group of different types of actors and levels of governance are the monitoring committees. A number of those committees established under Objective 3 programmes did indeed discuss the ESF contribution to achieving the objectives as defined in the respective national NAPs (European Commission 2002e). This confirms that civil servants working with the ESF under Objective 3 are aware of the functional relationship even though they do not accept a merger of the procedures. In contrast, as the annual structural funds’ reports show, the majority of monitoring committees under Objectives 1 and 2, whose scope is much broader than employment, did not raise the link to the EES and how the structural funds could serve its objectives. Consequently, as soon as the focus of structural funds support is not exclusively limited to employment as in Objective 3 but of a broader nature, the link to the EES seems to wither away. Although the ESF is also used in Objective 1 and 2 programmes, member states seem to assume that these objectives have ‘longer-standing priorities than the EES’ (Hodson 2004: 306). Another reason may be that only Objective 3 is entirely financed by the ESF while the three other structural funds also contribute to the other objectives. The Commission is very critical about this compartmental management style. The ‘new round of ESF programmes have shown that in most Member States there has been little cross-fertilisation between the national authorities responsible for the preparation of the NAPs and those managing the ESF interventions’ (European Commission 2000b: 73). It is ‘not enough for ESF programmes to incorporate the priorities of the EES if National Action Plans fail fully to integrate the contribution of ESF and other structural funds to the EES’ (European Commission 2001c: 14). In spite of this criticism, the Commission sometimes seems to follow this restricted approach and links the EES only to the ESF and to Objective 3 (European Commission 2003b: 3).

Spill-over and institutional stickiness on the way towards communitarisation The structural funds reforms of 1999 formally introduced the functional relationship between the ESF and the EES objectives into the acquis communautaire. Yet the legal provisions left open how member states should implement this functional relationship into the ‘non-formalised acquis’ (Olsen 2003: 516). Although this is in line with the EU’s traditional modest attention to and priority of administrative issues, the study has shown that establishing the legal

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constitution does not necessarily translate into a living constitution consistent with the legal provisions. While the Commission actively pushes for closer linkages both at strategic as well as administrative level, member states clearly differentiate between the two. They accept closer linkages at the strategy level, but follow a different approach when it comes to implementing the functional relationship at the level of managing the structural funds. The acceptance of the strategic linkage is reflected in the programming documents of all member states. Yet they only accept the functional relationship until it conflicts with structural funds priorities previously defined by the member states. At managerial level this functional relationship is only – if at all – implemented through informal procedures. Hardly any institutions or formal procedures have been adapted to accommodate the functional relationship, which would suggest that the EES has essentially remained in the realm of loose policy co-ordination as outlined in Chapter 2. It can therefore be concluded that the Commission’s strong influence during strategy formulation contributes to the member states’ respecting the functional relationship and thus accepting policy convergence. During the implementation phase of the structural funds the Commission does not have such a strong influence, necessary to allow it to act as an ideational entrepreneur supporting the functional relationship in the member states. Although member states respect the functional relationship during the strategy formulation phase, this positive attitude can in general not be attributed to a change and convergence of preferences, norms or values of actors. On the contrary, it seems that a vast majority of the member states included in this study do not fully endorse the functional relationship between EES and structural funds. They accept the overall principle but most of them do not accept that the link of the ESF and the EES may have consequences on their administrative systems. Rather, member states continue to perceive the EES as being located in a different sectoral sub-system (Bulmer 1994: 377), which links only partly and temporarily with the structural funds’ sub-system (Hodson 2004: 307). This may result from member states’ interest in guarding their administrative autonomy and traditions. Member states’ hesitancy is fuelled by the fact that there is no ‘agreed exemplary organisational model’ (Olsen 2003: 519).15 Although the formal acquis stipulates the functional relationship, it does not exactly make clear what kind of administration and structures are needed. The Commission in particular has used the reform of the structural funds after initiating the EES to pave the way for further spill-over. The reform allowed it to codify the functional relationship in the legally binding text at least to some degree. However, the fact that the EES objectives are taken on board in the structural funds programming documents – even if member states only fulfil a Commission requirement – may gradually induce a shift of expectations and loyalties. As Burley and Mattly (1993: 67) have pointed out, once the rules are established, ‘individuals are entitled to rely upon the assumption that

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social, economic, or political behaviour will be conducted in accordance with that rule’. This development is of course not to be seen as a pre-determined automatism.16 Why are, on the one hand, the member states so reluctant to accept the functional relationship and why is the Commission, on the other hand, so eager to push for it? This question leads to the perception of costs and benefits related to this functional relationship. In contrast to some studies, which point to the quasi-neutral position of the Commission (Beyers and Kerremans 2002: 7; Majone 2001), this study concludes that there are signs of functional, political and cultivated spill-over between the ESF and the EES. In particular, the Commission has a vested interest in spill-over. Moreover, the Commission supports spill-over in a certain direction. At strategy level it supports spill-over from the EES to the ESF. The EES thus serves the Commission as a legitimation to influence member states’ structural funds’ strategies. At administrative level, the Commission favours the opposite direction, namely spill-over from the ESF to the EES. The Commission benefits from this spill-over because it has a much more powerful role in the control of the structural funds implementation than in the Open Method of Co-ordination under the EES. While the Commission can expect clear benefits from spill-over, the expected benefits for the national and sub-national actors are not as clear. On the contrary, if the administration of the NAP was formally linked to the ESF, there would be the possibility that for example the structural funds sanction system and monitoring provisions could equally be linked to the NAP. Another possibility would be to apply the same employment targets stated in the structural funds programming documents in the NAPs. Not reaching the targets in the NAPs could then lead to a reduced funding level under structural funds. With high costs related to policy change and without considerable short-term benefits resulting from it, the inclination to accept or even actively support the functional relationship remains limited (Benz 2000: 25; Kohler-Koch 2002b: 10). The member states’ resistance to introducing the functional relationship into their administrative and institutional structure may not only stem from political reluctance. It may also stem from the ‘institutional robustness’ confirmed by numerous studies (Olsen 2003: 507; Mittag and Wessels 2003). This institutional robustness may be encouraged by the fact that every member state has a long tradition of employment policy. Linking their institutional structure in this policy area with the structural funds will not only require more time but also a change of actors or their relative powers and their expected benefits (Neyer 1999: 395; Pollack 1996: 438; Thelen and Steinmo 1992: 17). In addition, the type of spill-over involved has also contributed to the limited polity change. Overall, the spill-over between EES and ESF is not a political spill-over (Conzelmann 1998; Lindberg and Scheingold 1970; Nye 1971). It is a functional spill-over in the sense that two policy processes are linked with

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each in order the better to achieve both processes’ objectives. However, we did observe mechanisms which fulfil the characteristics of political spill-over. This political spill-over was solely pushed by the Commission and not by the member states. In that sense it could be described as cultivated spill-over (Chapter 2). These findings confirm studies on Europeanisation which distinguish between policy and polity convergence (Héritier 2001). Whereas we could indeed observe some policy convergence, polity convergence remained limited. For the time being, European and national actors continue to be faced with a paradox: the EU has adopted a European employment strategy and provides for a financial instrument to help achieve the objectives of this strategy. But the resulting linkage between its policy strategy and the relevant policy instruments is not codified in the EU governance structure, power relationship, and communicated norms. The Convention’s debate on the OMC has made clear that member states continue to oppose a strengthening of the link between the EES and Community instruments such as the structural funds. The Commission’s proposals for the next financial perspective and the proposed structural funds regulation aim at an even closer linkage between EES and ESF (European Commission 2004a). Whether the member states agree to the Commission’s ideas is yet an open question.

Notes 1. The views expressed here are personal, and should not be taken as necessarily representing those of the Commission, members or departments thereof. Empirical data is drawn from interviews and reports covering eleven member states. The reports can be found at www.govecor.org. I would like to thank Iain Begg, Stefano Fantacone, Janine Goetschy, Kerstin Jacobsson, Andreas Maurer, Phedon Nicolaides, Jacques Pelkmans, Philippe Pochet, Amy Verdun and Wolfgang Wessels for comments on earlier versions of the chapter. The usual disclaimer applies. 2. In fact, although the final report of the Working Group Social Europe supports the inclusion of the OMC into the treaty, the draft constitution does not include OMC as a separate decision-making procedure (European Convention 2003, point 4). For an account of the discussion of OMC during the Convention see Burca and Zeitlin (2003). 3. References to the structural funds cover the European Regional Development Fund (ERDF), the European Social Fund (ESF), the European Agricultural and Guidance Fund, Guidance Section (EAGGF), and the Financial Instrument for Fisheries Guidance (FIFG). 4. The concept of path dependence is particularly questioned by some scholars of rational choice theory. They assume that the outcome of interactions between economically rational actors will lead to efficient outcomes. As regards institutional stickiness, they posit that ‘even when institutional arrangements are not optimally suited to a given environment, they may nevertheless endure because prospective gains from change are more than outweighted by the costs of effecting them’ (Shepsle 1989: 144). 5. Article 161 EC Treaty (TEC) stipulates that the general regulation governing all structural funds is adopted by a unanimous vote of the Council after assent of the

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6.

7. 8. 9.

10. 11. 12.

13.

14. 15.

16.

European Parliament. From 1 January 2007 onwards the Council will decide with Qualified Majority. The ERDF and the ESF regulations are adopted following the co-decision procedure (article 148 and 162 TEC). The adoption of the EAGGF regulation follows the consultation procedure (article 37 TEC). The regions lagging behind in development are covered by Objective 1. They have a per capita GDP of less than 75 per cent of the Community average. Objective 2 is devoted to regions undergoing economic change, declining rural areas, crisishit areas dependent on the fishing industry or urban areas in difficulty. Objective 3 is devoted to the development of human resources. The four CI are: EQUAL, URBAN, LEADER, and INTERREG. With regard to the EES, EQUAL is the by far most important CI. The other horizontal objectives are: sustainable development, innovation and information society, and equal opportunities (European Court of Auditors 2003: 29). Although these provisions only refer to Objective 3, the regulation states clearly that also those member states which do not draw up an Objective 3 plan (that is those states which are entirely eligible for Objective 1 support) have to ensure consistency with the NAP too. See article 1 ERDF regulation, article 2 EAGGF regulation. Objective 3: 12 938 MECU (9.4 per cent of total structural funds) and Objective 4: 2 246 MECU (1.6 per cent). In Belgium, the ESF share amounts to 4 per cent of the country’s total expenditure on active labour market policy. In the Netherlands it is 3.5 per cent, in Sweden 2.8 per cent and in Italy 8.3 per cent. The EU average is 8.1 per cent (see European Commission 2001c, Annex 3). Ireland, however, reported that the ESF and NAP managers are officials within the same division of the same department. Therefore there is a high level of informal contact between a relatively small number of officials (Lynch 2004: 188). See for example in the UK (Hodson 2004: 303), Sweden (Jacobsson and Vifell 2004: 284), and Italy (Fantacone 2004: 216). Studies on administrative convergence and the development of a European administrative space are rather reluctant. Bossaert concludes that European lawmaking and case laws have produced administrative change more or less through the back door (Bossaert and Demmke 2003: 3). Weiler points for instance to European citizenship as a ‘classical European story’. It was introduced with ‘great triumph’ at Maastricht without being followed by ‘decisive steps to integrate it into the legal order of the Union’ (Weiler 2002: 575).

8 Towards a Horizontal Fusion of Governing Structures? Co-ordinating the Co-ordination Processes Through the Broad Economic Policy Guidelines Ingo Linsenmann

Introduction The proper functioning of the European Economic and Monetary Union (EMU) in which an independent European Central Bank (ECB) is responsible for a single monetary policy for the whole Euro area requires a framework for co-ordinating those economic policies that remain in the competence of the member states.1 For this the EC Treaty foresees the adoption of an economic policy, which is based on the close co-ordination of member states’ economic policies (article 4 TEC). At the centre of European economic policy co-ordination are the Broad Economic Policy Guidelines (BEPG) provided for in article 99 TEC. The BEPGs should co-ordinate the various socio-economic co-ordination procedures that have been established by the Treaty, secondary legislation and European Council conclusions in recent years. As the GOVECOR project studies the evolution of new modes of governance through self-co-ordination in the area of fiscal and employment policy and their impact on European integration, the BEPGs are at the heart of our research agenda, because they are considered as the framework and central policy tool for the definition of overall economic policy objectives and orientations and should ensure a coherent and balanced policy-mix (European Council 1999). Similar to the other co-ordination procedures discussed in this volume, the BEPGs aim to achieve common goals, not by means of hard law through the traditional Community method but by a non-binding mode of governance characterised by fixed guidelines and recommendations, benchmarking, consultation, surveillance, peer and public pressure. The BEPGs include nonlegally binding recommendations for the broad range of economic policy – covering macroeconomic policy, labour market and other supply-side policies and sustainable development, both for the EU as a whole and for 141

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individual member states. This kind of governance through self-co-ordination preserves the competences of the member states to legislate in the respective policy areas. It has the positive aim of improving the quality of policy as opposed to constraining discretion (cf. Begg et al. 2003: 73). We have found that during the observation period, the BEPGs have grown in importance, both because of the intensification of fiscal and employment policy co-ordination and because the BEPGs can be considered as the main policy guidelines document for the Lisbon strategy. This chapter seeks to complement the analyses of the Stability and Growth Pact (SGP) and of employment policy co-ordination in this volume by examining European economic policy co-ordination through the BEPGs. It adopts the approach outlined in Chapter 2, analysing the evolution of this particular mode of economic governance since the early 1990s, since the coming into force of the relevant Treaty provisions which are our independent variables. In the research design of the GOVECOR project, alternative scenarios have been elaborated to serve as points of reference for describing and explaining empirical developments on both the European and the domestic levels. We expect to observe common trends in patterns of interactions, either towards a vertical and horizontal fusion scenario across policy areas and levels or alternatively to a situation in which fragmentation trends prevail. These scenarios follow an ideal-type logic; in reality we may find traces of differentiated evolutions described as ‘tight network governance’ and ‘supranational economic government’ (fusion) or the scenarios of ‘hollow’ or ‘loose’ co-ordination (fragmentation). In the first part of this chapter, the scenarios are conceptualised with a special focus on the co-ordination element of the BEPGs process as the perceived main tool for achieving a coherent approach to socio-economic policy-making. The second part will then focus on the evolution and execution of this specific mode of governance, paying special attention to the policy coordination modes of the European employment strategy and the Stability and Growth Pact as well as to both the European and domestic level of governance. In order to do so, this part analyses the intervening variables, most notably political actors’ use of the Treaty provisions and subsequent secondary legislation, the interactions between the actors involved and their participation patterns. It will be followed by an evaluation of the effectiveness and the impact the BEPGs have had so far on European as well as on member states’ socio-economic governance. The chapter concludes with an attempt to provide an overall evaluation of the findings within the scenarios of the project. The article is based on the empirical findings of the GOVECOR national reports (GOVECOR 2004), interviews carried out in Brussels between 1999 and 2003, and the results of an additional study on the implementation of the BEPGs in 2001 (TEPSA 2002).

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What kind of economic policy co-ordination? Fusion versus fragmentation As outlined in Chapter 2 of this volume, four potential scenarios have been elaborated for the development of the governing modes, which are our dependent variables. In the following these scenarios will be briefly substantiated with regard to the BEPGs process. Taking into account the specific character of the BEPGs, that is providing the umbrella for fiscal, employment, and supply-side policy co-ordination, this analysis will in particular concern the horizontal dimension both at European and national level. The co-ordination of co-ordination policies cuts across other policy fields. We may find sufficient empirical evidence for both the scenarios and the theoretical expectations formulated in the introductory chapters of this volume. In the scenario of ‘supranational economic government’, the BEPGs procedure for the co-ordination of co-ordination policies will not only become the most important policy cycle, but will gain in legal status as member states support the transfer of some of their competences upward. European and national actors involved in the co-ordination and monitoring mechanism will complement the existing Treaty provisions with a set of additional instruments for establishing a coherent policy mix within the EU. The BEPGs process for the co-ordination of co-ordination policies will be crucial for the establishment for any such kind of overall collective governance by self-coordination. National actors will merge their national resources with EC instruments; a process that can be labelled vertical fusion (cf. Wessels 1997, 2000; Wessels et al. 2003). As the various processes concentrate on benchmarking and the publication of best practices, a European space for discussion, decision-making, and ranking will be established and will be open to manifold actors, be they governmental within the European procedures or non-governmental within national – and to some extent even European – procedures. The scenario of ‘tight network governance’ presents a similar picture with regard to the co-ordination of co-ordination procedure, including common problem-identification, joint problem-solving and collective decision-taking which are binding for governments and other actors. Also in this scenario, the actors around this process will constitute a non-hierarchical ‘core network’, different from an executive government in the conventional sense, but executing what has been labelled ‘collective governance’ (cf. W. Wallace 2000: 541–2), that is a mutual participation pattern in a multifaceted institutional and procedural network. The legal provisions on the BEPG do not remain dead letters; the actors using incentives and adapting to constraints in ways, which are offered, though not predetermined by the provisions. Equally, we will observe a redistribution of opportunities and constraints: those actors participating in the core network have a structural advantage over those outside this emerging structure. In essence, the main institutional

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effect at the national level is to reinforce trends visible in other studies: the strengthening of national administrations as strong multilevel players vis-àvis parliaments, which are only slowly adapting their institutional procedures to deal with the new multilevel co-ordination policies (cf. Mittag and Wessels 2003). The evolution and the development of a coherent policy mix stretching into other policy fields will limit the policy options available for those actors whose main instruments are still located at the national level, but, contrary to the first scenario, further transfers of policy competences are not to be expected. In the two alternative scenarios, labelled ‘loose’ and ‘hollow’ co-ordination, the establishment of an identifiable ‘gouvernance économique’ through the BEPGs is not expected. On the contrary, the various institutions use their respective instruments separately, according to the Treaty provisions, without effectively pooling them. While the BEPGs will rhetorically call for a coherent approach to the policies concerned, the different policy networks preserve their separate competences and discourses. Even more, the dynamics of each policy area will lead towards increased institutional competition. Contrasting doctrines will dominate the debate, for example between supplyside and demand-side policy proponents. Each group of institutional actors will continue to deliberate and take decisions within their bodies according to their own dynamics and set of beliefs (Dyson 1994: 316–17). In the ‘loose co-ordination’ scenario, we expect a failure of specific attempts at the European level to co-ordinate the co-ordination policies in terms of policy substance and political commitment due to the stickiness of the existing institutional set-up and due to the disregard of, or inertia by, the actors involved (for the terms, see Börzel and Risse 2000). The European Council and committees are not willing or able to centralise the process and the debates and will try to preserve the status quo. Given the variations in the economic situation of each member state, given also the divergences in the structures of intermediary groups in member states as well as divergent positions about the relevance and the substance of common guidelines, the European institutions will rubber-stamp lengthy and vague programmes such as the BEPGs. While acknowledging the usefulness of a policy mix that includes monetary, economic and employment as well as fiscal policies, domestic actors will still consider it a national issue to establish such an approach. Member states will engage in European co-ordination policies to the extent that they coincide with their own preferences and without accepting policy outcomes that might be unfavourable – and costly – for them at the national level. National actors will focus on domestic policy arenas and on domestic discourses; limiting the extent to which the BEPGs could potentially affect domestic policy instruments. Efforts of real adaptation will be an exception. Horizontal fragmentation will persist, given that national actors will compete with each other. Policy areas will remain separate on both European and national levels where actors of different policy networks are not willing to follow joint

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discourses. We will not observe a convergence of political discourses between the member states (cf. Louis 2002; Louis and Komninos 2003). In the ‘hollow co-ordination’ scenario, the increasing number of documents and policy statements adopted on the European level will offer national actors wide opportunities to evade even any kind of soft compliance. Not only will the aspiration to comply with policy substance be ‘hollowed out’, but also the following of and compliance with the procedural rules. Institutions, procedures and policies on the national level will remain exclusively oriented towards the agendas of the member states and towards specific themes in the national discourse, and not focus on the co-ordination and monitoring cycles of the BEPG. Instead of shaping an intensive European discourse, the BEPGs will only register the outcome of fragmented national debates. Policy outcomes at the European level will be ignored at the national level by domestic procedures and, in a vicious circle, low policy importance and low actor attention will reinforce each other.

The emergence and evolution of European economic policy co-ordination The early days of economic policy co-ordination: familiar instruments The attempt to provide for a broad framework for the development of member states’ economic policies on the European level was not an invention of the Maastricht Treaty. Indeed, already in the original EEC Treaty economic (or conjunctural) policy was defined as a ‘matter of common concern’ (articles 103–105 EEC Treaty, Rome version) and its co-ordination a task of the Council (article 124 EEC Treaty). Different instruments, procedures and institutions to reach this common goal had been tested in the decades before the Maastricht Treaty and the revision of relevant Treaty articles. In organisational terms the Treaty already enabled the ‘Monetary Committee’ – now the Economic and Financial Committee (EFC) (cf. Hanny and Wessels 1998; Verdun 1999; Linsenmann and Wessels 2002; Linsenmann and Meyer 2003) – ‘to keep under review the monetary and financial situation of the Member States and of the Community . . . and to report regularly thereon to the Council and to the Commission’ and ‘to deliver opinions at the request of the Council or the Commission or on its own initiative, for submission to these institutions’ (article 105 EEC Treaty). In addition to the Monetary Committee, a ‘Committee of the Governors of the Central Banks of the EEC Member States’ was set up in 1964 (cf. Andrews 2003), which institutionalised meetings which already took place before that time outside the EC’s territory, in Basle at the ‘Central Bank for Central Banks’, the Bank for International Settlements (BIS). The committee was mainly in charge of the co-ordination of market operations and the implementation of decisions of the Monetary Committee (cf. Mortensen 1990: 20).

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With regard to fiscal and economic policy co-ordination, as early as 1960 a short-term Economic Policy Committee was established for the co-ordination of the conjunctural policies of the member states. By 1964 two additional Council committees had been set up: a Budgetary Policy Committee for co-operation between the competent government departments of member states in the field of budgetary policy, and a Medium-term Economic Policy Committee (cf. Everling 1964). The co-ordination of member states’ policies within these committees was, however, largely reduced to an ex-post exchange of information about policy measures already taken at the national level (cf. Mortensen 1990: 20). From 1964 onwards guidelines for the conjunctural policies based on article 105 EEC Treaty were adopted as recommendations and were followed in 1967 by programmes for the medium-term economic policy of the member states. While the programmes represented rather general, hence ‘broad’ guidelines for the economic policies of the member states and included implications for the Community as a whole, the recommendations were quite specific as to concrete measures to be taken by particular member states. However, after some years the Commission refrained from proposing country-specific recommendations since the members states only accepted those recommendations in the Council deliberations which were fully in line with their own domestic policy stance (cf. Molitor 1974: 1322). The loose co-ordination of fiscal and monetary policies was intensified in the 1970s and especially after the Werner Plan on the establishment of an Economic and Monetary Union, but at the same time constrained by the severe economic difficulties following the oil price crisis. In terms of economic policy-making, the Werner Group2 offered a fundamental departure from the modes of co-ordination practised so far. It called for a centralisation of macroeconomic policy-making in the EC, which would have been carried out with instruments such as concerted actions by central banks in the area of exchange rate policy, leading to a harmonisation of monetary policy instruments, an examination of national budgetary plans before these were adopted by the national legislators, the harmonisation of taxes and the integration of capital markets (cf. Kohler and Schlaeger 1971: 130ff.). Apart from the establishment of a Community system of central banks the Werner Report furthermore proposed a ‘centre of decision for economic policy’, without, however, further defining the concrete nature of this supranational body. Nevertheless, in the logic of the group’s approach the body would certainly have had more powers than any similar institution proposed since then, including the French proposals for a ‘gouvernement économique’ within EMU (cf. Commissariat Général du Plan 1999; Linsenmann and Müller 2000: 69–70, 104–7; Jospin 2001). While the Werner Report’s far-reaching proposals for a centralisation and harmonisation of economic policy-making and the related institutional innovations were not taken up by the member states, the Council followed those

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proposals which were supposed to enhance the soft co-ordination of member states’ economic policies. Three annual Council deliberations on economic and especially budgetary polices were introduced; the Economic Policy Committee (EPC) was set up in 1974;3 member states adopted annual economic policy guidelines (the predecessors of the BEPGs); and, until 1982, medium-term economic policy programmes. Both these latter documents included analyses of member states’ economic situations and policies as well as general recommendations in the areas of fiscal, monetary and wage policy. However, the framework for economic policy co-ordination remained limited until the late 1980s, despite several initiatives such as the MacDougall Report advocating a kind of fiscal equalisation system between member states based on a much higher EC budget, and the intensified co-ordination of monetary policy following on the establishment of the European Monetary System (EMS) and the Exchange Rate Mechanism (ERM). It was not until the Internal Market Programme deepened economic interdependencies between the member states and, subsequently, the ‘road to Maastricht’ (Dyson and Featherstone 1999) was taken that co-ordination modes for economic policy-making were again reviewed. The evolution of the BEPG procedure since the Maastricht Treaty The new provisions of article 99 in the Maastricht Treaty were thus not entirely new departures in the field of economic co-ordination. The article essentially ‘constitutionalised’ and set down procedures for the previously applied instruments of annual guidelines for the member states and of recommendations to member states deviating from the principles laid down in the Treaty. In particular it formalised the involvement of the European Council, which endorses the BEPGs before they are formally adopted by the Council. The guidelines are based on a recommendation of the European Commission which also has to draw up reports on the economic development in each member state. These reports are in turn the basis for the multilateral surveillance by the Council. The new provisions thus kept the ‘soft’ character of this mode of governance already in place. It was not the goal of the Maastricht Treaty to adopt a single European economic policy, but the BEPGs were to provide a policy framework for the economic policies of the member states. Even though the Council itself has the obligation to ‘ensure co-ordination of the general economic policies of the member states’ (as stipulated in article 202 TEC, the Treaty article on the tasks of the Council; cf. EMAC 2001: 13), and even though these are considered ‘a matter of common concern’ (article 99(1) TEC), it is not a legal obligation for the member states to implement the BEPG recommendations literally. Nevertheless, paragraph 4 of article 99 TEC introduced a soft sanction mechanism in the event a member state’s economic policy is not in line with the agreed broad guidelines. In this case, a country-specific recommendation can be issued by the Council based on a recommendation of the European Commission. It can be made public

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following a specific decision of the Council acting by qualified majority. An elaborated sanction mechanism (such as the fines envisaged in the Excessive Deficit Procedure) is not part of the Treaty’s arrangements. The co-ordination mechanism rests on the politically and psychologically constraining nature of the policy process, but, in the case of a public reprimand, it has the potential to lead to public pressure on the member state concerned. When the Maastricht Treaty entered into force, the existing annual economic report of the Community and the economic guidelines, previously adopted together at the beginning of each year, were separated into two different documents. Nevertheless, the procedure was left virtually unchanged in terms of content and format. It was only in 1998, when the decision was taken to introduce the single currency after the fulfilment of the Maastricht criteria, that the underlying procedures and instruments of economic policy co-ordination were amended by the European Council. The amendment was based on the understanding that the move to a single currency would require closer Community surveillance and co-ordination of economic policies among (Euro area) member states. At the end of 1997, the European Council meeting in Luxembourg called for the development of the BEPGs ‘into an effective instrument for ensuring sustained convergence of Member States. They should provide more concrete and country-specific guidelines and focus more on measures to improve Member States’ growth potential, thus increasing employment’ (cf. European Council 1997). The stress that was put on the BEPGs was a result of recent developments in fiscal and employment policy co-ordination. The Amsterdam European Council in June 1997 had included the co-ordination of employment policies (EES) in the Treaty (article 128 TEC) and had finally adopted the Stability and Growth Pact (SGP) on fiscal policy (cf. also Chapter 5 by Le Cacheux and Touya) with its Council regulation on closer multilateral surveillance. Equally important was the Cardiff European Council meeting in the following year which introduced the so-called ‘Cardiff process’, essentially adding a ‘structural reform’ aspect to the policy areas covered by the BEPGs. The process monitors the economic reform in member states in order to improve the functioning of product, service and capital markets in the Community. This peer review exercise – ‘a light procedure’ (European Council 1998: indent 11) – included a separate annual reporting and assessment procedure, thus enabling the exchange of best practice and a deeper pool of information shared at the European level.4 With these new components of the Broad Economic Policy Guidelines being in place, horizontal co-ordination between the co-ordination mechanisms at the start of stage III of EMU became even more necessary. The Helsinki European Council meeting in 1999 defined the BEPGs as the central policy tool for economic policy co-ordination: the Broad Economic Policy Guidelines provide the framework for the definition of overall policy objectives and orientations. The synergy between these Guidelines, the Employment Guidelines

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and the monitoring of structural reform ‘should be further developed under the political guidance of the European Council’ (European Council 1999: indent 32). Against this background, the member states amended the procedures as laid down in the Treaty provisions by reorganising the preparatory work prior to the adoption of the BEPGs and by giving certain tasks to the newly established annual spring meeting of the European Council. Already in the year 1999 the BEPGs for the first time included detailed recommendations to the member states and, in early 2000, an extensive implementation report of the Commission was made public, drawing on the stability and convergence programmes, the joint employment report and the Cardiff reports (European Commission 2000). Since the year 2000, the ECOFIN Council has officially forwarded the BEPGs to other relevant Council formations to assume responsibility for implementation in their respective areas. These Council formations are required to submit contributions by the end of January in view of the formulation of the forthcoming BEPGs. Based on the draft of the Commission, the ECOFIN Council holds an orientation debate at a meeting which precedes the annual spring meeting of the European Council, and drafts a key issues paper for review by the European Council. Then, ECOFIN submits on a recommendation of the Commission another draft to the June meeting of the European Council for discussion and endorsement. At the end of this complex procedure, the Council adopts the BEPGs. Equally important for the evolution of the BEPGs was the European Council at Lisbon in 2000, which formulated a broader long-term strategy for the Union’s economic development (cf. Hodson and Maher 2001). With the new instrument of the Open Method of Co-ordination (OMC), peer review exercises were extended to a number of related policy areas, most specifically in the field of social inclusion, pension reform, information and communications technology, and education and research. In effect, the ‘Lisbon strategy’ set the goals of the European Union’s economic and social development for the next ten years and defined the BEPGs as the main overarching instrument for the strategy’s implementation. After only three years of applying these amended annual procedures, however, the BEPG process and its sub-cycles were once again reviewed. The revision of the policy co-ordination procedures adopted by ECOFIN at the end of 2002 aimed at synchronising the cycles of the BEPGs and of employment policy, and at providing a more coherent framework for complementary policy areas within the BEPGs (Council of the EU 2002b). The amendments to the co-ordination procedures implicitly avoided proposals which would necessitate a Treaty revision. The implementation reports on the BEPGs, the Joint Employment Report, the Cardiff and other reports are now grouped together by the Commission in a so-called ‘Implementation Package’ supporting its spring report to be submitted to the European Council. Based on the steer given by the spring European Council, the Commission then

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establishes a ‘Guidelines Package’, including drafts of the BEPGs with both general and country-specific policy recommendations, the Employment Guidelines and the employment recommendations to member states. The Internal Market Strategy also forms part of this guidelines package. The adoption of the BEPGs and other guidelines then takes place after the June European Council meeting by the various Council formations. In principle, this overall timetable brings other policy cycles in line with the already established timetable of the BEPGs and therefore does not greatly change the BEPG procedure. At the same time, the streamlined co-ordination cycles move away from a strictly annual procedure towards a multi-annual programme by foreseeing a full review only every three years. The BEPG adopted in 2003 thus covered the years 2003–5. This shift to three-year cycles does not preclude the Commission from monitoring compliance and proposing amendments to the recommendations in the intermediate years. The level of detail and the policy emphasis may vary from one year to another. For example, in 2004 the ‘amendment’ to the BEPGs 2003–5 mainly focused on the implications of enlargement for the old and new member states (Council of the EU 2004). Thus, even though the relevant legal provisions were laid down in the Maastricht Treaty, we have witnessed both a substantial scope enlargement and an almost annual procedural evolution of the BEPG process since 1997. The evolution of patterns of participation: expanding the network By definition, the co-ordination of member states’ policies in the area of socio-economic policies is essentially a transgovernmental mode of governance. As this co-ordination should facilitate the exchange of best practice and national deliberations on policies rooted in the domestic policy arena, the main interaction takes place between governmental actors of the member states. Nevertheless, other European actors do play a role in the preparation, decision-making and implementation process of the BEPGs, and in this respect as well we have witnessed significant developments in recent years. Most importantly, the involvement of the heads of states and governments in these policy areas had been ‘constitutionalised’ in Maastricht by article 99 TEC, which foresees deliberations of the European Council on the initial Council report on the BEPGs. However, this involvement of the heads of states and governments can be traced back to the creation of the summits in the 1970s. Since then, the European Council has passed a resolution on the broad economic and social situation at almost all of its sessions (cf. Wessels 2003a). While these positions of the European Council are not legally binding, they are meant to be politically binding for the sectoral ministers in ECOFIN and other Council formations. The heads of states and governments have, however, not merely ‘rubberstamped’ documents presented by the Council and the European Commission on the basis of the Treaty articles, but have actively pursued their own

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agenda. Mandates were given to the ministers and the Commission with regard to the further development of the BEPG procedure on various occasions. Furthermore, also within the co-ordination procedures they have revised and amended the drafts: in 2002, for instance, the European Council softened fiscal policy recommendations addressed to France at the request of the French President Chirac (cf. Linsenmann and Meyer 2003). With regard to the Stability and Growth Pact, the heads of states have also played a dominant role on the domestic level; national positions have been frequently determined by the heads of states themselves, bypassing or even contradicting the position of finance ministries. One example was the strategic decision of Chancellor Schröder in early 2002 to prevent the SGP’s early warning against Germany contrary to the positions of both Finance Minister Eichel and Foreign Minister Fischer (cf. Linsenmann 2003a; Meyer 2004). Schäfer’s study of changes to country-specific recommendations showed that 34 per cent of all initial recommendations were modified, 26 per cent in a substantial way (Schäfer 2006: 76). The stance of national governments vis-à-vis the recommendations varied substantially; the Euro area’s largest countries, namely France, Germany and Italy, were the countries with the largest proportion of substantial changes, while Greece accepted the demands placed on it and contributed to strengthening one recommendation rather than watering it down. The evolution of the co-ordination procedures has furthermore had an impact at the level of the Council. While in principle both the Economic and Financial Affairs Council and the Employment, Social Policy, Health and Consumer Affairs Council have their respective tasks within the co-ordination policies, the amendments to the procedures since 1999 have led to a more dominant role of ECOFIN in the attempt to strengthen the coherence of the BEPG. Other Council formations have to submit reports to ECOFIN for the key issues paper in the spring, leaving it to the discretion of the economic and finance ministers what to include in the key issues paper. Even more important, the synchronisation of the Employment Guidelines and the BEPGs has further strengthened ECOFIN as opposed to the employment ministers. At the same time, administrative interaction has been reinforced with regard to the Council’s committee structure. It has strengthened the existing committees, most notably the EFC, the Economic Policy Committee, and the Employment Committee (EMCO), and has made increased efforts to co-ordinate the work and the interactions of these committees (cf. also Chapter 9 by Jacobsson and Vifell). Apart from formal Council formations, deliberations on the various elements of the co-ordination of co-ordination procedures between Euro zone economic and finance ministers have intensified in recent years in the Euro Group. The informal meetings were agreed upon by the European Council already in Luxembourg in December 1997. The Euro Group does not officially deal with the BEPGs, but deliberations on economic and fiscal issues of Euro zone member countries are seen by the actors involved as an essential

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element within the economic policy field. In order to deal with these issues more effectively, Euro zone member states have improved the functioning of the Euro Group, for example by creating a preparatory sub-group in the Economic and Financial Committee (EFC), more frequent meetings of the Euro Group and measures to increase the transparency of its work (cf. Puetter 2004; Linsenmann and Meyer 2003). The Council decision of 2003 to bring the European Employment Strategy with its Employment Policy Recommendations and the Joint Employment Reports closer to the BEPG cycle has not only affected the Council, but also the European Commission. In 2003, the first year of the synchronised timetable, the attempt to adopt coherent recommendations proved particularly difficult for the Commission. The two responsible Directorate-Generals, DG Employment and DG Economic and Financial Affairs (ECFIN), were in conflict until the last minute on the content of the recommendations, both pointing to different ‘economic philosophies’ or ‘doctrines’ cultivated in their DGs. Leading figures from DG Employment saw a domination by DG ECFIN while on the other hand DG ECFIN criticised the too detailed approach of DG Employment, especially with regard to labour market reform recommendations. The European Central Bank is also part of the deliberation processes on economic policy co-ordination. Since the introduction of the euro, recommendations on monetary and exchange rate policy have been dropped from the BEPGs, although the interaction between monetary and fiscal policy is traditionally seen as a central element of a coherent policy mix (cf. TEPSA 2003; Begg et al. 2003). The Treaty-based independence of the ECB prohibits any formal involvement of the central bank which might be understood as ex-ante co-ordination and bargaining between the bank and other actors and which is seen as detrimental to the independence of the ECB (cf. Issing 2002). Nevertheless, inter-institutional relations between the ECB and other institutions are foreseen in the Treaty provisions and have been further developed in recent years. The Cologne European Council meeting in June 1999 established a Macro-Economic Dialogue at Community level, involving the European Commission, the Council, the ECB and the EU level social partners, in principle all relevant policy actors involved in macroeconomic policy-making (cf. Koll 2005; Jansen 2005).5 This ‘voluntary co-ordination’ (Collignon 2003a: 232) within the bi-annual meetings of the macroeconomic dialogue is, however, little more than an informal and confidential exchange of information and should not be understood as any kind of ex-ante co-ordination. The ECB representatives participate in the above-mentioned Council committees such as the EFC and the EPC and the president of the ECB also takes part in the informal meetings of the Euro Group. Reciprocally, the ECOFIN president and a member of the European Commission have the right to take part in the meetings of the ECB Governing and General Councils.

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While the ECB is constantly underlining the ‘one way’ character of these interactions, it sees especially the Euro Group as important, as ‘the dinner table . . . where the family members get together to tell each other what they are doing, to listen to each other’s advice, and learn to live together, as they must do, responsibly’ (Duisenberg 2003). In the light of this comment ‘there is little doubt that the statement by Eurogroup ministers on the budgetary situation in their countries and on the direction of national policy are a key indicator considered by the ECB when it decides on monetary policy’ (cf. Puetter 2004: 863). The evolution of these co-ordination procedures, on the other hand, has not greatly affected the European Parliament. With regard to the legal framework of the BEPGs, the EP is granted ex ante consultation and ex post information rights.6 This limited role has not been extended with the introduction of new procedures: the macroeconomic dialogue explicitly excludes the participation of the EP; the various open methods of co-ordination processes in the socioeconomic policy fields do not foresee a role for the European Parliament. Nor do the procedures for preparing the spring European Council meeting involve the European Parliament. On the contrary, the tighter time-table before and after the spring European Council has further reduced opportunities for the Parliament to table suggestions for the guidelines package. The role of the EP is therefore limited to observing and commenting on the process. So far, the European Parliament has exercised these limited powers by commenting on the various policy documents produced within the policy cycle, for example on the preparatory report to the Commission recommendation (state of the European economy) and on the Commission recommendation itself. In the wider context of macroeconomic policy it has commented on the annual assessments of the Stability and Convergence Programmes and the annual spring European Councils. While the Parliament proposed specific modifications to the Commission proposal on the BEPG 2002 for the first time, only very few of these proposals were in the end taken up by the Council. In addition, the EP Economic and Monetary Affairs Committee holds regular general meetings with the European Commission and the Council presidency on the development of the EU economy and the Broad Economic Policy Guidelines. The European Parliament has also tried to reinforce co-operation with national parliaments on these issues, but not very successfully, with only a general exchange of views taking place and a limited number of parliamentarians taking part.7 The execution of the BEPGs procedure at the domestic level: no innovation In our analysis of multilevel economic governance and the role of the BEPGs in co-ordinating co-ordination policies we have found that the procedural arrangements on the domestic level have largely responded to the requirements of European macroeconomic policy co-ordination. While the non-binding

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character of the procedure does not necessitate institutional changes on the domestic levels, member states adapted to the evolution of the process at least in administrative terms. Within the framework of the excessive deficit procedure, member states have committed themselves to ensure that domestic budgetary procedures will enable them to fulfil the Treaty requirements. It is in this area that more substantive institutional adaptations have taken place (cf. Meyer and Umbach in Chapter 7; European Commission 2001b: 38ff., 2003d; Linsenmann 2003b). The European provisions and procedures assign various tasks to the domestic level, especially with regard to the submission of reports of the sub-cycles of the BEPGs (national action plans, stability and convergence programmes, Cardiff reports, and so on). In order to deal with these tasks in a more coherent manner, the BEPGs and the co-ordination of European co-ordination procedures have been successively incorporated into the administrative work of the relevant domestic ministries in almost all member states analysed by the GOVECOR project (GOVECOR 2004; the exception is Italy, cf. Fantacone 2004). While the various ministries deal with the respective separate procedures, co-ordination is usually ensured by horizontal administrative bodies of inter-ministerial or – in case of larger ministries – inter-departmental co-ordination. This type of coordination is an indication that awareness of the Broad Economic Policy Guidelines amongst national actors has clearly intensified during recent years (cf. TEPSA 2002; GOVECOR 2004). In more general terms, it reflects a growing appreciation of the interrelation between the various components of (Euro zone) economic policy. For governments, and in particular for the relevant ministries for finance and economics, the BEPGs now form a part of the context within which at least European policy is developed. Procedural innovation has, however, by and large been low. One partial exception was Portugal, although the new inter-ministerial commission set up for the follow-up of the Lisbon strategy was abolished by the incoming government in the year 2002 (cf. Cadeiras 2004). Nevertheless, in most member states horizontal co-ordination has intensified over the years, and with the scope enlargement of the BEPGs has brought in additional ministries and departments. But the willingness of national administrations to ensure further coherence is limited. During the negotiations on the ‘streamlining proposal’ in 2002, the Commission’s proposal to establish one single implementation report by each member state for all co-ordination procedures was not taken up by the Council. It took another three years until this proposal was deemed acceptable for the member states with regard to the new integrated guidelines for growth and jobs, comprising both BEPGs and employment guidelines for the period 2005–8 (cf. European Council 2005, indents 38–41). Co-ordination procedures vis-à-vis the European level have not changed substantially. Administrative bodies traditionally in charge of European affairs have preserved their co-ordinating roles in most cases. These bodies work

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closely with the permanent representations in Brussels and are linked to either the European and/or foreign affairs or to the economic and/or finance ministries. As such, the BEPGs are treated as ‘yet another’ co-ordination exercise originating from the EU. In some cases, however, the strengthening of ECOFIN at the expense of other Council formations has been matched with similar tendencies at the domestic level. Finance and/or economic ministries have gained ground vis-à-vis other ministries. Indeed, the merging of economics and employment ministries witnessed in some member states, such as Germany and Italy, were almost certainly aimed at achieving greater coherence between the two policy areas, even though clearly not motivated by European incentives or ideas.8 In other cases, there has been interaction with or interference from foreign and European affairs ministries. The offices of the heads of states and governments have also become more intensely involved, particularly because of the distinct role of the European Council within the BEPGs procedure, for example in Belgium (cf. Plasschaert and Pochet 2004, referring to the annual spring European Council). It is noteworthy, nevertheless, that apart from this kind of formal compliance to the procedural aspects of co-ordination, the timing of decision-making on the domestic level has not substantially been altered (cf. Linsenmann 2003b and Chapter 6 by Meyer and Umbach in this volume). In most countries there is no direct link between the submission of the stability and convergence programmes and the national budgetary procedures, and the BEPGs have not become an important reference document for parliaments when deciding on next year’s budget. Looking at parliamentary procedures to deal with the BEPGs and their implementation on the national level, traditional patterns have been applied without inventing specific procedures. While some national parliaments have generally more highly developed procedures for European affairs than others (cf. Maurer and Wessels 2003), these do not usually extend beyond the application of formal procedures: in most parliaments the draft BEPGs are considered by specialised committees, either special European committees, or by the relevant sector-specific committees. Implementation is generally monitored by the same parliamentary committees, for example the Finance Committee, the EU Committee and the Budget Committee in Germany or the Scrutiny Committee of the House of Commons in the UK. Members of these committees admit, however, that the BEPGs do not play a major role in their debates. There have been very few detailed discussions in the parliamentary committees or in parliament, parliamentary reports on the issue are mainly summaries of the BEPGs and the government’s response to them. Even where parliamentary discussions do occur in relation to the BEPGs the impact on the policy-making process appears to be extremely limited. In conclusion, the implementation of the BEPGs procedure on the domestic level has not generally led to novel approaches in the field of co-ordinating

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European policies. The BEPGs have been included in the array of tasks to be handled by national administrations and other bodies in charge of European affairs, in most cases using ‘traditional routines’, but the guidelines have not affected many other national actors or institutions.

Evaluating the impact of the BEPGs During the observation period of our research, we have seen attempts by both European and member state actors to enhance the effectiveness of the instruments and the efficiency of the procedures linked to the BEPGs. Some progress has been made in recent years. Policy learning – as opposed to adopting one single model – as well as the necessities stemming from the start of stage three of EMU have led to a number of improvements in economic policy co-ordination. Apart from the widening of scope of policies addressed by European co-ordination, the strengthening of the horizontal links between various Council formations in the preparation of their input into the BEPGs, as well as the administrative streamlining of recent years, can be seen as major improvements. Additional adaptations have taken place, including the European Commission’s preparatory work prior to adoption of the BEPGs as well as the surveillance instruments afterwards. Some efforts, especially the ‘code of conduct’ in fiscal policy co-ordination or the setting-up of the Lisbon list of indicators in various policy areas, have enhanced European actors’ capacities to base their assessments and policy choices on sound and comparable statistical data. On the domestic level, administrative absorption – as opposed to upgrading or even transformation – has ensured that at least the procedural implementation of the BEPG procedure has been successful (cf., for the terms, the chapter by Meyer and Umbach in this volume). Furthermore, the procedures as described in article 99 TEC have been formally followed by the actors involved – a finding that should not be taken for granted. Their compliance included all the different stages, that is the submission of the draft recommendations by the Commission, the deliberations by the European Council and ECOFIN and the annual adoption of the guidelines. The Commission and the member states have ‘played the game’; the policy cycles have been followed to the extent that deadlines have been met, requested documents have been sent to Brussels, and meetings attended. The Council has ‘even’ once used the instrument of a specific recommendation provided for in article 99.4 TEC against Ireland in the year 2000, even if it is a highly disputed case (cf. Meyer 2004). The attempt to achieve a coherent and well-balanced macroeconomic policy mix of the EU and its member states, not least to provide for a reliable policy stance for the monetary policy of the ECB, has also led to the understanding of the actors concerned that a more encompassing policy-mix should include more policy areas than those in which the European Union

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has competence. Co-ordination in its softest form has thus been introduced with the various OMCs in recent years and this process can be understood as a kind of functional spill-over. It should not be forgotten that newly established OMCs, even in their weakest form, have been brought into the process of co-ordination in key socio-economic policy areas previously outside the competences of the European Union. Common policies such as Single Market legislation have now been included in a more coherent and less fragmented framework of economic governance. Yet, the gap between publicly stated commitments by the member states and the real implementation of policy adaptations is still wide and, in some areas, has not diminished in recent years. With regard to fiscal policy recommendations in the BEPGs the conclusion must be that implementation efforts have even declined in a number of member states after the achievement of the convergence criteria and their accession to the Euro zone (cf. European Central Bank 2004). The annual BEPGs implementation reports of the European Commission, and also Council assessments, document the lack of implementation by the member states, a lack often disguised by euphemistic vocabulary such as ‘in progress’, ‘partial’ or ‘there is a risk of not achieving the aim’. Finally, even the external experts groups commissioned by the European institutions to evaluate the progress made in these socio-economic policies have documented that despite the administrative resources invested, the inclusion of additional actors, and the almost constant evolution of procedures, the EU and the member states have not been able to ‘deliver’ what they have recommended in the BEPGs and other policy documents. In our evaluation of the procedural and institutional framework of the BEPGs, a number of shortcomings have become apparent. If peer and public pressure are key elements of soft co-ordination, the BEPG procedure has clear limitations in both respects. The public commitment of member states in the publicised BEPGs should in theory strengthen the willingness of governments to comply with the commonly agreed recommendations, both general and country-specific. However, public awareness of and public discourse about this mode of European governance has only marginally increased in recent years, despite some sporadic controversies such as over the open refusal of France in 2002 to comply with the Stability and Growth Pact. When there was evidence of public debate about the co-ordination of national policies, it was thin on content regarding the options of different economic policies – with the exception of the Irish case (cf. Meyer 2004). Given the lack of media coverage and public awareness of the BEPGs, peer pressure is hardly a viable instrument to induce compliance. Furthermore, peer pressure has obviously also not increased the willingness of member state actors to implement fully country-specific recommendations. While a common explanation for the limits of peer pressure is that potential sinners do not want to criticise current sinners as they might soon

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be in a similar situation, there are also questions to be raised with regard to the recommendations themselves and the ability of member states to implement those recommendations by the beginning of the next cycle. Firstly, interviews with officials have revealed that the Commission has usually succeeded in pushing through quite precise country recommendations that it considers to be of major importance, even against national opposition in the EU committees. The limited influence and involvement of national actors in this process mean, however, that the final recommendations can conflict with government’s policy preferences to an extent that they are largely ignored in the national policy process. Secondly, as the consultations between the European Commission and the relevant civil servants of the member states’ ministries take place during the drafting process for BEPGs, national ministries frequently propose to include recommendations controversial in their own countries so as to use these guidelines for pursuing their own agenda vis-à-vis other domestic actors, either other ministries, interest groups or parliament. This is not a recipe for swift implementation. Thirdly, some recommendations of the BEPGs can and should be implemented only within a longer time frame. Many of them are simply stating the obvious and relate to issues that are anyway already on the agenda. At least in this respect, the multi-annual BEPGs since the year 2003 should prevent the year-on-year repetition of exactly the same recommendations. Finally, the excessive detail of many of the recommendations and the sheer number of them have so far diminished their strategic impact. Thus, the specific context of many recommendations does not contribute to the establishment of an ‘implementation culture’ which might enhance the effectiveness of peer pressure. Considering the importance of a balanced macroeconomic policy-mix going beyond the aims of price stability and sound finances for the economies of the EU member states, the absence of a public discourse on key economic options available is remarkable. While on the national level these discourses are taking place, be it on public investments, on the reform of the social security systems or on policies to combat unemployment and social exclusion, at the European level they are sealed off. From a procedural point of view, the de facto exclusion of the European Parliament from the deliberations between the Commission and the member states prevents a broad European debate on the economic options as part of a deliberative democracy, as do the numerous inconsistencies between national and European policy-making procedures, both with regard to the BEPGs and the SGP (for example, the timing of national budgetary procedures). By streamlining the procedures and especially by moving to a multiannual approach for the BEPGs, there might be a potential to facilitate this kind of public debate and adding to the awareness given to European economic policy co-ordination, even if the adoption of the first three years’ BEPGs has clearly not aroused greater interest than previous decisions. The

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debate on the Lisbon strategy has not fundamentally altered this situation, since public discourses are by and large conducted on the national level with little if any reference to the Lisbon agenda. As ‘the choices and compromises to be reached at the European level are fundamentally political’ (cf. Tsoukalis 2003: 139), the absence of national legislators and the EP in these deliberations and decision-making continues to be a major obstacle for the effectiveness and bindingness of the co-ordination procedures.

The scenarios revisited: fusion via the BEPGs or fragmentation despite the BEPGs? This chapter has so far looked at the institutional and procedural emergence and evolution of the BEPGs as the central policy tool for European economic governance, both on the European and the domestic level, and has evaluated the effectiveness of this mode of governance. It will now revisit the initial four co-ordination scenarios and their trends towards fusion or fragmentation in order to gain insights with regard to the future of European socio-economic governance. Based on the analysis presented so far in this chapter, it should come as no surprise that we could not identify a common trend towards horizontal (and vertical) fusion or fragmentation with regard to the co-ordination of co-ordination procedures. The first six years of economic policy co-ordination through the BEPGs after the introduction of the common currency in 1999 can rather be described as an often informal strengthening of an evolving core network of economic policy actors and a tightening or streamlining of the co-ordination of co-ordination policies on the European level. This informal strengthening was, however, coupled with a ‘loose co-ordination’ in terms of national implementation and commitment to commonly agreed guidelines. On the European level we have witnessed since the mid-1990s an almost continuous revision of and amendments to the existing rules of European socio-economic governance and the introduction of several new procedures on the European level to enhance the deliberation and interaction process on economic policy. This has contributed to an increase of the number of political actors participating in these co-ordination procedures. We have seen attempts by the key actors involved to strengthen economic governance beyond the provisions of the legal constitution and to merge (or fuse) existing policy areas (horizontal) and policy arenas (vertical) on the European level. The BEPGs procedure on the European level encompasses virtually all actors concerned by them, thus creating a kind of core network for socioeconomic governance. However, on the other hand, the more actors became involved in the co-ordination of policies, the less they could rely on ‘shared commitments’ and ‘common doctrines’, the conflicts between DG Employment and DG ECFIN being the most obvious example.

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At the same time, this development on the European level has not ensured a more positive implementation rate of the guidelines on the domestic level. As stated above, in some areas we have even seen a deterioration of efforts to comply with the guidelines. Despite the considerable administrative resources invested in reporting and surveillance mechanisms, a direct impact of the BEPG process on national policies remains hardly recognisable so far. Arguably, the limited number of domestic actors involved in the co-ordination procedures as well as the low awareness of the BEPG process among key national political actors and publics has contributed to this outcome, further facilitated by the low level of adaptational pressure arising from the soft-law approach. Horizontal fragmentation between policy areas at national level thus prevailed. As the BEPGs offer no real credible alternative to domestic opportunities in national policy-making structures, key domestic actors have had few incentives to change their policy preference structures and to re-orient their attention to European processes, keeping the policy arenas largely fragmented. The inherent lack of involvement of national parliaments in the relevant European procedures has certainly contributed to this outcome. Another conclusion to be drawn from recent years is that in difficult economic situations the cost of compliance increases and leads to an intensification of national debates by parties and especially by interest groups concerned by cuts in public spending. Arguably, tendencies for evasion and non-compliance are also more pronounced in the run-up to national elections, as in the cases of Portugal in 2001 and Germany in 2002. The constraints of the Stability Pact on the budgetary powers of member states then become an even more controversial issue. There are clear limits to the ability of peer review and peer pressure to overcome the underlying vertical fragmentation between the two policy arenas, even more so in the absence of any public pressure. Finally, it seems that this rather uneven assessment will also be valid for the foreseeable future of European economic policy co-ordination. The trend towards ‘loose co-ordination’ in terms of constraints on member states can be identified in the decision of the member states in early 2005, in agreement with the European Commission, to soften the sanctions mechanism of the Stability and Growth Pact. Together with the mushrooming of OMCs in policy-related areas this seems to indicate that in socio-economic policy softer forms of co-ordination will become the default option. Another indication has been the very modest agreement by the European Convention and, subsequently, by the member states on the legal provisions for the co-ordination of economic policy in the Constitutional Treaty. The Constitution would not fundamentally transform the ‘legal constitution’ for economic governance on the European level. As regards the normal BEPG procedure, a revised ‘early warning procedure’ would under the Constitutional Treaty separate the ‘warning’, which would then be issued by the Commission itself

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without the approval of the Council, from later concrete recommendations arising from the warning. These latter would still have to be adopted by the Council – excluding the vote of the member state concerned – on a recommendation of the Commission. This minor amendment would not increase pressure on national governments for better compliance with the BEPGs. On the other hand, some measures have been taken or agreed upon to develop the economic policy core network and to enhance the coherence of economic policy co-ordination at the European level. First, a coming into force of the Constitutional Treaty would formalise the Euro Group and allocate certain powers to it, in particular the right to agree on separate ‘Euro zone BEPGs’ – to be adopted only by Euro zone member states, as long as these are compatible with the EU BEPGs. The provision of the Constitutional Treaty to install a president of the Euro Group, to be elected for two and a half years, has already been informally implemented by assigning this role to Luxembourg’s Prime Minister and Finance Minister Jean-Claude Juncker in 2005. Second, the European Council in spring 2005, within its attempt to relaunch the Lisbon strategy at mid-term, further reformed the procedures of the BEPGs and the EES by establishing ‘joint guidelines’ for both procedures and by requesting National Action Plans for all policy areas concerned. These measures do not overcome the implementation problem at national level, but they demonstrate the willingness of member state governments to advance European level co-ordination. Even so, for the foreseeable future modes of socio-economic governance are not likely to be moved up the ‘integration ladder’ (cf. Maurer and Wessels 2003) towards a supranational economic government as predicted by this study’s first ideal-type scenario.

Notes 1. While the extent and nature of co-ordination is disputed among economists and political actors, a broad consensus exists that some framework for co-ordination would be desirable. It should also be underlined that this rationale applies to the Euro zone only, since non-Euro area countries are able to set their monetary policy – in principle and in practice – independently. The Treaty provisions, however, only distinguish between ‘ins’ and ‘pre-ins’ and not between ‘ins’ and (permanently) ‘outs’. 2. All chairmen of the EC committees dealing with economic and monetary policies were members of the Werner Group. 3. The Committee shall, in particular: • assist in coordinating general economic policies; • examine and compare Member States’ budgetary policies and the way they are being implemented; • prepare, in the light of all available information, the preliminary draft of the medium-term economic policy programme . . . on the achievement of a high degree of convergence of the economic policies of the Member States of the European Community;

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4.

5.

6. 7. 8.

keep under review the medium-term economic policies of the Member States and examine whether they are compatible with the above programme; • analyse the development of the economies in order to discover the reasons for any divergence from the programme. (cf. Council of the EC 1974) Member states have to deliver annual reports at the end of the year. Based upon these reports and a Commission assessment the Economic Policy Committee (EPC) produces an annual report on Structural Reform. The practical work is carried out by a working group of the EPC. The report itself is endorsed by the ECOFIN and submitted to the European Council (cf. also Foden and Magnusson 2002). The informal involvement of social partners has been enhanced by establishing a ‘social summit’, held before each spring European Council meeting. Its task is to develop and improve co-ordination of tripartite consultation on the various aspects of the Lisbon strategy. The European Economic and Social Committee and the Committee of the Regions are only consulted in the framework of employment policy co-ordination. For example the meeting on 16 April 2002 at the EP, author’s own observation. In the German case, the two ministries were again separated after the general elections in the year 2005 and the new coalition government between the Christian and the Social Democrats.

9 Deliberative Transnationalism? Analysing the Role of Committee Interaction in Soft Co-ordination Kerstin Jacobsson and Åsa Vifell

Introduction The Treaty of Amsterdam defined employment policy as an area of common concern among the EU member states and provided a procedure for policy co-ordination based on cyclical processes, soft law, and peer review and pressure. Forms of governance based on other mechanisms of policy co-ordination than supranational law-making are emerging as increasingly important in the EU. This chapter investigates to what extent this type of soft governance is supportive of a deliberative mode of policy-making. (By focusing on interactions and socialisation effects within and across EU committees it complements the chapter by Meyer and Kunstein in this volume, who have explored the impact of policy co-ordination on public debates.) A number of committees are central to the policy processes of the Open Method of Co-ordination (OMC). Focusing on them should provide a useful way of examining the possibilities for soft co-ordination to provide favourable conditions for deliberation. This chapter is primarily concerned with employment policy co-ordination and focuses in particular on the Employment Committee, but also looks at three other committees involved in socio-economic policy-making, namely the Economic and Financial Committee (EFC), the Economic Policy Committee (EPC) and the Social Protection Committee (SPC). What role does committee interaction play in fostering dialogue and learning based on the exchange and evaluation of arguments? The role of committees in EU governance has been given extensive attention in recent years as well as the role of committees in fostering a more deliberative mode of governance1 (Christiansen and Kirchner 2000; Joerges and Neyer 1997a, 1997b; Joerges and Vos 1999; Pedler and Schaefer 1996; Van Schendelen 1998). Still, empirical studies from diverse fields are needed to determine if, and in what way, committees and administrative networks can be said to contribute to a deliberative mode of governance. Since actors cannot be forced to comply in the case of soft co-ordination, we assume that deliberation and persuasion gain in importance for reasons of policy effectiveness 163

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but also for enhancing process legitimacy. In relation to the set of expectations formulated in Chapter 2 by Meyer, Linsenmann and Wessels, the socialisation of national political actors into a deliberative mode of governance can also be regarded as a precondition for creating sufficient trust among participants for future closer and/or more binding forms of co-ordination. The chapter shows that there are indeed indications of soft co-ordination as being supportive of a deliberative mode of governance. However, there are also structures and factors that limit the scope for deliberative interaction, and there are limits to deliberation as a mode of problem solving and action co-ordination in this case.

Administrative networking in the EU Why focus on the administrative and political process preceding the formal political decision-making at all? Because this is where EU policy is, in practice, made. The EU system is characterised by constant interaction and negotiation, where borders between national and supranational, but also between politics and administration, are blurred. In transnational networks, governmental actors and civil servants from the member states interact closely with representatives of EU institutions and sometimes with private actors. It has been argued that the EU is even more dependent than its member states on communication, both as an instrument for gathering and processing information and as a tool for consensus formation, in the absence of political parties that can fill this function (Kohler-Koch 2002b). Governing must be anchored in consensual agreements, and in this process political-administrative networks are central. Of particular interest here is the political-administrative networking taking place in committees, which exist in all phases of EU policy-making (decisionpreparation, decision-making and implementation; see Wessels 2003b). Different theoretical perspectives assign different roles to EU committees and also make different assumptions on the dominating mode of committee interaction (see Wessels 1998). An intergovernmentalist would view committees as extensions of national administrations, and expect strategic interactions vis-à-vis both supranational and national officials. A neo-functionalist, in contrast, would expect committee participants to shift their loyalties to the EU, or, at least, experience role conflicts in relation to their different organizational affiliations (Egeberg 1999; Trondal and Veggeland 2000). A functionalist would see the committees as arenas for smooth technocratic problem solving, based on shared ways of reasoning. A network governance view would see the committees as co-operative arenas beyond the state. Kohler-Koch (2002a), for instance, has characterised the committees as transnational spaces of communication and as social systems with a social logic of their own, characterised by shared commitment to finding common solutions. A number of previous studies have shown that EU committees

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tend to develop into team-spirited working-groups in which the participants work closely together and gain confidence in one another (Hanny and Wessels 1998; Beyers and Dierickx 1998). Joerges and Neyer (1997a, 1997b) even see the EU committees as examples of the development of a co-operative and deliberative culture in the EU. We will investigate to what extent this is true of the Employment Committee and the other committees involved in employment policy co-ordination.

Deliberative transnationalism The Achilles’ heel of the European integration project is arguably the legitimacy problem. It has been argued that the EU cannot rely on deriving its legitimacy from its member states, but has to provide its own base for legitimacy (Eriksen and Fossum 2000). It is in this search for supranational legitimacy that the deliberative democratic tradition has gained salience in EU studies in recent years (Habermas 1996, 2001; Eriksen and Fossum 2000; Cohen and Sabel 1997, 2003). It provides an alternative both to the instrumental and functionalist view that sees effective problem solving and output legitimacy as the key to legitimacy (Scharpf 1999) and the culturalist view that argues that supranational legitimacy requires a common identity and sense of solidarity, that is a European demos. The deliberative democratic theory tradition focuses on the procedural aspects of policy-making, and argues that the process needs to fulfil certain requirements for legitimacy to be obtained. It is through public argument and reasoning among free and equal citizens that proposals can be justified, that is legitimised. In public deliberation, the reasonableness of proposals and ideas can be assessed. Reasons must be provided for the proposals put forward and the reasons must be acceptable to others, ideally to all affected. Such a conception of democracy favours a specific principle of justification, namely the deliberative one, instead of a particular organisational form. It emphasises that collective choices should be made in a deliberative way, and not just that those choices should fit with the preferences of the citizens (Cohen 1989; Jacobsson 1997). This is in contrast to the conception of collective choice as the aggregation of individual non-deliberative preferences. A common will is formed in a process of deliberation, in which new perspectives may be taken into account, new information added and preferences changed. One of the functions of deliberative will-formation – of having to present reasons that must be acceptable to others if they are to survive the deliberative process – is precisely to reshape preferences. This approach does not presuppose basic consent but handles both situations of conflict and of co-operation: it ‘refers to the stabilisation of mutual behavioural expectations in the case of conflict or to the choice and effective realisation of collective goals in the case of co-operation’ (Habermas 1989: 145). The outcome may well be – and often is – a compromise and/or a majority decision. However, voting

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is more rational, less arbitrary and more legitimate if preceded by deliberation. Whether it results in changed preferences or not, deliberation promotes reflectively held preferences. It functions to clarify lines of conflict and to foster a common view of the problem and of what is at stake, and thus the scope of disagreement may be reduced (Knight and Johnson 1994). Joerges and Neyer (1997a, 1997b) have argued that there are core institutional features of the EU which can be read as supranational versions of the deliberationist ideals. They argue that comitology is indicative of the emergence of a deliberative style of EU policy-making. They point to the ‘development of co-ordination capacities between the Commission and Member State administrations with the aim of establishing a culture of inter-administrative partnership which relies on persuasion, argument and discursive processes rather than on command, control and strategic interaction’ (Joerges and Neyer 1997a: 620). While Joerges and Neyer do little to substantiate the claim that committee interaction can in any meaningful sense contribute to improve the democratic character of EU governance, their identification of the emergence of a deliberative style of policy-making is still interesting and suffices to form a point of departure for this chapter. The governing modes analysed in this chapter, the OMCs, are different from pure supranational discretion (ECB and competition policy) or legislation through the community method. Despite the fact that OMCs do not produce binding European law, they are potentially influential enough to be subjected to the same normative criteria as committees and processes with real decision-making power. However, we prefer the term deliberative transnationalism in this case, rather than the deliberative supranationalism discussed by Joerges and Neyer. The chapter focuses on a new model of co-operation within the EU system of governance, the so-called Open Method of Co-ordination. Based on empirical research and with a focus on EU employment policy, we try to answer if and how the OMC has supported a deliberative mode of policy-making. Criteria are: (1) the extent to which the OMC fosters deliberative problemsolving, based on reason-giving and evaluation of arguments, rather than strategic bargaining or functional adaptation (see Eriksen and Fossum 2000), and thus, the extent to which interaction is characterised by a communicative rationality rather than a strategic rationality;2 (2) the extent to which action co-ordination based on fair arguing rather than on coercion and power relations takes place, and thus the extent to which the principle of equality of participants is respected; and (3) the extent to which all interests have the chance to present their arguments. The chapter looks at EU committees involved in EU employment policy co-ordination, notably the Employment Committee (EMCO), but also the Economic Policy Committee (EPC), the Economic and Financial Committee (EFC), and the Social Protection Committee (SPC), both in terms of their formal role and their actual working methods and informal and formal interaction.

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Empirically, the following questions are addressed: Does modification of outlooks and positions take place, and are there indications that positions are moved by arguments? Are common and shared notions of the needs for action developed and common frames of references adopted, indicating that convictions are changed? Does arguing rather than bargaining characterise the interactions in the committees? How open is the Open Method of Co-ordination, both in the sense that the discussion is open-ended and in the sense that it is open to insight and contribution from a wider circle of participants?

The OMC as an enabling structure The European Employment Strategy (EES), framed at the Lisbon summit in 2000, is, perhaps, the most developed example of the Open Method of Co-ordination, a procedure for policy co-ordination based on common guidelines or objectives, which leaves the decision-making on national policy to the member states. This system of governance builds on a systematic exchange of information and on dialogue, which, ideally, will allow for a co-ordination where all parties strive towards the same objective. To what extent is it reasonable to view the OMC as a ‘process of communicative action, which helps participants to internalise new norms and agree on ideas and objectives’ (Meyer 2002: 7)? The OMC as a governance instrument is, potentially, characterised by: (1) Subsidiarity. It is compatible with both functional and territorial subsidiarity. It is open to the decision-making of national parliaments and sub-national authorities as well as to contractual agreements between non-state actors, such as the social partners. (2) Flexibility. Norms and guidelines are easy to change and thus revisable in the light of evaluation and new information. The OMC is both a flexible and a potentially reflexive instrument. Moreover, it is open to diversity and adaptation to local contexts. (3) Multi-level integration. With a need for co-ordination of action and actors at many levels of government, the OMC offers a role to sub-national actors as well as non-state actors not only in the implementation phase but also in the policy-formulating phase. (4) Policy integration. The OMC is intended to make economic and social policies both mutually supportive and work towards the same objectives. (5) Inclusion and participation. The OMC is open for the participation of a wide range of actors, including non-state actors, at all levels. (6) Deliberation. Without formal sanction mechanisms, discussion and arguments gain in importance, as does the need to support arguments with solid data, such as empirical evidence and well-developed statistics. In principle, the OMC allows for discussion about the nature of problems,

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the best way to solve them and how to implement them in divergent contexts. (7) Knowledge-sharing. The OMC also builds on the sharing of knowledge and experiences and on learning from others. (8) Softness. It works without formal sanctions, and is applicable only when fundamental conflicts of interest are not at hand. It works by providing opportunities for action, co-operation and learning (see also Jacobsson and Schmid 2003; Scott and Trubek 2002). These are the main characteristics of the OMC considered as an ideal type construction. It is intended to draw attention not only to the inherent potential of the OMC but also to its limits. In practice, the OMC does not always work this way (Jacobsson and Schmid 2003; see also chapters of Hartwig and Linsenmann in this volume). Yet in principle, the OMC could function as a structure supporting a more deliberative as well as legitimate mode of policy-making. The lack of formal sanctions may facilitate agreements and avoid ‘horse-trading’ situations – it lowers the degree of political conflict. The fact that no direct allocation of resources is at stake may also be supportive of a consensus orientation. Moreover, the EES provides opportunities to be heard (‘voice’) and encourages learning and co-operative efforts through a variety of organisational practices: partnerships, local and/or regional action plans, and territorial employment pacts. The OMC is a good test case of the power of deliberation. In the case of Community legislation generally, voting – whether by QMV or unanimity – may encourage deliberation but also advance package deals and horse-trading. In the case of the OMC, power pressure is useless since it is ultimately up to the member state to implement the agreements or not. Thus, in the discussion, arguments must be general enough to persuade everyone if implementation is to take place. In order to be effective, the OMC must foster commitment to the common goals, and not just a superficial consensus with no real obligations involved – actors must be convinced.

The role of the committees Four advisory committees are involved, to a greater or lesser extent, in the system of governance developed around the EES. These committees are unique in the sense that they hold a position between the Council and the Commission. Although formally preparatory committees under the Council, the Commission handles the secretariats and is also a full member of each committee. The committees are to supply opinions on request of either the Council or the Commission. These committees do not fit the traditional pattern of the EU policy process in another respect: since the OMC is not a legislative process, normally there are no Commission or Council working groups involved, nor any comitology committees involved in the implementation

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phase. COREPER, the Committee of Permanent (national) Representatives to the EU, is also largely left outside the process. This means that EMCO (and the other committees) is the only preparatory body before Council level, and is thus granted an important role in the policy process.3 The following section addresses the potential role of these committees for a deliberative mode of governance, and investigates the nature of the committee discussions. How do committee members express their opinions – from the point of view of problems and the interests of individual member states or from the point of view of common EU challenges and interests? Is there time for open discussions, and are the meetings mainly characterised by arguing or bargaining? The main sources of information are interviews with civil servants both at EU level (from the Commission, the Permanent Representations and the European Parliament), and at national level (mainly Swedish) conducted during 2001–2. We also draw on the participant observation of a colleague (Thedvall 2004, 2006). Our findings have later largely been confirmed by a study based on a questionnaire to the EMCO members with questions designed to test our findings (Vestergaard and Ørnsholt 2003), and by another interview-based study (Tucker 2003). The Employment Committee The Treaty of Amsterdam called for the setting up of an Employment Committee. EMCO was formally established in January 2000, replacing an interim committee established in 1996. According to the Treaty (article 130 TEC), EMCO is a committee with advisory status, the purpose of which is to promote co-ordination between member states with regard to employment and labour market policies. Its tasks include monitoring the employment situation and employment policies in the member states and the Community, formulating opinions at the request of either the Council or the Commission or on its own initiative, and contributing to the preparation of the Council proceedings. In fulfilling its mandate, the Committee has to consult the social partners. EMCO is to contribute to employment policy co-ordination as well as to the other related processes. Its assignments include the employment guidelines, review of the NAPs and a Peer Review Programme, where member states present successful projects to representatives of other member states under the supervision of independent experts. EMCO is also to contribute to the Broad Economic Policy Guidelines (see Linsenmann’s contribution in this volume) and to the macroeconomic dialogue. EMCO is a preparatory committee for the Council for Employment, Social Policy, Health and Consumer Affairs, but is also closely linked to the DG Employment and Social Affairs of the Commission, where the secretariat is located. The secretariat prepares all documents that are to be discussed in the committee and drafts the committee opinions. It is responsible for preparing the agenda with the chairman and for circulating documents. The secretary also ensures that relevant documents from the other committees are circulated to

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the chairman, or sometimes to the full committee. While its remit is to support the committee, the secretariat relies heavily on the expertise provided by the Commission. The Commission generally provides the background material and formally employs the officials at the secretariat. Yet, the Commission is also a member of the committee. This makes the role of the secretariat somewhat ambiguous. When the four committees were set up there was a discussion between the member states and the Commission as to whether the secretariat should really be part of the Commission or not. EMCO consists of two ordinary and two alternate members from each member state and two members from the Commission. A chairman elected from the member state representatives heads it for two years, assisted by a steering group. EMCO has two sub-groups: the indicators group and the ad hoc group. Membership in these groups usually does not overlap with membership in EMCO. The indicators group consists mainly of lower level officials such as technical experts from ministries, but on occasions also includes experts from statistical agencies or other organisations. Members of EMCO head both sub-groups. The full committee meets some seven times a year, but since there are also meetings in the sub-groups and other constellations, the EMCO secretariat prepares for approximately 15 to 17 meetings a year (on the frequency of meetings in the various committees, see Annex Table 9.1). Usually the meetings last for one or two days. Besides the ordinary meetings in Brussels, EMCO normally meets once during each presidency in the country currently holding the presidency. These are called informal meetings, and give the presidency a chance of presenting the main issues, which it wants the Commission to develop. Some interviewees claim that these meetings are a good way to meet and discuss in a more relaxed manner outside the ‘Brussels structure’, and that this enhances willingness to learn and ‘take in’ good examples. Over the years the nature of these meetings seems to have changed. In the beginning, they tended to be a kind of discussion session on employment and labour market policy, without any real aim of producing a written contribution or an opinion. According to our interviews, the presidency’s priorities have gradually taken over the informal meetings. Increasingly, the committee is asked to supply a written statement or contribution on a certain political issue, normally close to the presidency’s priorities. Demand for written contributions generally makes national standpoints clearer and discussion less open. Negotiations then tend to focus on wordings instead of policy. One interviewed Commission official held the presidencies responsible for this development, since the presidencies want to give more scope to the committee to prepare issues for the Council. Without a written contribution, it is generally difficult to submit anything to the Council and, conversely, a committee’s opinion can serve as the basis for a discussion at ministerial level. More and more, the committee has come to be used by members as a clearly preparatory semi-political, or even close to political, forum. In the beginning,

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EMCO had already areas where it produced opinions, but it also had originally more exchanges of views and discussions on policy issues without any written result going to the Council. Moreover, since the agenda has become more packed, it is hard to find time for discussions on best practices and similar topics. The over-burdened agenda makes the more relaxed and open discussions suffer, since the time frame has become limited for these kinds of activities. Some interviewees claim that this is a natural development since the group is now quite clear over differences and policy choices in the respective member states. It seems that the ‘learning dynamics’ – the sharing of experiences – has moved from EMCO to the Peer Review Programme, where best practices are identified and diffused and where participation is optional, and to bilateral exchanges between countries. In EMCO, the level of civil servants participating is fairly high, both in terms of seniority and hierarchical level – and should be according to the founding Council decision – which gives the group certain characteristics. In the working groups, the hierarchical level of participants is lower. They consist mainly of technical experts. The ambience in the indicators group is described as much more relaxed since the agenda is not as full as it is for EMCO. There is more time for discussion and also less pressure to reach a decision or joint position since there is no obligation to supply written statements within a given time frame. The main task is to supply EMCO with information about what kind of comparative data can be used. The indicators group handles technical issues, such as development of indicators and ways of comparing statistics, but these are, of course, highly political numbers, since they provide the base for comparisons between, and benchmarking of, countries. In the committee discussions, it does not seem to matter whether a participant is a member of a small or a large country. Substantive knowledge and experience are more important. Whether the discussion takes on a more bargaining character rather than a deliberative one with an open exchange of views is highly dependent on the issues on the agenda according to our interviews. In the work on country-specific recommendations, national standpoints and bargaining on wordings completely dominate the discussions, while other less politically sensitive matters may generate more open-ended discussion. In our interviews with committee members, it is clear that they speak and reflect in terms of the political mandates given to them ‘back home’. Moreover, the fact that several countries, such as Denmark and the Netherlands, changed their members after elections brought in new parliamentary majorities indicates that members are there on political and not personal mandates, in contrast to the Council’s intentions when establishing the committee. The two economic committees Another important committee in the employment field – and even more so in the economic policy field – is the Economic Policy Committee (EPC),

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which served as a model when EMCO was established. The EPC serves under the ECOFIN Council and the secretariat is located at DG ECFIN. Its main task is to handle the Broad Economic Policy Guidelines process (see Linsenmann’s chapter in this volume), which includes aspects related to employment policy. The EPC also prepares the macroeconomic dialogue. Moreover, it sometimes acts as a preparatory group for the Economic and Financial Committee. This means that some issues treated in the EPC subsequently pass through EFC before going to the Council. The EPC and EFC share a secretariat and a secretary, although this last function is somewhat different compared to the position in the other committees. The secretary does not perform any practical tasks for the EPC, such as circulating documents or keeping in contact with the secretaries of the other committees. This work is done by a lowerranking civil servant, who works closely with the personnel at DG ECFIN. The EPC meets on average eleven times a year. According to the statutes, the member states as well as the ECB and the Commission should each appoint four members, although common practice is now to have only two members present from each member state. Unlike EMCO and EFC, the EPC’s composition and mission is not spelled out in the Treaty and thus its Treaty base is weaker (article 272 TEC). The members of the EPC are mainly economists with similar educational background, a number of whom have high academic qualifications. Among the interviewed officials at DG ECFIN, it is considered a privilege to be able to discuss ideas with the well-articulated, educated and experienced members in the EPC. The discussions seem to run smoothly and there is seldom any confusion about expressions and terminology. The participants all identify themselves with the same theoretical approach and their background supplies them with the framework for their discussions. To this extent they constitute an ‘epistemic community’ (Haas 1992). There is mostly consensus on the issues on the agenda, but there are occasions when discussions turn into negotiations among participants in their role as representatives of national standpoints and political mandates. As in the case of EMCO (see above) this is the case when discussing country-specific recommendations, which always tend to be politically sensitive – not because the members of the committee necessarily disagree, but because their political mandates to act as representatives of their governments come to the fore. The Economic and Financial Committee (EFC) as specified in the Treaty (article 114 TEC) replaced the earlier Monetary Committee. It is less closely related to employment policy matters, even though it does comment on the employment guidelines. It still deserves mentioning since it differs from the other committees studied here, although it formally displays some similarities to them. The most obvious similarities are the secretariat, which is shared with the EPC, and the ‘in-between-ness’ in relation to the Council and the Commission. It is, however, clear that this committee is much closer to the Council, and in that sense represents a more intergovernmental form

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of co-operation. All members are high ranking senior civil servants from the national central banks and finance ministries and, although not formally political actors, are very closely linked to the political power in their ministries, which also serves to reinforce the perceived higher status of the committee. The EFC consists of two representatives from each member state with their alternate members, representatives from the ECB and the Commission.4 It takes the shape of a more informal ‘Council’, in which representatives from the governments of the member states can meet in a preparatory body. These properties make the committee in one sense highly political in comparison to the others, but this does not prevent committee members from enjoying a close co-operation and a deliberative working mode. Moreover, as shown by Verdun (2000), the committee had, in the run-up to EMU, a lot of leeway to convince their principals that decisions were objectively necessary. The EFC follows the financial situation in the member states and examines the situation as regards the freedom of movement for capital and the balance of payments at least once a year. It has important functions with regard to the Stability and Growth Pact and the Excessive Deficit Procedure (article 104 TEC). It also contributes to the preparation of the work of the Council on a number of issues. The EFC acts as a preparatory body for the Euro Group, and the chairman of the EFC, together with the secretary of the committee, participate in the Euro Group meetings (Puetter 2003). The EFC has no permanent working groups but if necessary these can be established ad hoc. An alternates group has been established and consists of all the alternate members of the committee and works as something close to a preparatory body for the full committee (see Linsenmann and Meyer 2003). This development is due to the relatively full agenda of the committee and the limited time that the high-ranking senior civil servants are able to devote to the meetings. In preparing documents and providing background material for EMCO, SPC or EPC, there is at times close co-operation between the DG ECFIN and the DG Employment and Social Affairs. However, this is not the case with the DG ECFIN officials preparing for EFC. They have very few contacts outside the DG. The working methods in terms of meetings and procedures have always been a secret in this committee. Hanny and Wessels refer to the committee as ‘an animal of a particular nature in the jungle of committees’, as ‘decision-makers in the dark’, and as an ‘old boys club’ (Hanny and Wessels 1998; Verdun 2000). One Commission official referred to it as ‘some kind of animal they keep in a cave’. Until recently even the date and place of the meeting were secret to anyone except the participants. The reason for the secrecy of the EFC stems back to when it was called the Monetary Committee and handled issues concerning the highly political preparation for the EMU. Secrecy was then considered necessary in order to avoid speculation and to create financial stability. According to several officials, the issues handled today by the Committee do not require the

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same degree of secrecy. But the status of the Committee is partly due to its secretive features, and the secrecy seems to provide the framework for more openness and confidence between the members. As one interviewee at national level put it: ‘If you discuss politically sensitive matters, and if you are a tight group where everyone knows each other and you are not bothered by diplomats reporting everything, you can, of course, be more open . . . As group pressure is created, you can’t see it as your mission to divert all the unpleasant things said about your country.’ This official believes that while there is an element of competition, the members have to be – and also are – quite clear about the fact that they cannot always win. In his view, the restricted membership of the Committee, in combination with the peer pressure, makes participants more open with respect to criticism. The discussion under the prevailing secrecy seems open-minded and without much bargaining. The group enjoys close co-operation with informal and personal contacts working smoothly. The participants have little trouble understanding each other and the terminology used is common to all. The working style and the atmosphere is highly consensus-oriented and there seems mostly to be agreement even before issues are explicitly addressed and discussed. However, when issues become politically sensitive or controversial, for instance, in the formulation of recommendations, the discussions enter into negotiations over wordings and become less open-minded. As in the EMCO, the political mandate of the members becomes clear here. Members might very well agree personally on the recommendations and give comments such as: ‘We all know that this is the appropriate way but that is unfortunately not the way we have chosen to organise it in my country’ (interviews). National standpoints may be revised through the discussions at the level of individual officials, but it is far from certain that these changes are translated into national policy, because ultimately committee members are representatives of national governments. There are, however, signs recently that the EFC has become more politicised, and that discussions are becoming renationalised after the completion of Economic and Monetary Union (Linsenmann and Meyer 2003). In contrast to its former influence, the committee was unable to prevent open conflicts among member states over the Stability and Growth Pact and the failure of some countries to follow the common rules. Possibly the large versus small state controversy will intensify in the coming years. Contrary to the other committees, it seems to matter significantly whether one is a representative from a large or a small member state in the EFC, which indicates that power relations are important. During the meetings, according to our interviews, representatives of small countries do not speak as much as the bigger ones. The larger countries also had unofficial lunch meetings in which the small member states do not participate (Hanny and Wessels 1998; authors’ interviews). However, the lunches are now mostly used for the preparation of the Euro Group.

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The Social Protection Committee The latest committee to be established was the Social Protection Committee (SPC) set up in 2000. It relates to the same Council constellation and DG as EMCO. When the Treaty of Nice came into force in 2003, the SPC became Treaty-based (article 144 TEC). There is also support in the Treaty for cooperation in the area of social exclusion. This does not apply for pensions or health care, which clearly fall under the principle of subsidiarity, but the member states have still agreed to look at possibilities for co-operation on these issues along the lines of the OMC. The main tasks of the committee are to monitor the development of social protection policy in the member states, to promote exchange of best practice and of information, and to prepare reports and opinions in the same manner as the EMCO. The representatives are made up of two regular members and two alternates. Most members belong to Ministries for Social Affairs or Labour Market Ministries. The secretariat is located at the DG for Employment and Social Affairs. There are no rigid borders between the Commission and the secretariat in the way the work has been organised, even though at times the secretary distances himself from the Commission. There is one sub-group, which has been working on indicators for social inclusion and is currently focusing on indicators for pensions. According to several sources, the idea of balancing the financial side of the debate and giving social protection a voice at EU level was an important explanation for why the social ministries came together. However, the committee members have not pushed for the subsequent development of social policy co-ordination. Rather, the Commission has responded to the highlevel mandates given by the spring summits. Moreover, the member states have been reluctant to introduce some aspects of the OMC used in other fields, such as the use of recommendations and the ranking of countries. It might, perhaps, have been expected that the SPC would be the committee where participants have most trouble in understanding each other in the discussions, since welfare regimes vary considerably between the member states. Yet this has not been a major problem. According to the members and the secretary, the motivation to find common ground has been high and members have worked hard to explain their national features. Although the patience to listen and to read the national reports from fourteen member states thoroughly might not always be present, a common conceptual understanding seems to have developed through the meetings. The character of the discussions in the committee seems to be relatively open-minded and constructive; partly because of the common will to give the social issues a concerted ‘voice at EU level’ and to counterbalance purely financial considerations. A developing common EU language or ‘jargon’ also facilitates the discussion. There has been occasional tension as to the progression of the work where some members have wanted to slow down the pace. Others have been closer to the Commission agenda. While the EMCO

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seems to have experienced a shift from more open discussions to negotiations on wording because of a tight agenda and the demand for written opinions, the agenda of the SPC has been busy from the start. It is considered important to provide written statements since, by writing documents, the SPC can make itself heard at EU level. The production of these documents, however, might appear to imply stronger co-operation at EU level, to which some member states are averse. Interaction between the committees Since issues often overlap in the various committees, interaction and co-ordination between them are well developed at the level of civil servants. Formally, the co-ordination between the EPC and the EMCO takes place between the two steering groups, which meet to discuss common issues and proposals for joint opinions. More informal co-operation has also been established through the interaction between the two secretariats. Before committee meetings, they provide their agendas to each other and circulate drafts and other documents of possible interest to the other committee. The secretaries can participate in each other’s meetings. The contacts between the SPC and the EMCO, which relate to the same DG, are upheld in a similar way and run smoothly. Recently, the contacts between the SPC and the EPC have also become closer since the work on pensions requires co-operation between the two committees. The EFC, however, has a more secretive relation to the other committees. It does not participate in any way in this collaboration of circulation of drafts, agendas, or steering group co-ordination. The secretariats of the EMCO and the SPC never see any documents from the EFC even if they may very well be of relevance to them. With the increased emphasis, particularly after the Lisbon summit, on the need to co-ordinate social, employment and financial policies to make them mutually supportive, the need for co-ordination between all four committees has come into focus. There have been attempts to establish more contacts between the other committees and the EFC through arranged meetings between the steering groups or the chairmen. However, such projects are looked upon as somewhat of a ‘mission impossible’ by most interviewed. Several interviewees contested the need for secrecy. Most topics discussed bear on administrative issues concerning processes or meetings and only a small number of issues touch on questions related to exchange rates or sensitive economic policies. Even if the committees, through the post-Lisbon development, are more on an equal footing than before, a hierarchy between them persists. This perception stems both from the formal rules governing them, but also from the more subtle notions derived from the relationship between the treasuries and the spending ministries at national level. Most members of the EPC represent the ministries of finance or economy at home and therefore also traditionally hold a strong position nationally. This has led to a belief amongst the members of the EPC that they might not benefit from co-operation with

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the EMCO and the SPC since they represent ‘weaker’ ministries at home. This is even truer in the case of the EFC.

The OMC – deliberative governance in practice? There is evidence which points to ways in which the OMC supports a more deliberative mode of governance. However, there are also factors that undermine and limit the possibilities for the committees to function as deliberative forums. This section summarises the main findings. Arguing or bargaining? Are the committee discussions characterised by argumentation aimed at reaching mutual agreement, or by bargaining aimed at the successful defence of predetermined national positions? Or, put differently, what is decisive: power relations or good arguments? Our results indicate that the committee discussions take on quite different features depending on the issues on the agenda. Generally, discussion is open-ended, where all members can present their arguments and try to find common ground. Except for the EFC, it is not of great importance whether one represents a small or a large country. Instead, arguments which build on substantive knowledge and experience on the topic at stake, for instance presented by a country with a good record in economic or labour market policy, will be thoroughly considered regardless of power relations. There is also an expressed will to listen to and to learn from the experiences of others. Strategic bargaining is not the general mode of interaction in the committees. However, contacts to create coalitions with like-minded members before meetings do take place, usually concerning issues that might become politically sensitive and those of a more rule-setting character. When it comes down to the formulation of recommendations or the exact definition of indicators, the discussion in the committees (or in the bilateral consultations with the Commission) takes the form of pure negotiations and bargaining. Member states try to influence the exact wordings of the recommendations in order to make them nationally acceptable. In the first years, employment policy recommendations were regarded as more sensitive than today. At that time, the member states wanted to have a stronger say on the issue and intervened to ‘soften’ recommendations. Since then they have become more relaxed about criticism. This change may indicate that the Treaty-based notion of employment policy as an ‘area of common concern’ has gained some understanding, and that it is now more acceptable to receive critical comments and recommendations from other member states. However, it may also indicate that the recommendations are increasingly perceived as harmless because of their non-binding nature. Although the committees are formally advisory, they have great influence in that their proposals are very often identical to the eventual Council

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decisions. This has led member states to use the committees increasingly as forums to place issues on the political agenda. This is especially true for EMCO. Because the committee has in this respect become more political, discussions have become more like negotiations on the basis of national standpoints than open-ended discussions on best practices and exchange of opinions. The demand to produce written statements in order to influence policies also puts some strain on the openness of the discussions as do time limitations. These factors seem to have made discussions less open-ended and more focused on bargaining on wordings than on openly discussing common problems or different policy choices. Certain deliberative features seem more prevalent in the discussions taking place in the EPC and the EFC, given the way views are exchanged, a common terminology is used and a will exists to understand the positions of others. One explanation is that these committees are much more closed to outside actors. There are no contacts with social partners or NGOs, and the EFC does not even have regular contacts with the EMCO or the SPC, and thus need not take into account the concerns of other actors. Moreover, being trained economists, the members of these committees constitute an ‘epistemic community’ with shared theoretical frames of reference, which facilitate discussion. On the other hand, big countries have a greater say, which indicates that power relations rather than the power of the good argument is decisive when sensitive issues are at stake. Shared frames of reference and consensus-orientation? At a general level, shared notions of common problems and challenges have developed. This is true both of the need for stable public finances, and the need to handle the demographic challenge, including the need for increased rates of employment and the reform of tax and social benefit systems. Common policy approaches, such as a preventive and activating labour market policy and the ‘make work pay’ principle, have been developed. However, a total consensus does not exist, especially not for concrete measures. Yet there is an awareness of the expectations of the others, and there will be negative reactions against failure to respond to the common objectives. Non-compliance must be explained and reasons and arguments provided. For instance, in response to criticism and country-specific recommendations, the Swedish government has tried to explain the high gender segregation in Sweden by the high female employment rates, and it has also questioned the model for measuring the fiscal pressure developed by the EMCO (Junestav 2002). While the Swedish government is not prepared to ‘buy into’ the recommendations immediately, it is still possible that the need to provide reasons may trigger a national process of reflection, potentially self-critically. Moreover, peer pressure is involved. As described by a senior Swedish official: ‘One does not want to be the worst one in the class.’ Or as expressed by another: ‘Peer

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pressure is tangible.’ This in combination with the confidence-building through the close committee interaction has also led to member state representatives being willing to ‘drop their guard’ with respect to criticism. Our empirical material suggests that the ability of the committees to find common ground and to agree on different proposals is, for the most part, high. As already mentioned, being an epistemic community (of economists) is helpful in this respect. The members in the economic committees studied here seem to agree more easily than the EMCO and the SPC and use less bargaining, partly because of this feature of a common professional background and theoretical approach. For instance, members of the economic committees express their satisfaction that they do not have to discuss such ‘irrelevant’ issues as lifelong learning (interview, national official). What is relevant for discussing and what is not are here partly determined by the theoretical framework or discourse in a Foucauldian sense. The EMCO and the SPC contain greater variation in views, in consequence of a more differentiated membership, both in terms of education and national experiences. Agreements reached in the economic committees seem to be achieved at the expense of excluding alternative voices. Even though the rules of procedure in the committees allow for voting, the ambition is to reach consensus. If the chairman is uncertain about whether there is agreement or not, a round is called where each member makes a statement. If agreement is not reached, there is usually no decision or the issue is removed to be settled in another forum. On issues of particular national sensitivity, member states may insist on a specific wording, but often the representatives are content with making a symbolic remark on the national position and then adjust to a common line. As previous research has also shown, committee members are dedicated to reaching agreement. However, in sensitive areas and when it comes to written output of the committee deliberations, it is difficult to find evidence of national standpoints actually being modified during committee interaction. Ultimately, the members have political mandates given by the political leadership at the ministries ‘back home’. In the OMC areas, proposals must be negotiated and decided at national level. The member state representative may well agree that a certain measure might be the best for his/her country, but might also know that this is not what is considered to be the best solution at national level for political reasons. Thus, even if the individual civil servant becomes convinced during committee interaction, this will not necessarily result in actual policy change in the member state. That is, while reasoned argument can indeed transform preferences of individuals, the structural conditions of the committee interaction studied – members being delegations of national representations – limit what deliberation can achieve. Certainly committee members may have influence on national politicians, but this is a development to be envisaged primarily in a long-term perspective.

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Inclusiveness and transparency? As the deliberative ideal prescribes the possibility for all interested parties to have the opportunity to express their standpoints and present their arguments, the question of openness becomes important. Most interviewees perceive OMC processes as being closed not only to the broader public but also to other interested parties such as executive agencies and actors at subnational levels. The overall knowledge within the public administration at national level has in this study and others (Jacobsson and Schmid 2002; GOVECOR 2004) been shown to be low outside the core group of civil servants working directly with the issues. Some interviewees point to the irony of the term ‘open method of co-ordination’ since it is perceived as being much more closed than the legal method. The individual citizen has fewer possibilities of holding anyone accountable since the European Parliament has only an advisory role and because it is not possible to take cases to the European Court of Justice. Moreover, national parliaments usually do not have a decisive say on the national action plans since the OMC is perceived to be a governmental concern (Jacobsson and Schmid 2003; see also Jacobsson and Vifell in Chapter 4). As regards social partner and NGO participation, relations vary considerably between the committees. The SPC and the EMCO are the most open to participants outside the committee. On the financial side, there is no participation of NGOs, while the social partners are heard occasionally. The EMCO and the SPC are more open to other interests, partly because of the formal mandate, according to which both committees are obliged to consult the social partners, but also because of the working methods established (exchanges of ‘good practice’ and informal meetings where NGOs and others sometimes take part). One explanation for this is that there is, although not formally, a distinct hierarchy in which the economic committees have a stronger position – a position that makes it possible to ignore demands for the participation of other stakeholders without losing legitimacy. In contrast, the social policy side needs the support of other stakeholders. It is clear that the Commission officials working with the EMCO and the SPC are more interested in contacts with interest groups and social partners, and they can also see the value of these contacts, compared with the economic committees and their staff. Nationally, through the NAP processes related to both employment policy and social inclusion, there is an expressed will to involve civil society actors. This is much less true on the economic policy side (Foden and Magnusson 2002). Even so, the macroeconomic dialogue, involving the European-level social partners, has been established to enhance consistency between monetary policy, fiscal policy and wage developments in the monetary union. One major drawback in the committee governance within the OMC is the lack of transparency in the decision-making process. Besides the fact that not

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all stakeholders have the opportunity of presenting their arguments, it is hard for journalists and researchers or others interested to know how policy is being made. The EFC is the clearest example, since its meetings are not documented in any way at the time of writing. Even if the committees are formally only advisory, in reality they have a much stronger role in the policy process, which makes the question of accountability pertinent. This chapter has focused on the role of the committees working on employment policy in developing a more deliberative mode of governance in the EU. These committees are interesting since they are an expression of a close co-operation between the Commission and the Council, and they are central actors in the governance of the OMC. However, it is important to acknowledge that there are other aspects of the EES, which may be equally relevant to focus on in a deliberative perspective. These include the encouragement to build partnerships and pacts nationally and sub-nationally, to develop local and regional action plans and to mobilise relevant actors, to improve policy integration and co-ordination between national ministries, and to learn from good examples. Arenas for dialogue between stakeholders have been established at all levels – from macroeconomic dialogue to local partnerships. While far from being fully exploited, we argued in Chapter 4 that the EES has provided new opportunities for actors to be heard, and opened space for new co-operative initiatives, for instance locally. Nevertheless, the EES still leaves much to be desired with respect to transparency and participation (De la Porte and Nanz 2004). It is clear that if the OMC is to contribute to European social and political integration, and for which there seem to be some prospects through the OMC with policy learning and mutual understanding, it is important that this European perspective be spread to a wider public than is the case today. Today, only a small number of officials at national level are aware of the method, which makes the spreading of best practices and good examples from other member states difficult. Exchange between practitioners is limited. Meyer and Kunstein have shown in this volume that the broader public in the member states has almost no knowledge of the new policy co-ordination processes taking place and even the national parliaments are only sporadically involved. In order for the OMC to be effective, and ultimately also legitimate, it must affect national debates and policy-making. Accordingly, it needs to be much better integrated nationally and sub-nationally than today.

Conclusion: prospects and limits of deliberative transnationalism What conclusions can we draw on the prospects of deliberative transnationalism, based on our study of the role of committee deliberation in soft co-ordination?

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Enabling features of the OMC There is some empirical evidence that the OMC in the employment policy field is supportive of a consensus-oriented process of policy-making. Participants enter the committee discussions with the ambition of finding points in common in which co-operation can be developed. Participants acknowledge that there are common problems, which require co-ordinated action, and in which the experiences of others may be useful, and they try to present their arguments in such a way as to make them applicable in other contexts. The work of developing common indicators to measure progress is an attempt to develop common frames of reference, even though the discussion about indicators has so far been coloured by national positions and negotiations. The non-binding character of the discussions seems to facilitate a deliberative mode – openness to be convinced by arguments – and a culture of listening and learning, rather than meeting criticism with defensive attitudes. In the absence of legal force, reason-giving gains in importance – in order to become ‘binding’ in practice, participants must be convinced that a proposal is reasonable and worth implementing. And even if convictions about the right policy course are not changed during committee meetings, what is said during meetings may encourage a reflection process about national policy, which may be important in a longer term. The member state representatives increasingly seem to accept the fact that they will receive peer criticism. The common project of developing and co-ordinating employment policies has been generally accepted. A European perspective is gradually developing in that policy actors – at least at elite level – increasingly ‘think politics’ and policy with European frames of references rather than exclusively national ones. They have begun to rethink national employment policies in the light of ‘common problems’, to understand them in terms of ‘common concerns’ (Jacobsson 2004a). To this extent it is accurate to speak of a deliberative transnationalism. Norms of action, both norms of co-operation and substantive norms of certain policy principles, have developed. It is accurate to say that the OMC contributes to normative integration to the extent that mutual understanding is fostered and convictions about the reasonableness of common guidelines are developed. This is in itself a form of social and political integration. Limitations to openness and agreement However, there are obvious limits to the receptiveness to be moved by arguments. Positions are partly ‘locked’ beforehand because of the political mandates from national governments. This becomes clear when the topic for discussion is recommendations or other issues that, in some way, might become more binding to the members. It is then that bargaining instead of open-ended discussion tends to dominate the interaction. If it is the case that the more direct effects on decisions on substantive policy or the allocation of resources, the less open the discussion based on exchanges of experience and knowledge becomes, then there are limits to deliberation as the sole or main

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action co-ordinating mechanism. On the other hand, deliberation may still be the key to improved legitimacy and justification of decisions. It seems easier to reach consensus with more technical, and less politicised issues. The sub-committees handling mainly technical issues also fit into this pattern. This may explain Joerges and Neyer’s positive results from a committee concerned with risk regulation in the foodstuff sector, consisting mainly of lower level civil servants working on highly specialised issues requiring scientific assessments. It is likely that it is easier to reach consensus in the comitology committees (cf. Joerges and Neyer 1997a, 1997b) than in committees in the preparatory phase studied here, especially since these committees are the only ones involved in the employment policy process, indicating that the political agreements will need to be reached in them. The comitology committees mainly consist of lower level national experts, for instance from agencies, who often share professional backgrounds and technical competences. In other cases considered here, the representatives are higher officials from ministries more closely linked to the political level. As the committees studied here have grown continually more politicised it is far from certain that the personal agreement between committee members will be transformed into policy change. Accordingly it seems more relevant to study these preparatory committees, rather than the committees in the implementation phase, in order to test the action co-ordinating power of deliberation. It is also more relevant in a democratic perspective to study preparatory committees, since the legitimacy question is more burning in policy-making than in implementation. Our results indicate that it facilitates the reaching of consensus if members share the same professional background or theoretical frames of references. Again, this may explain Joerges and Neyer’s positive results from looking at committees working on specific technical, although sometimes politically sensitive, issues in the food sector where the participants, due to the scientific discourse, focus on the best technical solution rather than on control and distributional matters (Pollack 2003a). However, the exchange within epistemic communities tends to be less open to taking considerations from other perspectives into account. It is less open-minded, and instead tends to build on a pre-political consensus. In a strict sense, it would be questionable to allow discussion that is closed to alternative perspectives to qualify as deliberation at all. In any case, this type of deliberation corresponds to a ‘light’ or ‘thin’ notion of deliberation, which satisfies some deliberative criteria and not others. Moreover, committee discussion has limits when it comes to solving political problems and conflicts of interest or value. It also seems to be the case that the more closed the forums, the more open the discussion becomes. Once again it is worth highlighting the difference between the economic committees and the EMCO and the SPC, where especially the discussions in EFC seem to benefit from the limited openness of the committee. This means that transparency in the transgovernmental process might increase bargaining rather than arguing. Transparency makes

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the participants more aware of their constituencies, that is it makes committee members more concerned with defending the interests of their principals, in our case, national governments, which makes them less open to give up positions. Deliberation as action co-ordination mechanism is not always easily reconciled with the logic of representation (Naurin 2004). Committee governance, in its capacity to develop a co-operative regime, may have an important function to fulfil in a certain phase of the policymaking process, but will-formation in order to be legitimate must ultimately be developed with input from forums with public deliberation. The role that one is prepared to assign to committee governance in EU policy-making seems partly to be related to which role of deliberation is being stressed: to reach consensus, to reach better substantiated decisions or to justify decisions. Public deliberation is geared towards guaranteeing all three at the same time, while non-public deliberation is unable to do so.5 Implications of elite deliberation It is therefore important to bear in mind that the committee deliberation identified here, and by Joerges and Neyer as well, is a type of elite deliberation, and sometimes expert deliberation, which hardly fulfils all the requirements of deliberative democratic theory. Yet, this type of deliberation can contribute other qualities and improve policy-making in other respects than by granting democratic legitimacy by itself. In our case, it is clear that committee deliberation has been important in building confidence and consensus between the national officials and the EU representatives in sensitive OMC areas and thereby can contribute to a closer networking of administrations at different levels of governance. Moreover, in the case of the committees in the policy formulation stage studied here, allowing a wider circle of views can ensure a more complete picture of various policy options. Decisions will be better founded if many points of views are considered. However, this merit of the OMC has not been fully exploited. Elster (1998) lists a number of advantages of the deliberative ideal, one being that deliberation can be creative. Policy-making is not just about deciding between available options but to develop alternatives. The committees can be central also for this. Yet this is not democracy, and an important question, which we cannot address fully in this chapter, is to what extent open-mindedness in closed forums contributes to democratic governance. A distinction between deliberation as a mode of interaction and action co-ordination and deliberative democracy must be made. Democracy is not conceivable without a public sphere, and for the OMC to improve the democratic character of EU governance, its relationship with the public sphere, nationally and supranationally, must be strengthened. Today, the process is too closed not only in relation to many stakeholders, but also in relation to the European Parliament, to national parliaments and publics. Currently, there is no guarantee or mechanism for the interests of all those affected to be considered. The question of accountability

The Role of Committee Interaction in Soft Co-ordination 185

becomes urgent when national policy is settled in non-transparent transgovernmental and trans-bureaucratic processes, even if these build on a culture of co-operative inter-administrative partnership (cf. Joerges and Neyer 1997a). In order to be legitimate, committee deliberation must be coupled with public discourses, and in the case of the OMC, it must do so in order to be effective. Since no binding decisions are taken at supranational level, implementation will not take place unless learning reaches down to lower levels of governance and is developed in public reasoning there. The following chapter by Meyer and Kunstein will tackle this question in more detail. Annex Table 9.1:

Number of meetings of the following bodies 1997

1998

1999

2000

2001

2002

2003

ECOFIN Council 10–12 meetings/year Economic Policy Committee (EPC) Main committee 10 10 10 12 12 11 11 Sub-committees 3 2 11 17 24 15 14 Economic and Financial Committee (EFC) Main committee 10 11 13 14 12 13 12 Sub-committees 9 16 20 23 27 30 30 EPC and EFC No joint meetings, but informal contacts through the secretariat and between the chairmen. EPC and related committees Informal, but regular contacts with EMCO secretariat, for example through ‘steering groups’ (4–5/year). 1997

1998

1999

2000

2001

2002

2003

Council for Employment, 4–6 meetings/year Social Policy, Health and Consumer Affairs Employment Committee (EMCO) (1997–99 ELC) Main committee 11 12 10 7 7 6 7 Sub-committees No No No 3 10 8 9 info info info EMCO and related Informal but regular contacts between EMCO, SPC committees and EPC Social Protection Committee (SPC) (2000 High Level Working Group on Social Protection) Main committee 111 11 11 9 Sub-committee 9 10 10 SPC and related Informal but regular contacts between SPC, EMCO, committees and EPC Source: GOVECOR 2004. 1 The high level working group on social protection met ten times and SPC once as its first meeting was held in December 2000.

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Notes 1. On the EU and deliberative governance more generally, see Cohen and Sabel 2003; Eriksen and Fossum 2000; Habermas 2001; Jacobsson 1997. Of course, all contributions on deliberative governance stand in debt to Habermas. 2. Strategic action is, according to Habermas, oriented to success, and its rationality depends on the ability to apply means to reach ends. Communicative action is oriented to mutual understanding and its rationality depends on the ability to reach agreement with others. While both action types may use language as a means, in the latter case action co-ordination follows from the unforced power of the argument, the power to convince. According to Habermas (1996: 165f.), both bargaining and arguing are co-operative solutions. Bargaining processes are tailored for situations where power relations cannot be neutralised in the way rational discourse presupposes. While a rational consensus rests on reasons that can convince all parties in the same way, a bargained compromise can be accepted by different parties for different reasons. Habermas’s concept of rational consensus is a strong one. In this chapter, we are concerned with the role of reasoned argument without implying a rational consensus. 3. Some issues, such as the country-specific recommendations, pass through COREPER and/or a Council working group, but this is for the most part a formality and discussion of the proposals seldom occurs. Only some particularly sensitive issues are handled at these levels. 4. Until 2003 also the national central banks were represented. Today they may only participate in the main committee when issues related to the stability of financial markets are discussed. This change was brought about mainly because of enlargement, which has meant an increase in the number of participants, which in turn may also change the intimate and informal character of the meetings. The number of appointed members per member state, the Commission and the ECB has also been limited to two each in the EPC for the same reason (see Linsenmann and Meyer 2003). 5. Some may question the relevance of studying committees at all in a deliberative perspective. Yet, there are openings in Habermas’s theory for viewing institutionalised forms of communicative action also within state and even market institutions (Cohen and Arato 1994: 479), that is, for conceiving of publics within basically system-steered organisations. However, in order to be democratically legitimate, committee deliberation needs to be effectively coupled with public deliberation and accountability mechanisms.

10 Towards a ‘Grand Débat Européen’ on Economic Governance? Publicised Discourses as Indicators for the Performance and Evolution of Policy Co-ordination Modes Christoph O. Meyer and Tobias Kunstein

Introduction Public discourse comprises all forms of social communication under conditions of mutual visibility, which are usually brought about through the news media in modern societies. In the context of a political science approach, public discourses on issues of collective concern are seen as essential for democratic governance because of their contribution to opinion-formation, scrutinising and enforcing accountability, and generally for creating an ‘informed and enlightened citizenry’ out of atomistic individuals (Dahl 1994: 31). Public discourses are also relevant for the efficacy of governance in so far as they can build up public support for specific policies, improve their quality in terms of substance, and foster support for smooth implementation and compliance. These different functions of public discourse for a political system provide a first indication of why it is relevant for the performance and evolution of economic policy co-ordination modes. They have been portrayed in some of the literature as heterarchical, democratic, and deliberative governing modes supportive of the emergence of governing networks and real learning through the exchange of information, ideas and peer-review (Eberlein and Kerwer 2002; Goetschy 2003; De la Porte and Pochet 2002). We would argue that it will depend not only on the performance of governing networks and committees whether this positive vision is realised, but crucially also on the degree to which public discourses on economic governance have become Europeanised as argued in this volume’s research design. Firstly, the goal of European policy co-ordination cannot be enforced in the same way as regulations, directives or decisions, but performance depends on whether recommendations, guidelines and government commitments proposed and agreed in Brussels are supported and enforced in the domestic political arena. For instance, does employment policy co-ordination transcend 187

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debates simply within expert committees to induce deep national reform debates and stimulate cross-national learning? To what extent do the provisions in fiscal policy co-ordination for ‘naming and shaming’ non-compliant member states really influence national public opinion? Moreover, national public discourses are relevant for normative assessments of European policy co-ordination modes, which are sometimes accused of blurring lines of accountability, diminishing the scrutiny of national parliaments and the broader public, and thereby hiding real political choices behind a technocratic policy-making process (Europaministerkonferenz 2002; European Convention 2002). It is therefore crucial to investigate whether policy co-ordination modes would aggravate these problems, bypassing public debates while de facto strongly influencing policy output. The third dimension of relevance is whether policy co-ordination modes will contribute to a ‘horizontal’ Europeanisation of public debates in the sense of a knitting together of national public discourses as steps on the road towards a ‘Grand Débat Européen’ on economic governance. Finding answers to this third question will help us better to evaluate the potential for the emergence of more institutionalised, not to say supranational forms of economic governance (Collignon 2003a) beyond the current asymmetric arrangements (Verdun 2003). We will explore these questions empirically by conducting a content analysis of quality press coverage in Germany, France and Britain between the agreement of the new legal provisions at the European Council of Amsterdam in 1997 and 2003. By focusing on the public dimension of peer review, we can complement the accounts by Kerstin Jacobsson and Åsa Vifell on socialisation and deliberation processes in policy co-ordination committees.

How does policy co-ordination impact on public discourses? The significance of regulative and compensatory Europeanisation Public discourses are relevant to observing and analysing the evolution of policy co-ordination. The legal provisions for policy co-ordination with their emphasis on consultation, learning from best practices, and peer review represent a new opportunity structure for national and foreign actors to make their voices heard not only within the governing process, but also in mediated public discourse. The process by which public discourses adapt to the new legal provisions for policy co-ordination can be called Europeanisation. In the contemporary literature one of the most frequently used definitions of Europeanisation refers to the ‘the impact of European integration and Europeanisation on domestic political and social processes of the member states and beyond’ (Börzel and Risse 2000: 1). In the context of this chapter, we propose to distinguish between two forms of Europeanisation of public discourse, namely regulative and compensatory Europeanisation (see Figure 10.1). These terms are derived from the dual relevance of public discourses for

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Responsiveness Dimension (Compensatory Europeanisation)

Improved Accountability of National Political Actors

Intensified Cross-National Debates

Figure 10.1:

Effectiveness Dimension (Regulatory Europeanisation)

Reputational Costs for NonCompliance Public Awareness of Policy Co-ordination Ideational Change on Policy

The responsiveness-effectiveness matrix of Europeanisation outcomes

policy performance as well as for the democratic qualities of policy co-ordination modes. We call the first dimension regulative Europeanisation as it refers to adaptation processes in public discourses on policy choices geared towards the achievement of policy goals set at the European level. The means to achieve these goals are what Jacobsson called ‘discursive regulatory mechanisms’ (Jacobsson 2002: 9); these mechanisms create and disseminate information on cross-national comparisons, rankings and benchmarking, establish time-tables, and provide for reporting, monitoring and review processes both behind closed doors and vis-à-vis the public. These review procedures could also foster compliance by hard and soft communicative sanctions in so far as member states can be singled out for ‘naming and shaming’ under the Stability and Growth Pact, or criticised through annual recommendations for failing to take certain measures at the national level under the European Employment Strategy. More generally, policy co-ordination modes seek to take advantage of the fact that public discourses are not ‘mere talk’, but that they constitute an instrument of influence and power in domestic policy-making processes. Public discourses are thoroughly mediatised in modern Western democracies and can shape political outcomes in various ways. One is agenda-setting. Political attention is a scarce resource in the legislative process. Governments and opposition parties cannot focus on all of the issue at the same time with the same degree of intensity. Public discourse as filtered through and shaped by the news media is thus relevant for ‘setting the agenda’, for pre-selecting

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and ordering political issues according to their perceived importance. The more publicity is given to an issue the more likely it becomes that political attention will be devoted to it, because politicians are under pressure to respond to the issue raised by media debate in order to gain public salience and appeal to their large and distant electorate. One first and crucial question is therefore whether EU policy co-ordination and the policy goals it promotes are noticed at all at the national level. However, the question of issue salience does not automatically translate into favourable views in public discourse for the pursuit of political action in line with the jointly set goals at the EU level. Public discourses on policy issues are hardly homogeneous and various contradictory views can often be found in media discourses. The question is whether EU policy co-ordination can impact on national public discourses in a way that promotes certain policy choices over others in the course of debates. One instrument to achieve this goal is offered by reputation sanctions such as early warnings, public reprimands (SGP) and critical recommendations (EES), which are proposed by the European Commission and agreed by the Council of Ministers. But do these reputational sanctions bite and if so, how? The media could not only choose to ignore critical EU recommendations, they could also dismiss them as illegitimate meddling from Brussels, as baseless and misguided economically, or as partisan points of view. The question is thus whether public discourses take critical recommendations raised by supranational and foreign actors seriously and thereby make non-compliance more costly for governments? The third aspect of how public discourses may induce goal attainment for policy co-ordination is by promoting learning. Each governing mode seeks to promote a certain set of policy ideas, some relatively specific such as the need to achieve balanced budgets over the business cycle, reduce debts and stay within the 3 per cent public deficit limit, some more wide-ranging and broad as in the case of employment policy co-ordination with its four pillars and the various measures advocated within them. The goal would be to convince political actors and civil society that these policy ideas are appropriate (to avoid collective risks) and beneficial (to improve the problem-solving capacity of government). Hence, to what extent can we identify a spread of these policy ideas in national public discourses over time? In soft policy co-ordination as elaborated in Chapter 2 the main emphasis is on learning, although it provides for annual ‘recommendations’ on all member states’ employment policies. In the case of fiscal policy co-ordination, the legal provisions also incorporate a stronger sanction element in the form of early warnings, non-obligatory reprimands (‘naming and shaming’) for non-compliant members, and concrete recommendations for political actions in case of sustained fiscal profligacy. The second purpose of this study of public discourses is to assess the democratic performance of policy co-ordination modes. The normative expectation is that public discourses need to adapt to and in a sense catch up with the shift of political power and policy-making activity to the supranational level

Towards a ‘Grand Débat Européen’? 191

in order to ensure that citizens have access to adequate information about the existence and functioning of policy co-ordination, to scrutinise the performance of national representatives and European actors, and to enable cross-border opinion formation on problems of collective problem-solving. The empirical question at the heart of compensatory Europeanisation is thus whether a given step up the integration ladder will lead in due course to the changes in political practices and deliberations at the national level which help to re-establish the linkage between Brussels-based policy-making processes and national civil society (Meyer 2005; more generally Hagen 2003; Klein et al. 2003). This question is relevant to answer the charge from some quarters that economic policy co-ordination may further reinforce the de facto erosion of national and regional sovereignty in the covered policy fields by allowing executives to commit their country to certain goals and then translating them into policies on the grounds of having to comply with decisions from ‘Brussels’. Political choices can be disguised underneath seemingly scientific terms of benchmarking, best practices and economic assessments. Lines of accountability can appear blurred as national action plans, multilateral review, and joint reports and guidelines are passed up and down the multilevel system of European governance. Policy co-ordination may thus degenerate into a process, closed to administrative and bureaucratic elites, with little opportunity for citizens to influence choices and hold decisionmakers accountable for their actions. In the case of policy co-ordination, an adaptation of public discourses along the lines of compensatory Europeanisation could help in three respects. First, they would need to reflect the real shift of political activity upwards in so far as policy co-ordination is identified and increasingly commented upon as a potential source of new government initiatives and goals. An invisible governing process is far more open to charges of secrecy and inaccessibility than one which is publicised and critically commented upon. Secondly, public discourses would need to counter tendencies of executive blame-shifting and credit-claiming strategies in Brussels in order to allow for an adequate appreciation of the political role of national decision-makers, in particular ministers and heads of states and governments in the governing processes. Blaming the Commission or Brussels in general for uncomfortable policy recommendations and measures may increase governments’ ability to overcome domestic oppositions, but would clearly downplay the real responsibility of governments and indeed parliaments in these policy areas. Hence, we will be looking at the extent to which national actors have been increasingly portrayed as participants and actors in the policy co-ordination process over time. The third aspect of compensatory or democratic Europeanisation concerns cross-border discourse on the policy issues at stake. Allowing for national scrutiny and accountability may be a step forward but not sufficient in a decision relying on qualified majority voting in the Council of Ministers, that is,

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what Scharpf has called joint decision-making (Scharpf 2000: 8). If the policy co-ordination process is primarily about peer review and intra-European learning, this practice would need to be reflected to at least a minimum degree in public discourses. Are foreign ministers or other involved political actors from other member states increasingly referred to in domestic discourse? And do we see a degree of thematic convergence in the way in which national debates deal with the different policy issues? In other words, do we see not only a vertical (top-down) Europeanisation of discourses, but also a horizontal synchronisation process across national levels of governance? An ideal scenario of compensatory Europeanisation would be that European economic governance would be covered more frequently and intensively to allow citizens to know about these processes and develop their opinions about them; national debates would increasingly take external national and European views into account when considering domestic policy options; and we would see an increasingly coherent debate across national borders, in which news frames used in different national contexts converge over time and governments would have to justify and possibly adapt their policy choices as they deal with European criticism of non-compliance behaviour. The emergence of such a cross-national, Europeanised debate about these economic issues may even amount to a truly ‘Grand Débat Européen’ on economic governance and thereby legitimise the soft approach taken by policy co-ordination within a hierarchical monetary policy framework. In order to empirically test both dimensions of Europeanisation, we will employ a media content analysis to ask five main questions, the first of which is of key importance to both dimensions of Europeanisation as highlighted in Figure 10.1. (1) To what extent has provision for European policy co-ordination led to an intensification of public discourses on these issues over time? (2) To what extent does policy co-ordination translate into public pressure for policy change on national governments? (3) To what extent can we identify learning and ideational change in policy discourses along the lines suggested by EU guidelines, recommendations, goals etc.? (4) To what extent do public discourses provide sufficient information about the significance of policy co-ordination and its key actors to facilitate scrutiny and accountability? (5) To what extent are cross-national debates about economic governance intensifying?

Quantitative and qualitative analysis of media content We have employed different techniques of media content analysis (Früh 1998) in order to answer the five guiding research questions and to test and

Towards a ‘Grand Débat Européen’? 193

modify the underlying research hypotheses. In the framework of the larger research design, the legal provisions for policy co-ordination remain our independent variable, while media content serves as an approximation of the dependent variable (publicised discourse). We should thus make clear that we are not conducting a reflectivist discourse analysis, which operates on the basis of specific tenets concerning the way in which individuals, societies and organisations use language to perceive and construct the world. Nor are we overly concerned here with the role of science or scientists in questioning dominant narratives and power structures (for an overview see Keller et al. 2001). A quantitative frequency analysis (Hagen 2001) has been employed to identify levels of national media attention for different policy co-ordination modes as well as for these policy fields in general. We used a keyword scanning approach to identify the relevant set of articles contained in the database of the content provider Lexis-Nexis, which offers comprehensive access to the selected newspapers (see below). In a second step we eliminated all the articles in our selection, which were either duplicates (due to the different editions of newspapers) or were not sufficiently relevant, for example if the key word appeared just as a passing remark within an irrelevant context. The rule was that at least one paragraph in the article should deal with the European provisions for policy co-ordination. The selection included editorials, opinion pieces and news stories of more than two paragraphs. In order to generate a benchmark for our assessment of trends, we also measured the coverage of fiscal and employment policy in general in these countries. Given that the high number of articles in German papers would have distorted our findings, the weight of the German sample was reduced, so that each country’s results counted as a third for the overall curves for policy co-ordination and the general coverage of these policy fields. The searches were limited to the media coverage of six quality broadsheets between 1 January 1997 and 31 December 2003 in the three largest EU member states: UK, France and Germany. The choice of countries was motivated primarily by the importance of these countries for political decision-making in and economic performance of the European Union. We also have considerable variation between these countries in terms of their belonging to different types of democracies (Lijphart 1999) and welfare states (Esping-Anderson 1990, 1999). This selection of cases, however, should be considered a most demanding design since the discourses of smaller member states can be expected to be more receptive towards political voices from other member states and from Brussels. In order to increase the validity of our findings, we have selected one paper from the centre-left and one from the centre-right spectrum, that is the Guardian and The Times for the UK, the Süddeutsche Zeitung and Frankfurter Allgemeine Zeitung for Germany, and finally, Le Monde and Le Figaro for France. The selection of these papers does not mean that we have found a representative sample of publicised opinion in the respective countries,

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because that would need to include other types of media products (TV) as well as those targeted downmarket (that is tabloids). However, these papers can be considered as influential sources of information for other media as well as a good cross-section of national press opinion on socio-economic issues. For the qualitative analysis of media content the selection of countries and news media were the same as under the frequency analysis, but we focused on the years 1998 and 2002 only. A codebook was drawn up, tested and applied to a sub-section of media coverage on fiscal or employment policy, not just those articles with a European angle. In the codebook we specified and looked for different news frames as interpretative schemata to reduce and capture the complexities of the political process as it is being translated into new content and format. A negative recommendation proposed by the Commission could be ‘framed’ in various ways and lead to different types of discussions, such as a ‘sovereignty discourse’ (‘How dare the Commission meddle in our affairs?’), in an economic discourse (‘Does the Commission present better economic arguments?’) or in a political discourse about the credibility of the Stability Pact (‘What would the government need to do to safeguard/not to endanger EMU?’). We selected a random sample of 40 articles per policy field and year by sub-dividing the absolute number of articles ascertained through keyword scanning accordingly. Hence, for a complete sample of 400 articles in one country, policy field and year, every tenth article has been selected for analysis. The third approach to the analysis of media content focused on two case studies, the coverage of negative recommendations/reprimands in the field of fiscal policy co-ordination in Ireland (2001) and Germany (2002).1 In the case of Germany, we have selected the two largest national broadsheets, the centre-left Süddeutsche Zeitung and the conservative Frankfurter Allgemeine Zeitung for analysis. In the case of Ireland, we chose the centrist (with a socialdemocratic slant) Irish Times, and the centre-right (pro-business) Irish Independent as the two largest broadsheets. The observation time spans three weeks in each case, from the Commission issuing its proposal for a recommendation up to the decision in the ECOFIN Council and the immediate aftermath. A total of 132 articles and editorials were selected dealing with the topic by keyword scanning and subsequent elimination of irrelevant news articles and editorials from the online database Lexis-Nexis (for the German broadsheets and the Irish Times) and the newspapers’ own archives (for the Irish Independent).

Has policy co-ordination induced regulative Europeanisation? Increasing media attention for economic policy co-ordination? The curves of media attention for both governing modes do not show a clear intensification trend for the whole observation period. Only for the first three years, from 1997 to early 2000, did they go through similar and on the

Towards a ‘Grand Débat Européen’? 195

whole downward attention curves as public attention focused on special events such as the European Councils of Amsterdam, Luxembourg and Lisbon. Starting from the second half of 2000, however, we see a clear divergence in media attention curves of ‘hard’ fiscal policy co-ordination and its ‘softer’ counterpart in the area of employment policy (see Figure 10.2 for policy areas). In the case of fiscal policy, we note strong event peaks not only for European Council meetings, but also when the President of the Commission called the Stability and Growth Pact in Le Monde on 17 October 2002 ‘stupid’,2 when the Commission proposed an early warning against Portugal and Germany, or when the ECOFIN Council suspended the excessive deficit procedure against France and Germany. Hence, we find that media coverage is very much driven by conflict between EU and national level over the interpretation of and compliance with the fiscal rules. Yet, while these attention peaks are familiar from other studies of EU media coverage, the level of coverage in the field of fiscal policy has risen also in absolute terms since late 2001. This is particularly the case in Germany, where the Stability Pact has become a constant reference piece in domestic debates about the country’s budgetary situation and fiscal policies, but also in Britain and France (see Figure 10.4). Somewhat surprisingly, the figure with the individual national curves shows that the British press paid more attention to the debate than the French press, even though Britain has not joined monetary union and is exempt from the financial sanctions of the Stability Pact. This can be largely explained by the domestic salience of the issue of joining the Euro with its contentious implications for fiscal policy autonomy. In sum, we find that the rules for fiscal policy co-ordination have established themselves in the last three years as a regular topic on the socio-economic news agenda of the quality press. In contrast, European employment policy co-ordination is being covered at best sporadically and usually as part of a wider theme about Europe’s competitiveness and the Lisbon strategy. It is striking to see how the initially strong attention to the EES in 1997, 1998 and 1999 declined from an average of 15 articles/month in the first half of 1998, to a mere three in the second half of 2003 (see Figure 10.3). Anders Colver’s study (2005) of Swedish newspapers’ coverage of the EES on the basis of a similar methodology as the one employed here, arrived at the same basic and rather sceptical conclusions regarding the initially high and then rapidly declining salience of the ESS in Swedish public discourse – despite favourable circumstances for politicisation such as two national election campaigns (in 1998 and 2002) and Sweden’s presidency of the EU in 2001. If the media attention peaks for the spring session of the European Council constitute the heartbeats of the EES, the patient’s life signs seem to be growing weaker from year to year. Given this experience one will have to be sceptical regarding the potential for increasing national ownership in the EES not only in terms of implementation, but also in terms of public visibility.

196

70

25. November 2003 ECOFIN Council decision to suspend SGP proceedings against France and Germany 16./17. June 1997 Treaty of Amsterdam

60

17. October 2002 Prodi: Stability pact is ‘stupid’

Number of articles

50 30. January 2002 Commission recommends ‘Early Warning’ of Germany and Portugal

20./21.November 1998 Luxemburg jobs summit

40

Mean value employment policy co-ordination

02. May 1998 European Council decides on participants of EMU

30

Mean value fiscal policy co-ordination

11./12. December 1998 Vienna summit 01. January 1999 Start of EMU

20

23./24. March 2000 Lisbon summit

16. June 1999 Cologne summit

10

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Newspapers examined: United Kingdom: London Times, The Guardian; France: Le Figaro, Le Monde; Germany: Frankfurter Allgemeine, Süddeutsche Zeitung For LexisNexisDatabase search criteria, please see graphs of the respective policy fields

Figure 10.2:

Press coverage of fiscal and employment co-ordination (mean number of articles per month in six newspapers)

80

70

16./17. June 1997 Treaty of Amsterdam

Number of articles

60 20./21. November 1998 Luxemburg jobs summit

50

France: Figaro/Monde

11./12. December 1998 Vienna summit

40

Germany: Faz/ Süddeutsche UK: Times/Guardian

30 16. June 1999 Cologne summit

20

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LexisNexis Database search criteria: United Kingdom [London Times, Guardian]: EU AND employment strategy OR employment guidelines OR employment policy France [Figaro, Monde]: L’Union europeenne AND politiques de l’emploi OR plan d’action national OR (lignes directrices AND l’emploi) Germany [Frankfurter Allgemeine, Süddeutsche]: EU AND Beschaeftigungspol! OR beschaeftigungsleitlin! OR beschaeftigungsstrateg!

Figure 10.3:

Media coverage of employment policy co-ordination, 1997–2003 197

198

25. November 2003 ECOFIN council decision to suspend SGP proceedings against France and Germany

120

100

17. October 2002 Prodi: Stability pact is ‘stupid’ 16./17. June 1997 Treaty of Amsterdam

Number of articles

80

30. January2002 Commission recommends ‘early warning’ of Germany and Portugal

France: Figaro/Monde Germany: Faz/ Süddeutsche

60 02. May 1998 European council decides on participants of EMU

UK: Times/Guardian

12. July 2002 ECOFIN council admits probable miss of fiscal aims

40 01. January 1999 Start of EMU 20

1998

2002

LexisNexis Database search criteria: United Kingdom [London Times, Guardian]: EU AND stability pact OR ‘stability and growth pact’ AND NOT balkan! France [Figaro, Monde]: L’Union Europeenne AND pacte de stabilite OR pacte de stabilite et de croissance AND NOT balkan! Germany [Frankfurter Allgemeine, Süddeutsche]: EU AND Stabilitaetspakt OR ‘Stabilitaets- und Wachstumspakt’ AND NOT balkan!

Figure 10.4:

Media coverage of fiscal policy co-ordination, 1997–2003

2003

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Towards a ‘Grand Débat Européen’? 199

Reputational costs through public discourses? Our study cannot prove the impact of publicised discourse on policy-makers, but it does show that negative recommendations under fiscal policy coordination have had a significant impact on national news media discourse, particularly in Germany, but also in France. The in-depth case study of Ireland (reprimand under the BEPG) and Germany (proposed early warning under the Stability Pact in January 2002) showed that both countries’ press devoted considerable attention to the critical recommendations, producing a high number of headline stories, opinion pieces and editorials (Meyer 2004). At least in these instances of first-time application, peer review procedures, which involve the singling out of member states, have proven capable of generating considerable public attention, forcing governments to justify themselves and contributing to a rapid politicisation of decision-making. Yet, even though both governments faced initially quite critical media coverage, the Irish administration largely succeeded in convincing journalists and other opinion leaders that they should frame the issue in terms of Euro zone economics, national interest and the defence of fiscal sovereignty. In Germany, the press focused considerably less on economics than on the need to uphold agreed rules and principles. Even though this study cannot prove causality, German officials interviewed stressed that the controversy surrounding the early warning played a facilitating role in coming to an agreement in March 2002 on an, albeit soft, national stability pact between the German federal government and the Länder authorities. As for the Irish case, the change in economic circumstances prevented a serious test of whether the government was prepared fully to carry through its agenda of pro-cyclical tax cuts. For employment policy co-ordination our studies suggest a low and declining ability to impose reputational costs on national governments. At least the Commission’s proposals for recommendations in 1998, 1999 and 2000 were covered by the major newspapers in France and Germany, while no British paper seemed interested in the event. In 2001 and 2002, however, even in France and Germany coverage of the Commission’s joint employment report was almost non-existent, which may at least partly be attributable to the proximity of the 11 September 2001 crisis, which drowned out coverage around that time over those two years. Moreover, a striking feature of employment policy coverage is that an article on the EES (usually written from Brussels) hardly creates any follow-up by either national political actors or nationally based journalists. We found only one article (8.9.2000, Frankfurter Allgemeine Zeitung) where a social partner organisation responded publicly to the Commission report (the Federal employers association used the Commission’s evaluation to attack the government’s record on its employment performance). In the case of fiscal policy, we did see that newspaper commentators and opposition leaders launched quite vigorous attacks on national governments. In France, however, the opposition was until 2003 very reluctant to

200 Economic Government of the EU

criticise the French government, be it Prime Minister Jospin’s administration or the later conservative government, for unwillingness to stay within the fiscal restrictions of the Stability Pact. Fiscal austerity has never been very popular with French political elites (especially, but not only the Socialists) and the final wording of the Stability and Growth Pact reflected more German than French interest (Heipertz and Verdun 2003). However, there were a number of newspaper commentators and some business representatives who criticised the government’s open violation of the EU fiscal rules, even if more on political than on economic grounds. Our interviews indicate that the French administration came under considerable pressure in 2003 to fall back into the European mainstream, mainly because of criticism from the outside (other finance ministers). Even if France did not fully comply with the fiscal policy rules, reputational costs need to come into the equation when explaining why France did seek a compromise and took some steps towards fiscal consolidation in 2003. Ideational change through public discourses? In our qualitative frame analysis of media coverage in 1998 and 2002 we have seen some evidence for weak instances of ideational change, mainly in the field of fiscal policy. Table 10.1 shows a marked increase in public attention being paid to the need for anti-cyclical policies from 6.7 to 13.7 per cent of the coverage. This policy goal had been initially in the background but came to the fore in the discussion about why savings in the years of strong economic growth (1999 and 2000) were not sufficient to counter rising public deficits after 2001. Only in France did we also see a substantial increase in public attention paid to the objective of avoiding a public deficit exceeding the 3 per cent threshold. What is remarkable and indeed worrying from the perspective of policy-makers is that public attention to the very important goal of reducing national debt levels has slipped considerably from 20.5 per cent in 1998 to just 5.5 per cent in 2002. Moreover, we did not find a single article in our sample which expressed the idea that price stability was good for economic growth, possibly reflecting the advent of new Keynesian economics in European debates of socio-economic issues. It seems therefore that the Stability Pact was good at focusing attention on the annual public deficit, but not very successful in fostering debates about the reduction of national debts or anti-cyclical policies. However, the debates within the ECOFIN in context of economic policy co-ordination about the sustainability of social security systems in an era of ageing populations has contributed to raising the salience of this issue in France and Germany. This may have helped the French government to push through a quite contentious pension reform (after the failure of the Juppé government to do so several years earlier). In the case of employment policy co-ordination, we identify across all three countries a decrease in the attention the press has paid to the key ideas of the EES (see Table 10.2). This seems to be a disappointing result for a

Table 10.1:

Fiscal policy coverage in selected member states between 1998 and 2002 Properties of 1998 fiscal policy coverage in %

I. Share of EU Articles Dominant EU reference Non-dominant reference to EU One sentence reference to EU No EU reference II. Horizontal Europeanisation Reference to other member states’ policies Reference to foreign member state politicians Reference to member state news sources Reference to foreign (EU) social partners/interest groups III. Vertical Europeanisation Reference to Commission Reference to Council Reference to European Council Reference to European Parliament

D

FR

UK

26.5 20.6 20.6 32.4

36.4 24.2 9.1 33.3

28.6 14.3 7.1 39.3

14.7

24.2

2.9

Properties of 2002 fiscal policy coverage in % D

FR

UK

Mean

30.5 19.7 12.3 35

41.7 19.4 22.2 13.9

45.7 17.1 11.4 17.1

33.3 13.3 6.7 43.3

40.2 16.6 13.4 24.8

28.6

22.5

19.4

25.7

50

31.7

12.1

17.9

10.9

8.3

14.3

26.7

16.4

0

0

0

0

0

0

0

0

0

3

0

3

0

40

0

13.3

12.1 12.1 9.1 6.1

7.1 14.3 7.1 0

20 6.7 3.3 0

30.1 11.6 4.9 2.8

5.9 0 2.9 0

Mean

8.4 8.8 6.4 2.0

36.1 19.4 0 8.3

34.3 8.6 11.4 0

(Continued) 201

202

Table 10.1:

(Continued) Properties of 1998 fiscal policy coverage in %

Reference to ECB Other EU actors IV. Synchronisation of Interpretative Frames Solidarity with EU goals Criticism of other member states Sanctions Performance comparison National sovereignty Peer learning

Properties of 2002 fiscal policy coverage in %

D

FR

UK

Mean

D

FR

UK

Mean

17.6 5.9

33.3 9.1

21.4 0

24.1 5

16.7 5.6

31.4 11.4

20 3.3

22.7 6.8

2.9 8.8 2.9 0 2.9 2.9

9.1 0 3 6.1 6.1 0

21.4 17.9 0 3.6 10.7 10.7

11.1 8.9 2.0 3.2 6.6 4.5

5.6 11.1 11.1 5.6 8.3 2.8

20 0 2.9 2.9 2.9 0

10 20 10 20 26.7 10

11.9 10.4 8 9.5 12.6 4.3

V. Ideational Change Focus on budget deficit threshold Pursue anti-cyclical policies Produce balanced budgets/surpluses Prevent free-riding by other MS/ own government Price stability is good for growth Aim to reduce public debts

29.4 2.9 0 2.9

18.2 3 0 3

14.3 14.3 7.1 7.1

20.6 6.7 2.4 4.3

22.2 5.6 5.6 2.8

28.6 8.6 0 5.7

16.7 26.7 6.7 6.7

22.5 13.6 4.1 5

8.8 23.5

3 27.3

32.1 10.7

14.6 20.5

0 11.1

0 2.9

0 3.3

0 5.8

Total number of sampled articles

34

33

28

95

36

35

30

101

Table 10.2:

Employment policy coverage in selected member states between 1998 and 2002 Properties of 1998 employment policy coverage in %

I. Share of EU Articles Dominant EU reference Non-dominant reference to EU One sentence reference to EU No EU reference II. Horizontal Europeanisation Reference to other member states’ policies Reference to foreign member state politicians Reference to member state news sources Reference to foreign (EU) social partners/interest groups III. Vertical Europeanisation Reference to Commission Reference to Council Reference to European Council Reference to European Parliament

Properties of 2002 employment policy coverage in %

D

FR

UK

Mean

D

FR

UK

Mean

20.7 0 20.7 51.7

33.3 6.7 3.3 56.7

18.5 3.7 11.1 66.7

24.2 3.5 11.7 58.4

2.6 0 21.1 73.7

10.7 14.3 14.3 57.1

18.8 6.3 6.3 68.8

10.7 6.9 13.9 66.5

6.9

23.3

29.6

19.9

2.6

17.9

25

15.2

20.7

33.3

22.2

25.4

0

14.3

0

4.8

0 0

0 16.7

3.7 7.4

1.2 8.0

0 0

0 32.1

0 6.3

0 12.8

24.1 6.9 13.8 6.9

20 13.3 6.7 10

7.4 7.4 0 0

17.2 9.2 6.8 5.6

7.1 3.6 7.1 3.6

18.8 0 0 0

9.5 1.2 2.4 1.2

2.6 0 0 0

(Continued) 203

204

Table 10.2:

(Continued) Properties of 1998 employment policy coverage in % D

Reference to ECB Other EU actors IV. Synchronisation of Interpretative Frames Solidarity with EU goals Criticism of other member states Sanctions Performance comparison National sovereignty Peer learning

FR

Properties of 2002 employment policy coverage in %

UK

Mean

D

FR

UK

Mean

3.4 6.9

6.7 20

7.4 3.7

5.8 10.2

5.3 2.6

0 10.7

12.5 0

5.9 4.4

0 6.9 0 0 0 0

23.3 6.7 3.3 10 3.3 6.7

3.7 0 0 11.1 14.8 3.7

9 4.5 1.1 7.0 6.0 3.5

0 0 0 7.9 0 0

0 0 0 14.3 0 0

6.3 18.8 0 25 0 6.3

2.1 6.3 0 15.7 0 2.1

V. Ideational Change Focus on employment rates (rather than unemployment rates) Employability Entrepreneurship Adaptability Equal opportunity

0

3.3

0

1.1

2.6

7.1

0

3.2

6.9 3.4 20.7 0

16.7 3.3 16.7 3.3

29.6 0 37 29.6

17.7 2.2 24.8 11

7.9 2.6 39.5 2.6

7.1 3.6 7.1 10.7

12.5 0 18.8 12.5

9.2 2.1 21.8 8.6

Total number of sampled articles

29

30

27

86

38

28

16

82

Towards a ‘Grand Débat Européen’? 205

governing process aimed at inducing policy learning. The only exception has been the issue of adaptability of labour markets, which rose substantially in importance in Germany. The European dimension may thus in indirect ways have supported a shift in thinking about labour market reform in Germany. In France, the EES made a difference in educating administrative elites about new concepts and practices as the national reports of France show (Le Cacheux and Touya 2004), but this link was hardly ever present in public discourse. In British public discourse little attention was paid to the EU recommendations in the field of equal opportunity and employability. Given the low unemployment rate in the UK the prevalent perception was that Britain had nothing to learn, but only to teach (GOVECOR 2004). Beyond the marked differences between the EES and the SGP, one needs to draw attention to the finding that performance comparisons, that is the home country with the performance of another member state, have increased moderately for both policy fields (see also below). Whether this is any degree due to the existence of policy co-ordination or the coming into force of EMU more generally, cannot be decided here. Generally, the employment policy related findings need to be regarded with some caution given that the overall coverage of this policy co-ordination mode declined in importance to very low absolute levels.

Has policy co-ordination led to a compensatory Europeanisation? Improved accountability of political actors? To what extent did media coverage make the significance of economic policy co-ordination visible and allow for the identification and scrutiny of government actors? We have noted earlier in the section on regulative Europeanisation that media attention differed between the two governing modes; rising substantially in the case of the Stability Pact, and declining gradually in the case of employment policy co-ordination. Moreover, Table 10.2 shows that the proportion of articles on employment policy with a dominant EU reference as compared to the overall domestic coverage of this policy field has on average halved from 24.2 per cent to 10.7 per cent. We also note that there are fewer references to both supranational actors (the Commission or the Council) and to national political actors and news sources. This clear decline in the visibility of the key actors in employment policy co-ordination is most pronounced in Germany and France, where initial media attention for EU actors in 1998 was much higher than in the UK. In marked contrast, we see in the area of fiscal policy co-ordination a 10 per cent increase in the proportion of articles on fiscal policy with a dominant EU reference, culminating in an absolute figure in 2002 of an impressive 40.2 per cent. From the perspective of facilitating political accountability fiscal policy co-ordination may be seen as more transparent than its counterpart in

206 Economic Government of the EU

the employment policy domain, although it is the governing mode with the biggest impact on national policy-making. But even in media coverage of fiscal policy, we must note that the central role of national ministers has been underplayed. This was particularly apparent in the case study of Ireland, where Finance Minister McCreevy treated the EU reprimand as inappropriate meddling even though the Council’s actions were based on the ministers’ own commitments (Meyer 2004). A similar phenomenon can be seen in case of France. The consecutive commitments of the French Finance Minister Francis Mèr were hardly ever subject to public scrutiny, while the Commission is often criticised for its ‘rigid’ implementation of the Stability Pact, not least when it criticised the country for not doing what it promised to do. As a general trend across all three countries, we have seen that references to the Commission more than tripled to 30 per cent. In sum, media coverage of employment co-ordination offers much less opportunity to identify the key political actors in policy co-ordination, whereas fiscal policy co-ordination has been subject to substantial trends of compensatory Europeanisation in this dimension between 2002 and 2004. Even so, the coverage still overplays the importance of the European Commission and underplays the political responsibility of Council and national governments. Intensification of cross-national debates? The second dimension of compensatory Europeanisation is to ask whether we have seen an increasing transnationalisation of news coverage both regarding the presence of foreign political sources and a synchronisation of news frames used to interpret political reality. Six frames were investigated in order to identify a possible convergence in the overall themes of the media’s coverage of policy co-ordination: Solidarity with EU, Sanctions, External Criticism, Performance Comparison, Sovereignty, and Peer Learning.3 Tables 10.1 and 10.2 above show the extent to which these frames were present in press coverage in 1998 and 2002 respectively. As compared to the findings of the previous section, it seems somewhat surprising that across both policy fields, the frame of performance comparison has increased markedly. In the area of employment policy co-ordination we witness an increase in the average value from 7.0 to 15.7 per cent of all coverage, whereas in the area of public budgets the share has risen from 3.2 to 9.5 per cent. Hence, member states are increasingly comparing their own policy performance with that of other member states. Even though these comparisons are not necessarily and probably only marginally connected to the actual co-ordination processes themselves, they do reflect a growing interest in other countries’ performances as well as a decline in the ability of governments to insulate ‘their’ press from ‘foreign’ news and opinion sources. However, this is where the similarity between the governing modes ends. In the domain of labour policies, the low absolute number of articles containing

Towards a ‘Grand Débat Européen’? 207

any of these news frames meant that further trends were hard to identify. Yet, significant changes in the use of frames in coverage between 1998 and 2002 are visible, which are induced by the deterioration of public finances in 2002 in a number of member states and first steps in the excessive deficit procedures against Germany and Portugal. The conflict between the Commission’s recommendation for an early warning directed at these two states and its repercussions has prompted an increased concern in press coverage in all three countries for the frames relating to national sovereignty and the application of sanctions. The use of the national sovereignty frame rose from 6.6 to 12.6 per cent, whereas the application of sanctions frame increased from a mere 2 per cent to some 8 per cent of overall coverage. At the same time, we could see that references to other member states’ policies as well as to foreign (EU) politicians rose on average by a third, from 22 per cent to 31 per cent, and from 11 per cent to 16.5 per cent respectively in 2002. We must draw attention to the fact, however, that in French public discourse we have seen only very little change, indicating the until very recently relatively closed nature of French political discourse with regard to the views expressed by other countries’ actors. At the same time, we believe that the picture would have changed to some degree for the coverage in the year 2003 (which we did not study qualitatively), given that the finance ministers of the Netherlands (Zalm), Austria (Grasser) and Spain (Montoro) had given up some of their previous constraint and very openly voiced their criticism of Germany and France as the ‘undertakers’ of the Stability Pact and monetary union.

Conclusion: mixed potential of policy co-ordination to induce communicative Europeanisation If we take the adaptation of public discourses as a yardstick to assess the performance of policy co-ordination modes, our findings can convey a range of different messages. The first is that regulative Europeanisation of public discourses has been moderate (France) or even strong (Germany) in the case of fiscal policy co-ordination but weak for its counterpart in the employment domain. While the rules of the Stability Pact remain heavily contested and exceeded by some countries, albeit by a small degree, it is also clear that no government can fully insulate itself against pressure from the EU Commission and fellow governments spilling over to domestic press coverage, not even in France. In some cases, publicised opinion arguably played a role in forcing governments to conduct more stability oriented fiscal policies than they would have without such a ‘naming and shaming’ mechanism. This was particularly the case in Germany, but France also undertook a number of steps aimed at bringing down its structurally adjusted deficit despite its combative rhetoric vis-à-vis the Stability Pact and the Commission. At the same time, the ideational elements of the fiscal policy framework became increasingly

208 Economic Government of the EU

distorted in the political polarisation over the 3 per cent public deficit limit. This fostered an overly legalistic and mechanical discussion about the rules rather than the overall objective of fiscal policy co-ordination, which is to ensure the sustainability of public finances as far as they affect the functioning and stability of monetary union. The EES in contrast had virtually no success in imposing reputational costs through public debate, and little with regard to fostering ideational change, except for some measures aimed at increasing labour market flexibility in Germany. The second major message is that compensatory Europeanisation was virtually absent in the case of the EES and varied between countries with regard to the fiscal policy co-ordination process. Fiscal policy co-ordination is increasingly ‘hitting home’ (Börzel and Risse 2000), making it a real factor in national press discourses on policy choices, especially in Germany, but also in Britain and France (since 2003). In contrast, media attention to soft employment policy co-ordination declined dramatically up to the point of extinguishing this governing mode from public awareness. Only in the area of fiscal policy did press coverage become also more ‘European’ in terms of the representation of news voices even though references concerned more EU institutions and actors than member state ministers and sources. Moreover, press coverage became more similar regarding the use of news frames relating to performance comparison, sovereignty and sanctions. From the perspective of public scrutiny and political accountability, we see the over-representation of the EU Commission as a worrying sign of the persistence of blame-shifting strategies of governmental actors, particularly in France but also in Germany. European guidelines and recommendations are portrayed as if they had not evolved out of national participation and indeed are sometimes based on explicit national commitments to take certain actions. As a result, we have seen the emergence of increasingly vigorous and sometimes even cross-national debates about national fiscal choices and their appropriateness. In contrast, few home-based journalists and even fewer citizens can be expected to know that there is such a thing as the Luxembourg process if one assumes that media coverage and levels of awareness and knowledge are related. It is thus somewhat surprising that a special Eurobarometer poll found that 35 per cent of citizens said that they were aware of the fact that the EU sets guidelines for national employment policies, whereas 53 per cent said they had not heard about them (European Opinion Research Group 2004: 11). Studies relying on respondents’ selfcertification of knowledge suffer of course from a bias towards greater knowledge, but even so, this figure is higher than what could be expected from the minuscule media coverage in the selected countries. One explanation suggested by the data is that awareness levels are significantly higher in smaller countries than the larger ones selected for this study, even though Colver’s study of Sweden (2005) showed that the basic pattern of declining coverage of the EES is the same in this smaller country as well. Another is that citizens

Towards a ‘Grand Débat Européen’? 209

may have access to other sources of information about the EES such as the trade unions. We would still maintain that the communicative deficiencies of the EES partly explain why national ownership of this governing mode is so low and implementation is sluggish and opportunistic. We have also argued that the degree of Europeanisation depends on the specificities of the legal provisions and the governing modes, which are derived from it. Intervening variables are the domestic political salience of the policy fields covered by the governing mode, the breadth of the objectives pursued by it and the sanctions that are available to enforce compliance. Whether these hypotheses hold true for media coverage in other countries and for other governing modes is a question for further research. The findings provide, however, indications on how to reform some aspects of policy co-ordination to foster compensatory Europeanisation in the realm of public discourse. For employment policy co-ordination the virtual absence of media coverage does suggest a need fundamentally to rethink a soft governance approach, which may stimulate learning among administrative networks and narrow policy communities (as Kerstin Jacobsson and Åsa Vifell argued in this volume), but fails to convey these processes to a wider public. One could scale these governing processes down to their intention to promote research and learning among key actors and drop bolder aspirations to promote certain policies. Alternatively, one could be much bolder in ranking and criticising those member states who are not tackling labour market reforms and thereby harm Europe’s growth prospects. In the area of fiscal policy co-ordination, the most striking deficiency noted was the over-representation of the EU Commission in the press coverage, despite the fact that member state representatives are responsible for deciding on self-commitments, recommendations and sanctions. The more permanent (not six-monthly rotating) and institutionally strengthened EU presidency as well as the creation of a ‘Mr Euro’ as the chair of the Euro Group could in the medium to long term help to counterbalance the asymmetry in public communication in this area.

Notes 1. These findings have been published in more detail in Meyer (2004). 2. In an interview with Le Monde on 17 October 2002, President Prodi said: ‘I know very well that the Stability Pact is stupid, like all decisions which are rigid.’ Prodi did not retract or qualify these comments in response to a barrage of criticisms from various national politicians as well as from MEPs on 21 October in the plenary. 3. ‘Solidarity with EU’ was coded in those cases when an article used the commitment to common goals, principles and law as the key lens through which member states’ actions and decisions are interpreted. In marked contrast, the ‘Sanction’ frame refers to the use of sanctions, be they pecuniary or reputational in nature, to enforce compliance with common rules or individual recommendations. ‘External Criticism’ refers to the peer review dimension of policy co-ordination and could be used either

210 Economic Government of the EU when the press criticises another country’s policy record or, vice-versa, when the home country is being criticised or advised. The ‘Performance’ frame is used in articles which evaluate national performance in explicit relation to other countries’ policy performance, for example whether Belgium’s public debts or annual budget deficits are low or high as compared to other European countries. ‘Sovereignty’ is the key consideration in those articles which are motivated by or reflect concerns about whether the EU (or indeed other member states) is entitled or legitimated to demand certain policy choices from member states. Finally, the ‘Peer Learning’ frame is present when an article deals explicitly with another country’s policies from the perspective of whether they are suitable for national adaptation or import. It does not require an explicit EU context to code this value.

11 The Limitations of European Economic Governance: Loose Policy Co-ordination and the CommitmentImplementation Gap Christoph O. Meyer, Ingo Linsenmann and Wolfgang T. Wessels

Introduction This chapter synthesises the key findings presented throughout this volume regarding the evolution of distinct policy co-ordination modes represented by the Stability and Growth Pact (SGP), the European Employment Strategy (EES), and the Broad Economic Policy Guidelines (BEPG) between 1997 and 2003. Our overarching question was whether the legal provisions for economic policy co-ordination have resulted in the gradual emergence of ever closer, more deliberative and more binding forms of economic governance and political integration. We will attempt to answer this question by summarising the findings regarding our three intervening variables and by probing whether the theoretical expectations we elaborated in Chapter 2 have been met. What follows is necessarily a broad-brush picture of the findings presented in more detail and with more colours and shades in the preceding chapters. The main thrust of the findings can be easily discerned: policy co-ordination modes did not transform or comprehensively alter economic policy-making on either the Brussels or the national level between 1997 and 2003 and did not result in the emergence of a tight network governance in the field of economic policy-making, let alone any kind of supranational economic government. The legal provisions agreed at Amsterdam in 1997 have not led to a decisive push towards more integrated forms of economic governance across various dimensions of our enquiry and failed in many respects to induce the kind of changes in national policy-making structures that can be considered indispensable for policy co-ordination to realise the aspirations of the European single currency’s instigators. The Constitutional Treaty, yet to be ratified and with an uncertain future at the time of writing, has not significantly altered the status quo. Beyond this general sceptical assessment, however, we have also observed evidence for an intensified use of the legal provisions, elite-level learning, scope extension, proliferation and streamlining of policy co-ordination 211

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processes below the level of Treaty change, which will have implications for the evolution of economic governance in the EU. This chapter will substantiate and elaborate these overall conclusions by reviewing the characteristics of the intervening variables, assessing the main trends and probing the utility of our theoretical expectations. In particular, this chapter will attempt to explain why integrative dynamics did not make a stronger impact and why national actors exhibited a pick-and-choose strategy in responding to the new constraints and incentives, thus opening up what we call a commitment-implementation gap across levels of governance. It will be argued that national socio-economic strategies and interests are still powerful factors to understand how ambiguous legal provisions are interpreted, followed or contested. While we have found some evidence for socialisation effects at both the elite and public discourse level, the overall impact on governments’ political choices has remained limited. We will revisit some of our theoretical expectations drawn from integration approaches and examine whether and to what extent our studies can help to support or challenge them. The chapter concludes with an outlook on the future of European economic governance and draws some lessons about the nature of the challenges and how to tackle them.

The evolution of self-co-ordination: loose co-ordination in action Rule following and adaptation: moderate expansion at the EU level, shallow and opportunistic use at the national level Political actors at various levels of EU governance have generally followed and complied with the procedural and institutional aspects of policy co-ordination such as providing information, reporting and reviewing policies within the committees and other EU institutions. Yet a divergence in rule following and use between European and national levels of governance can be noted. At the European level, we distinguish between an ‘expansion phase’ (1997–2001), which saw elaboration and increasing detail in the processes, guidelines and recommendations coupled with a proliferation of a range of new ‘softer’, non-Treaty-based co-ordination processes as part of the Lisbon strategy (cf. Chapter 8). This was followed by a phase of ‘procedural simplification and fine-tuning’ (2002–4), which was marked by efforts to respond to the spreading perception of overlaps and inconsistencies between the different processes at the EU level and insufficient follow-up and implementation at the national level (see below). A number of modifications in the interpretation and implementation of the unchanged Treaty rules were proposed by the Commission and largely accepted by the Council: the Stability Pact became more flexible during this period with regard to conditions in member states, paying more attention to structural deficits and the countries’ position in the business

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cycle. Similarly, the five-year review of the EES sparked a number of steps towards a simplification and a shift to a more long-term perspective. The co-ordination of co-ordination processes was improved by circulating the BEPG to other relevant Council formations and by increasing policy coherence through streamlining the BEPG and the Employment Guidelines in the spring of 2003 (see Chapter 8). At the national level, the procedural rules were generally followed, but procedural and institutional innovation was limited. Relatively small and usually not very senior parts and pre-existing units of national bureaucracies became involved in the reporting procedures and ministerial co-ordination. Procedural compliance was at times hampered when top decision-makers intervened to submit grossly over-optimistic budget estimates, postponed the publication of data and obstructed in problematic ways the implementation of the excessive deficit procedure. Even though National Action Plans (NAPs) were submitted regularly, they documented what had been done or decided already rather than developing into the intended plans for future action in line with EU guidelines (see Jacobsson and Vifell in Chapter 4). In terms of substantive rule following and use non-Treaty co-ordination processes spread to ever more policy areas as part of a wider strategy. However, some Treaty-based policy co-ordination modes did become ‘harder’ through new linkages with first pillar instruments or Treaty amendments, as Hartwig found in this volume. While the Commission increasingly used EES priorities in Structural Funds (ESF) programming, the Council was visibly reluctant to link explicitly ESF and NAPs, while national authorities often paid little more than lip service to the EES priorities (Chapter 7). The Constitutional Treaty signed in October 2004 suggested only few changes to the existing provisions, with the notable exception of opening up the possibility of deeper co-ordination within the Euro Group (see Chapter 8). Demands for an explicit constitutionalisation of the open method of co-ordination (OMC) as a new governing process were not met, even if OMC-style decisionmaking is implicitly alluded to in at least four articles of Part III of the Constitutional Treaty regarding different policy areas (health, industry, RTD and social policy). At the national level, compliance and adaptation were sporadic, pointing to a systematic and in some areas widening ‘commitment-implementation gap’ of policy co-ordination. (The term has been inspired by the expectationscapabilities gap coined by Christopher Hill in his seminal article on the EU’s foreign policy.) Governments departed in several instances from their commitments made at the Council level and ignored substantive individual recommendations for policy change directed to them, as our national rapporteurs noted in the chapter by Meyer and Umbach. Governments often pursued a pick-and-choose strategy, implementing only those recommendations in line with their political aspirations, but not the more costly or long-term ones. In fiscal policy co-ordination, national compliance with budget targets was

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frequently also obstructed by other national ministries and a lack of support by the head of government. At the same time, EU processes may have supported some changes in labour market regulation, pension systems, and the setting up of procedures for sub-national fiscal surveillance or instruments for anticyclical public expenditure (Meyer and Umbach in this volume). The third dimension of rule-following concerns phenomena of differential empowerment. Generally, we note that policy co-ordination has tended to strengthen both the national finance ministries and the Commission’s Directorate General for Economic and Financial Affairs (DG ECFIN). They have attempted to use their privileged position as drafters and masters of the BEPGs and the Stability Programmes to extend their influence on other ministries’ policy agendas. These attempts were, however, not very successful given that ownership of co-ordination processes at the national level in other than the finance and the employment ministries was uneven and measures taken were sometimes counterproductive and poorly co-ordinated. Despite the Lisbon strategy, heads of government have devoted relatively little and at best fluctuating attention to ensure their compliance with EU co-ordination procedures. Vertically, we note that the European Commission has not been able to use the policy co-ordination provisions substantially to increase its leverage over the different Council formations and national interests in general. It also failed to gather sufficient support for a stricter line under the SGP against some member states and was relatively cautious in criticising frequent instances of non-compliance with the EES or the BEPGs. While the new policy co-ordination committees such as the Economic and Finance Committee (EFC) or the Employment Committee (EMCO) have not gained substantive leverage, the Euro Group has acquired considerable influence after its creation, pre-structuring the agenda and voting in the subsequent ECOFIN Council (Linsenmann and Meyer 2003; Linsenmann in this volume). The impact of enlargement is hard to foresee, but is likely to pose a challenge to group cohesion in the committees where all member states are represented. Impact on interactions between supranational, governmental and non-governmental actors: some horizontal, limited vertical fusion The new provisions have supported the emergence of more deliberative, but delimited forms of governance involving national and supranational actors within key policy co-ordination committees and top-level informal groupings. Jacobsson and Vifell analysed in Chapter 9 how the nature of interaction in key EU level committees, in particular the EFC and EMCO, have allowed for the evolution of common frames of reference, consensus orientation rather than voting, and the power of the good argument rather than guarded bargaining and differences in country size. The participants in EMCO are generally committed to reaching progress towards ‘Social Europe’, or ‘Sound Money’ in the case of the EFC. In these committees voting hardly takes place when there is no consensus, and peer pressure motivates actors

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not to be ‘the worst pupil in class’. Yet when it comes to deciding on country-specific recommendations, hard performance indicators and particularly salient policy issues, positions can be locked-in, pre-meeting coalition building occurs, and bargaining takes place. The real impact on transforming political preferences is thus hard to assess and probably more long-term in nature. The EES findings indicate, however, that national politicians give increasingly less restrictive instructions and leave EMCO participants more room for manoeuvre. This is partly the result of the recommendations being increasingly perceived as ‘harmless’ in terms of generating negative publicity. In the EFC, potential for deliberation was initially higher because of shared professional background (economists) and a shared project (monetary union). Yet our research showed that the ability of the EFC participants to deliberate, to build and sell a consensus at home gradually diminished after 2000 (Linsenmann and Meyer 2003). This is partly due to the creation (1999) and heightened role of the Euro Group consisting mainly of national finance ministers of the Euro zone (see also Chapter 8). Here, deliberation is less salient than in the EFC, but participants stress that peer pressure and socialisation effects are felt and real discussions on substance do take place beyond the regular ‘tour de table’. Policy co-ordination has drawn in non-governmental actors, but only in some countries and to a lesser degree than one might have expected. Unsurprisingly, it was primarily the EES which encouraged a greater involvement of social partners and civil society actors, even though social partners were anxious to guard their autonomy and resisted attempts to make them implementers of community priorities (Jacobsson and Vifell in this volume). The relevant EU level committees, EMCO and the Social Policy Committee (SPC), have formal mandates to do so, and actually therefore involved other ‘stakeholders’ in order to build up impetus for reform. On the economic and financial side, however, committees remained closed to such nongovernmental interests and guarded by a cartel of DG ECFIN and national finance ministries. European level organisations of the social partners have remained relatively weak actors even in the EES, mostly because of divergent preferences and reluctance on the part of their national members. Social partners organisations of some countries became somewhat more involved in the drawing up of NAPs, yet given their low significance in the national policy-making process (see previous section), they did not invest many resources or dramatically shift their attention to EU co-ordination procedures, remaining largely national players as Meyer and Umbach found on the basis of the reports of national rapporteurs (cf. GOVECOR 2004). Yet, some gradual changes are observable, as changes in the EES incentive structures (consultation requirements, strategic use of the ESF, and Commission funding for actors) empowered civil society actors and fostered the perception of being increasingly affected. One example of such empowerment in the field of

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gender policy is Ireland, where the ministry’s own Equality Division has criticised the government for not living up to its commitments. Generally, civil society involvement varies substantially between countries, especially according to the pre-existence or otherwise of a strong consultation culture. The third dimension of change concerns the intensification of interactions and co-ordination attempts across policy areas at the same level of governance and across levels of governance. Generally, we found that interactions increased horizontally rather than vertically. From a horizontal perspective we saw European level committees such as the EFC and EMCO, as well as the Euro Group, gradually strengthening their co-ordination efforts. This has led in 2003 for instance to considerable conflict between the European Commission’s DG ECFIN and DG Employment over the drawing up of so-called streamlined BEPGs, as our interviews showed (Linsenmann in this volume). At the national level, a parallel development towards horizontal fusion has taken place in so far as the National Action Plans strengthened linkage building between ministries and agencies responsible for employment, social policy, education, family, economic affairs and industry. Jacobsson and Vifell (in this volume) argue that the EES has also contributed to the creation of a number of ‘super ministries’, combining labour market and economic or industrial affairs in Denmark, Sweden, Austria and Germany. The fiscal policy co-ordination process in contrast has not dramatically improved co-ordination between national finance ministries and those responsible for other socio-economic policies. As far as vertical fusion trends are concerned, policy fields at the European level remain relatively closed to other interested political parties such as executive agencies and sub-national authorities. Within national administrations, awareness of the EES remained relatively low and policy knowledge at regional and local governing levels was not systematically drawn upon. In the area of fiscal policy co-ordination, upward network-building concerned primarily the highest European fora with the creation of the informal Euro Group. The requirements for fiscal policy co-ordination did, however, encourage some degree of vertical strengthening of co-ordination efforts in the form of the setting up of ‘national stability pacts’, which sought to bind sub-national fiscal authorities into the SGP framework, even if with the limitations elaborated by Meyer and Umbach in Chapter 6. Public discourses and policy ideas: opportunities and obstacles to debate and learning To what extent did the provision for policy co-ordination lead to an intensification of public discourse on these issues over time? We could not observe a linear increase in public attention for either hard or soft policy co-ordination modes. Instead coverage was very much event-driven in the first two years and declined significantly after the launch of the euro and the onset of two years of strong economic growth. Since 2001, however, the picture changed

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substantially and we observed a divergence of impact between hard (Stability Pact) and soft co-ordination (Employment Policy, BEPG). Fiscal policy co-ordination was increasingly ‘hitting home’, albeit to varying degrees in different member states, as controversies over compliance with the 3 per cent threshold came to the fore. This was particularly the case in countries struggling to meet the criteria such as Portugal and Germany. Italy and France were cases where the issue of salience was lower despite compliance problems. But even in the UK coverage of the SGP increased substantially in 2001–3. In contrast, publicity for employment policy co-ordination declined steadily, even when taking the general decrease of coverage for the topic in national media into account. Negative recommendations emanating from the EES process were hardly ever picked up and commented upon in domestic debate. As a result, the Luxembourg process and its policy impulses are lost on all but those directly involved in the process and their impact is not markedly different from that arising from OECD reports (Schäfer 2006). The communicative deficiencies of the EES contribute to a better understanding of why national ownership of this governing mode is so low and implementation is sluggish and opportunistic. Did policy co-ordination and peer review translate into public pressure and ideational change in member states to support compliance with this particular kind of soft policy co-ordination? Again, we need to distinguish between hard and soft co-ordination when assessing communicative impact (Chapter 10). Even though the rules of the Stability Pact were heavily contested, it was also clear that no government could fully insulate itself against peer ‘pressure’ spilling over to domestic press coverage. Indeed, case studies showed that negative recommendations emanating from the SGP or the BEPG do make an impact on publicised discourses and force governments to justify themselves in public (Meyer 2004). In some cases (Portugal and, to a lesser degree, Germany) publicised opinion may have contributed to a degree of policy change (lower deficits, national stability pacts), but this linkage is difficult to prove. Moreover, we found that peer pressure was until 2003 a misnomer in terms of public visibility, given that it was largely left to the Commission to criticise member states for their failed commitments while national ministers said little on the subject in public. As a result, governments could more easily portray criticism as politically motivated, rather than a consequence of noncompliance with jointly agreed rules and national commitments. In the run-up to and at the height of the crisis of the attempt to ‘suspend’ the SGP by France and Germany, some finance ministers did, however, become increasingly vocal in their public criticism of their colleagues. The EES in contrast had virtually no success in imposing reputational costs through public debate. It was slightly more successful in inducing some degree of ideational change, presumably through a two-step information flow via other elites and civil society actors. The EES may have contributed to more debates

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about elder workers and the desirability of early retirement schemes. Moreover, the EES fed into national discussions by supplying comparative data on participation rates, the gender pay-gap and the average time required to set up a business. On the fiscal side we saw increasingly monothematic, mechanistic discussions about the 3 per cent limit rather than debates about other ‘messages’ of the SGP framework, namely about the sustainability of public finances and the need for anti-cyclical policies. Yet the SGP together with the BEPG provided also new justifications for budgetary consolidation and discipline, as the debate about the sustainability of pension systems in the wake of changing demographics got seriously under way in a number of countries. Finally, we were interested in the contribution of soft governance to the increasing synchronisation and Europeanisation of national public discourse on socio-economic policy. Generally, Meyer and Kunstein found in Chapter 10 more evidence for the latter than for the former. Especially in the debates about fiscal policy we did observe a growing Europeanisation in terms of the colouration and representation of European standpoints, not least those coming from the EU institutions. Even though national frames of reference usually dominated these debates, European perspectives and EU institutional voices were also clearly represented both in terms of news selection and commentary. In contrast to horizontal Europeanisation, we have found very little intensification of cross-national references and debates in both policy areas. Foreign national actors as key participants of peer review and co-ordination were hardly ever present in the debates. We did observe, however, a crossnational convergence in the use of news frames relating to performance comparison, sovereignty and sanctions. The national debates about fiscal policy and EMU became thus more interlinked, even though a genuine transEuropean debate has not emerged. The finding: loose co-ordination as a patchwork The story of how policy co-ordination has worked in different settings of governance in Europe has been told in this volume from varying perspectives, evoking the image of a complex patchwork involving different colours, sizes and levels of thickness. These contrasts should be kept in mind, yet when surveying the whole picture we find that policy co-ordination has not (yet) evolved in the direction of the ideal-types of tight or supranational co-ordination, which could be seen as a stepping-stone for further political integration (see Figure 11.1). Metaphorically speaking, if the (legal) seeds of policy co-ordination might have allowed the emergence of a medium-size apple tree with many branches and at least some big apples, the natural environment and deliberate pruning on the part of the owners severely restricted its growth to a considerably smaller tree with few fruit-bearing branches. Especially in the area of soft co-ordination, the early enthusiasm waned and ritualistic and opportunistic use of the rules followed. Fiscal policy co-ordination entered a phase of contention and crisis as the Euro zone’s two largest economies exceeded the deficit rules and successfully

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Employment Policy co-ordination

Bounded Arguing; Depoliticised

European level of governance

Bureaucratic, ritualistic co-ordination

National level of governance

Opportunistic use,ownership weak

Aggregate Assessment

Rule Following and Use

Loose Co-ordination: Limited legitimacy and national ownership; little administrative fusion, polycentric

Figure 11.1:

High degree of procedural compliance, but only opportunistic policy, some attempts to evade and re-interpret the rules

Fiscal Policy co-ordination

Limited increase of cross-policy field Co-ordination BEPG

Some degree of horizontal fusion of policy areas & instruments; vertical fragmentation dominates

Some increase in cross-policy field co-ordination

Interactions among public and nonpublic actors Moderate moves towards horizontal fusion especially in the area of BEPG and EES Limited vertical fusion tendency in EES, more so in the case of the SGP

Peer Pressure and Contested Rules

Strengthening of Cross-authority co-ordination

Uneven rule foll., public debate

Public discourses

Moderate vertical Europeanisation of discourse in the case of naming and shaming and reform of SGP, virtually no such trends in the case of EES and the BEPG

Overview of evolutionary trends: loose co-ordination in action

evaded sanctions. Policy co-ordination modes have not (yet) fully integrated with domestic structures of policy-making, interest mediation and public deliberation, especially in larger member states. Low levels of national ownership, especially at the level of regional authorities, hindered the kind of adaptations needed to foster sustained compliance. Political initiatives in the context of the European Convention to alter significantly the depth, scope or modus operandi of policy co-ordination through Treaty changes failed, even if open methods of co-ordination in new policy fields proliferated outside the legal

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framework. Only a few member states, usually the smaller ones, decided to exploit the developmental possibilities of EU economic governance but this group of member states together with central authorities such as the Commission and the European Central Bank were too weak to persuade the more sceptical larger states to follow their example. What is, however, remarkable is that policy co-ordination modes could be and were modified without requiring Treaty change to respond to some of these problems. During the consolidation phase (2001–4) they became more flexible with regard to national conditions, more co-ordinated and synchronised, less detailed and more oriented towards medium-term goals. Further sub-Treaty changes to the functioning of the EES and the SGP were proposed and partly adopted in 2004/5 in response to the widespread dissatisfaction with the performance of policy co-ordination, dissatisfaction which was substantiated and analysed by formal review processes (EES, Lisbon), independent experts reports (Sapir et al. 2004, Employment Taskforce 2003), and a number of academic studies such as the present one. The Stability and Growth Pact was not replaced or suspended as some political actors had urged, but its ‘preventive arm’ was strengthened, while its ‘corrective arm’ connected to the 3 per cent threshold was substantially weakened, allowing member states to justify deficits with a range of ‘other relevant factors’ (cf. Subacchi 2005: 752). Yet, even if some of the other recommendations of these reports were to be enacted, it is clear that the upgrading scenario towards a tight network governance, not to speak of a supranational economic government called for by some authors (Collignon 2004), will not be met in the medium term. The politicised debates in the Convention about economic governance, the narrow electoral outcomes in Germany (2005) and Italy (2006), as well as the underlying reasons for the French and Dutch rejection of the Constitutional Treaty, demonstrate that key European countries cannot currently agree over the direction of economic reform nor about the role the EU has and should play in the economic sphere. The persistence of the commitment-implementation gap and the slow pace of treaty change indicate that the potency of soft-governance instruments to achieve learning, preference change and compliance in these important policy areas has been overrated. Even though deliberation, persuasion and peer pressure have important roles to play in governance (especially when freed of excessively demanding bureaucratic processes), hard incentives and ‘the shadow of hierarchy’ (Héritier 2003) need to come into the picture as intervening variables for creating the environment in which preference change through deliberation can take place. This study confirms that domestic constraints normally trump soft European incentives and weak sanctions. Even if individual (finance) ministers succumb to or embrace peer review and pressure, their influence at home has often been constrained by a range of other factors, especially at times when politicisation and electoral significance was

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high. Heads of states or governments have overruled their ministers who are more frequently exposed than they are to peer pressure through their monthly Council and Euro Group sessions. At the same time, we have seen that policy co-ordination modes relying on communicative mechanisms have more easily adapted, with varying success, to changes in their environment than governance through regulations and directives. Finally, our findings cast doubts over whether policy co-ordination modes are particularly ‘democratic’ or enhance the legitimacy of European multilevel governance (Eberlein and Kerwer 2002). Not only did national parliaments show little awareness of and involvement in the policy co-ordination procedures. Civil society actors exhibited relatively little interest in using the opportunities of policy co-ordination to increase their voice at the national level, partly because of their perception that national governments do not need to deliver on EU soft law. Furthermore, public debate about the issues raised by self-co-ordination was deficient from the perspective of sheer quantity as well as from the perspective of promoting peer review and ideational change. Gaps in the governing networks (Kohler-Koch 2002b) and accountability mechanisms could be justified from an output perspective, in order to allow the key committees involved in policy co-ordination to deliberate freely and advance results for the political leadership. However, the problem at the policy preparation stage is that these structures need to involve national stakeholders and feed into domestic debates in order to overcome the commitment-implementation gap at the governmental level. And if they do make an impact without such a debate, policy co-ordination can be accused with some justification of blurring lines of accountability, weakening the scrutiny powers of parliaments, and hiding political choices behind technocratic reasoning. In its current form, self-co-ordination rests on a relatively weak, top-heavy legitimacy of the EU Commission with occasional injections of political rhetoric and initiatives by the European Council.

Revisiting our expectations: some lessons for theorising In addition to the inductive approach revolving around our intervening variables, we have drawn in Chapter 2 on strands of integration theory to set out a number of theoretical expectations concerning the evolution of economic policy co-ordination towards a more supranational, more far-reaching, and more deliberative mode of governance. We have elaborated a macro-scenario of vertical and horizontal fusion of policy fields and governing levels, which would bring about more integrated forms of economic governance, most notably a kind of tight network governance or even Treaty amendments towards a supranational government in the field of economic policy. In the preceding section, we have shown that neither of these two global upgrading scenarios has been met, despite evidence of policy innovation, committee

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deliberation and intensified involvement of non-governmental actors in some of the sampled countries. In order to understand this outcome better, we will revisit the six causal mechanisms which were hypothesised to accelerate evolutionary trends towards a more integrated form of economic government in the European Union. Expectation 1: Supranational institutions will use their unique position within the institutional set-up to extend the scope of new policy co-ordination procedures, make them informally more binding and lobby for transforming them into instruments of supranational law-making. We have found that the European Commission has not been able fully to exploit its proposing and reporting powers given by the legal provisions in the different policy fields. One reason for this was strong resistance from member states against interference and too critical wording in country-specific recommendations. National representatives in the Council also managed to weaken the functional linkage advanced by the Commission between hard (ESF) and soft instruments (EES), as Ines Hartwig has shown in this volume. In the case of the EES Chapter 10 by Jacobsson and Vifell showed that especially large member states made it clear early on that they preferred substantive criticism to be raised in the committees and not in public recommendations. The Commission largely agreed with this and concentrated its political capital on areas where it could propose hard legislation. In the area of the Stability Pact the then responsible Commissioner Solbes did not shy away from confronting member states over their unwillingness to stick to their commitments and follow the rules, but was outmanoeuvred by a coalition of ‘sinner states’, led by Germany and France (chapter by Le Cacheux and Touya). The judgement of the European Court of Justice in July 2004 did not help to strengthen the substance of rules, but simply clarified a procedural point. The lack of leadership and support from the Commission president for the responsible commissioners also needs to be factored into the explanation of why Commission activism faltered and rule evasion was frequent. The thesis that personalities can make a great difference in the Commission’s ability to exploit its room for manoeuvre in economic governance can be tested after the coming into office of Manuel José Barroso as Commission president in November 2004. There is reason to be sceptical. Not only has the Commission not yet overcome the management and identity problems that came to the forefront with the resignation crisis of 1999, but one must note a long-term trend towards a politicisation and nationalisation of European governance that limits the role of the Commission. The erosion of the permissive consensus (Easton 1965; Reif 1993) on European integration has continued and is limiting the Commission’s ability to exploit gaps in executive control. The heyday of Commission activism seems over after the completion of the last grand project, EMU. Member states are gradually reasserting some control via

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the strengthening of the Council of Ministers and the European Council. Governments, faced with tight public finances, constraints through EU rules and sceptical publics, are no longer prepared to give new proposals the benefit of the doubt and strive to preserve or even recuperate some of their autonomy in governing the national economy (see also expectation 3). There is little in the new provisions of the Constitutional Treaty for economic governance that suggests any substantial change in this trend with regard to the Commission. The question is whether the European Parliament or a reformed European Council presidency could fill the current lack of supranational leadership. This means also that those integration theories which rely heavily on supranational institutions’ activism to explain integration, will have to become more cautious in their analysis, and not only in the area of soft governance. Expectation 2: The institution of new European level committees and the administrative requirements arising from policy co-ordination across different levels of governance will bring about a vertical and horizontal fusion of bureaucracies, thus paving the way towards closer co-ordination and deepening of member states’ commitments. We did see a clear increase in the frequency of meetings of European level committees such as the EFC, the EPC, EMCO and the Social Protection Committee (see figures from Jacobsson and Vifell in Chapter 4 and also Linsenmann and Meyer 2003). Especially in the area of employment policy co-ordination, a new set of national actors from Employment and Social Affairs ministries was brought into the Brussels decision-making process. At the same time, civil servants in the capitals were charged with extensive reporting, monitoring and policy-proposing tasks as part of the National Action Plan process. However, contrary to expectations, the findings of the national reports cited in Chapter 6 by Meyer and Umbach show that this has hardly induced a Europeanisation of these parts of the national administrations; existing units dealing with ‘Europe’ were put in charge of the process, there was hardly any upgrading in their importance, and few procedures were changed (although Jacobsson and Vifell note a ‘professionalisation’ of labour market policy and administration in their chapter in this volume). The limited degree of institutional and procedural adaptation reflects a continued lack of awareness of or interest in the EES among the top echelons of the respective national ministries. The initial enthusiasm for being involved in Brussels waned when they realised that the ECOFIN council was taking the most important decisions. Finance ministries have been involved in EU decision-making for a long time and enjoy a privileged position. Ministers see their involvement in the Euro Group and the ECOFIN Council as well as the existence of fiscal policy rules as strategic assets that help them to win domestic battles in the cabinet over resources and influence. Nevertheless, the instrumental use of European policy co-ordination does not mean that national

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finance ministries have streamlined the BEPG or the SGP into their policymaking. There are still very large and influential parts of the national administrations with little awareness of the EU requirements and their ministers’ commitments made in Brussels. Moreover, given the high degree of politicisation of fiscal policy in some countries during the observation period, finance ministries in France and Germany were at times not in control of national instructions to Brussels and their budgets. National heads of government took over from them. We are thus faced with an uneven picture of at best moderate vertical fusion trends, which have been at various times ‘short-circuited’ by a top-level political intervention in this sensitive policy area. Horizontal fusion trends at the European and national levels were somewhat more pronounced, especially at the national level. For most of the observation period the European level committees, directorates-general and Councils did not effectively co-ordinate their policies in order to produce coherence between EES and BEPG. Only in 2003 were first steps taken to integrate the employment and the economic reform agendas articulated in the BEPG. The meetings of the spring European Council, exclusively focusing on the Lisbon strategy’s policy fields, may also be seen as an attempt to resolve incoherencies and to co-ordinate better the different co-ordination processes. Yet we could find little evidence either at the level of the Commission or at the level of the respective Council committees that they belonged to a common enterprise called ‘European economic governance’. It remains to be seen whether the Barroso Commission’s intentions to improve coherence and push forward the Lisbon process will be able to overcome departmental turf wars and incompatible policy approaches. At the national level, policy co-ordination may have contributed to the strengthening of linkages between departments and agencies involved in socio-economic policy-making. It has promoted ‘joined-up’ policy thinking and has contributed to the emergence of several ‘super ministries’ in member states, combining economic, industry, employment, social affairs and finance ministers in different constellations (see the chapter by Meyer and Umbach). To that extent, administrative fusion processes can be observed, but to be relevant for influencing the integration path they may simply require a longer time frame to become effective. On the other hand, theories of deliberation, ‘governance through committees’ and administrative fusion will have to come to terms with the impact of new members on group cohesion, the politicisation of European decision-making and the increasing inclination of the top echelons of national ministries to short-circuit administration-driven policy-making. Expectation 3: Unintended negative consequences arising from previously taken decisions to communitarise a given policy area will prompt member states to go beyond their initially loose commitment to policy co-ordination and move towards a hard law approach or decide to expand its scope to exclusively national policy areas.

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Given the trend towards a renationalisation of community politics, it is of key importance to factor into the analysis characteristics of individual member states, characteristics which are relevant to forecasting not only the likely degree of national adaptation to the new provisions, but also whether these countries’ response at the European level is likely to have an impact on the evolution of governing modes. Thus, we found that we had to take a much broader view in trying to understand Europeanisation effects on member states than that elaborated in some of the literature. In particular, we found that the behaviour of the largest member states is key to whether legal provisions will be followed and how they will be used. Social-democratic politicians have long criticised what they saw as the neo-liberal bias of the Economic and Monetary Union structure and the asymmetries between centralised monetary and decentralised social and economic policy (Verdun 2003). It was feared that this structure would place the burden of adaptation solely on the welfare state and lead to deregulatory races to the bottom, the cutting of benefits and the rise of unemployment or working poor. The logic of building ‘Social Europe’ as a counterweight was therefore one of the driving forces of attempts in 1998/1999 by the French, the German, and the Belgian Finance Ministers, Strauss-Kahn, Lafontaine, and Reynders, to develop the Euro Group into the core of an economic government, to influence interest rate policy of the ECB and to harmonise taxes. This initiative foundered, however, because these alleged negative social consequences of EMU had not materialised sufficiently and the advocates of deeper co-ordination had picked too ambitious and partisan an agenda. The newly established ECB strongly and until today successfully has resisted any proposals which could endanger its independence and thereby its ability to deliver price-stability. EMU outsiders did not want to see the Euro Group acting as a formal Council for fear of further limiting their influence, and the governments of more liberal economies did not want to see their competitiveness eroded through measures such as tax-harmonisation. The disputes within the Euro Group and the ECOFIN council in the first years of EMU came to be regarded as counterproductive for both economic and political reasons and influenced the willingness of political actors within the European Convention to reopen the economic governance provisions as a potential ‘can of worms’. At the same time, there was a growing realisation that the Stability Pact and the existence of EMU made competitive devaluation, interest rate adjustment and fiscal stimulation either impossible or very difficult, so that some European contribution to helping member states adjust to economic shocks was seen as necessary. Given the European limitations to factor mobility, the stickiness of wages and relative prices and the limited size of the federal budget available for transfers, the pressure on national governments to initiate and implement structural reforms was always likely to rise. The Lisbon strategy of 2000 can be seen as a compromise between those who wanted to

226 Economic Government of the EU

deal with the consequences of EMU by advancing ‘Social Europe’ and those who wanted to stimulate deregulatory reforms at the national level to create more flexibility for adaptation. In the absence of a consensus on tighter, Treaty-based co-ordination, the national principals agreed on even softer co-ordination modes outside the Treaty framework to deal with spill-over pressures arising from increased mutual vulnerabilities and the risks for the common currency as a new collective good. Open co-ordination was a low risk, sovereignty-preserving approach to promoting social protection policies and pension reform within an ever more integrated single market governed by a single currency. It offered member states gains in knowledge about best practices and the chance to adapt in different ways while steering clear of hard compliance pressures in sensitive policy areas. Finally, the centralisation of monetary policy and the rules for fiscal policy co-ordination did constrain particularly the larger member states (as Le Cacheux has argued in Chapter 3). Germany had particular problems in adapting its economic policy-making to a new situation in which it was not able to set interest rates or determine the value of the currency as it had done when the Deutschmark was the anchor currency in Europe. Especially the larger, more slowly growing economies in the Euro zone found it difficult to follow the new rules in a changed policy environment. The governments of Germany, Italy and France evaded and challenged the SGP in an attempt to recuperate some of their former freedom of action, by reinterpreting rules and making them de facto less binding. These actions can be interpreted as a neo-functional reverse spill-over stemming from the delayed consequences of a previous integrative step. Indeed, the existence of high-density issue areas is not enough to forecast the direction of spill-over effects between highly integrated and more autonomous policies (Schmitter 2004). Economic analysis can help to understand member states’ interest in either upgrading or downgrading the rules, the scope for which is much greater in policy co-ordination modes than in the case of legally binding legislation. However, a detailed historical account of how consensus on the initial integrative step came about can be crucial. The Stability Pact in its particular form was a concession of France and other countries to the German government’s acquiescence to EMU, which in turn depended on convincing sceptical German public opinion that EMU meant ‘sound money’ (Heipertz and Verdun 2005). The 3 per cent limit was not the best functional solution to the problem of free-riding in monetary unions, but was the only possible and publicly marketable one. Similarly, the constitutionalisation of the Essen process (the predecessor of the EES) can be interpreted as a cheap pay-off to countries concerned with the alleged monetarist, deregulatory threat to welfare states and interested in building ‘Social Europe’. Thus, all governments agreed to the provisions for conflicting reasons, while heavily ‘discounting long-term effects’ of the decision (Pierson 1996: 135). French political elites, for instance, from the outset did not believe in the need for the

The Limitations of European Economic Governance 227

fiscal rules imposed by Germany, whereas Germany paid little attention to the EES as part of French interests in building ‘Social Europe’. After monetary union had come into force and every country that wanted to had joined (partly by manipulating their deficit figures), member states felt subsequently less bound to their initial commitments. This showed in their compliance behaviour and lack of support for deeper integration in different fields of economic policy. Expectation 4: The setting up of new committees and procedures for deliberation, information exchange and peer review will promote the transcendence of national instructions through joint deliberation and gradually socialise a growing number of governmental and non-governmental participants into transnational policy communities with a shared commitment to European problem-solving. In retrospect, we found that it was hard to ignore the antecedent variables behind the coming into being of the legal provisions, which often allow room for both ‘destructive’ as well as ‘constructive ambiguity’. Differences in national approaches, interests and policy philosophies are likely to persist despite the agreement of a legal text and continue to shape the degree to which governments will play by the rules, especially in areas where the degree of legal bindingness is as low as in the case of policy co-ordination. The empirical evidence on this point is mixed. The setting up of the informal Euro Group has opened up new avenues for socialisation, peer review and esprit de corps building. However, this group is heterogeneous in terms of the political and professional background of the main participants (finance ministers), it does not meet often enough for strong socialisation effects, the chairmanship changes with each presidency and the success of the group in seeking to bring non-compliant members into line has been mixed (as demonstrated in the chapter by Jacques Le Cacheux and Florence Touya). Moreover, finance ministers do not have the leeway they used to have before the completion of monetary union. Fiscal policy has become thoroughly politicised with the effect that one can regularly observe heads of states or governments intervening and renouncing their ministers’ commitments in EU fora. Socialisation processes, even if they do take place, can and have been shortcircuited by heads of government as the final arbiters of socio-economic policymaking. The Economic and Financial Committee in contrast played a strong role in the run-up to EMU, quickly developing an esprit de corps, engaging in deliberation about technical as well as political problems and frequently persuading capitals to change policies. While this group spirit has not gone, it has certainly weakened and so has its ability to influence national policies and lobby for deeper integration (Linsenmann and Meyer 2003). After the completion of monetary union the group lacks a common project to advance and draw upon as a power resource so that national ministers are less prepared

228 Economic Government of the EU

to be convinced by their representatives’ policy advice after EMU membership as the main goal has been achieved. Secondly, the group deals with a much wider agenda of sensitive issues than before and confronts a greater workload, which has diminished its ability to deliberate and reach real consensus. Finally, the advent of new members is creating a problem of overall group cohesion, because the sheer size of meetings makes real deliberations more difficult in a forum where everyone wants to have their say. In the area of soft governance in employment and social policy, we have seen that initial enthusiasm for joint problem-solving was relatively high, but waned over time. In contrast to the EFC, members of the EMCO do not all share the same professional background as economists. There are limits to their epistemic community-building based on expertise. While deliberative problem-solving played an important role within EMCO (Jacobsson and Vifell in Chapter 4), bargaining often set in when approaching the decisionmaking stage. There was relatively little scope for vertical persuasion between committee members and capitals because EMCO members are less senior civil servants than are EFC representatives. They therefore have less access to ministers. Moreover, we found also evidence that enthusiasm among participants in the EES has diminished over the years amidst complaints about too much paperwork, too little room for substantive discussion and a deteriorating economic environment. There are important lessons in this for theories of actor socialisation. One is that the degree of deliberation rises if technical or scientific expertise is important, participants share the same or at least similar professional background, meetings are informal and confidential and the number of participants and the scope of the agenda are limited. Moreover, the degree to which committees are driven by instructions depends on the potential media salience of a given issue and the degree to which it is politicised. If higher political echelons are not sufficiently involved and the standing of the committee in terms of staffing is generally low, real learning and preference change is limited to a small group of people, who are bound by a political mandate and cannot shape policy in ways familiar from the operation of the EFC in the run-up to EMU. Indeed, the declining role of the EFC within hard co-ordination demonstrates that even that kind of deliberation is historically contingent and depends on the prospect of a very strong incentive (membership of EMU). Expectation 5: The provisions for transparency of peer review, benchmarking and naming and shaming, will induce a Europeanisation of public debates and will gradually increase public support for European solutions in these policy areas, combined with calls for greater democratic participation. We have seen in the chapter by Meyer and Kunstein that the Stability and Growth Pact did have some impact on public discourses in terms of issue

The Limitations of European Economic Governance 229

salience, but only after the first early warnings against Germany and Portugal were contemplated and further instances of rule violation and contestation followed. On the other hand, the media’s reception of public criticism by the Commission (the Council presidency remained silent), varied substantially between countries and was on the whole incapable of winning the argument or even changing government policy in directly discernible ways (Meyer 2004). The reason is clearly that governments are still the most powerful actors in domestic public discourse and that an institution like the Commission lacks the profile, the resources or for that matter the legitimacy in this policy field to engage effectively in national discussions without substantial support from opposition or other civil society actors. Only in countries where the government is already vulnerable or internally divided and where European supranationalism is broadly supported, did we see some impact on national policy debates (e.g. Germany). Generally, however, the attachment of national publics to European collective goods such as the single currency is not yet strong even if there is an intuitive acknowledgement that fiscal co-ordination is necessary in a monetary union. At the same time, Meyer and Kunstein noted few calls for or transnational debates about upgrading towards a European economic government. The necessity for such a move is not in any way clear in the mind of the public, even less so after the strong appreciation of the euro vis-à-vis the dollar between 2001 and 2004. It remains to be seen whether the newly created two-year position of a ‘Mr Euro’ (Jean Claude Juncker) as the Chair and Spokesperson of the Euro Group will enhance the communicative impact of economic policy co-ordination. In the area of soft co-ordination (the EES and the BEPG), the communication of policy co-ordination was hampered by the cautious approach until 2003 of the Commission, which shied away from alienating member states through ‘naming and shaming’. On the whole, however, EES reports and recommendations are presented in the media in similar terms as are OECD reports, despite their different role within a governing process (cf. Schäfer 2006). Even though public awareness of EU activities in the field of employment seems to have improved from low levels (European Opinion Research Group 2004), there is still little understanding of the role of member states and the degree of their commitments in the framework of the EES or the BEPG. We found few instances of civil society actors, for instance in Ireland, transporting the ideas of policy co-ordination to national arenas, partly due to a lack of awareness and information about the existence of policy co-ordination. One explanation of the weaker media resonance of soft policy co-ordination is clearly that the legal provisions do not allow for the singling out of member states for criticism, early warnings and similar steps. Each country is the recipient of a limited number of country-specific ‘recommendations’, differing only in their precise number and wording. Moreover, there are no sanctions attached to non-compliance and the rationale for compliance for the sake of European interest is not clear.

230 Economic Government of the EU

Finally, a combination of member state opposition and Commission caution frequently led to the watering down of recommendations and the avoidance of stronger wording. Unless the Commission (or the presidency) dare in future to adopt a more confrontational approach or the legal provisions are changed, soft policy co-ordination is unlikely to attract media attention and lead by itself to transnational debates about economic governance. Another approach followed in countries such as Sweden and Ireland was to draw in non-government actors and interest groups through consultation and information campaigns about employment policy co-ordination run by national authorities. Once informed and involved, some of these groups then developed an interest in holding governments accountable to their commitments and engaged in public debate through open critique. The broader lessons to be learned for theories relying on the Europeanisation of public discourses are threefold (see the chapter by Meyer and Kunstein). First, the degree of Europeanisation varies substantially between countries according to a number of different criteria, including policy relevance, conflict with government, general public support for integration and the degree of media support for integration. While conflicts between national and supranational actors are the strongest factor to increase visibility of issues in national media, cross-national debates remain rare and arguments are usually won by governments (Meyer 2004, 2005). Only if these governments are already very vulnerable on economic policy issues, can the EU critique provide significant impetus for policy change through public communication. Expectation 6: Economic crises, unrelated to the integrative steps, but arising from the global level or pan-European trends will prompt member states to look to the European level for solutions. Integration theory has always struggled to anticipate the impact of changes in the economic environment on member states’ attitude to integration. Neofunctionalism, for instance, failed to anticipate the stalling impact of the oil price shock in the 1970s. Economic effects arising from terrorist attacks such as 11 September 2001 in the US or 11 March 2004 in Spain cannot be anticipated. Yet economic analysis could have helped to forecast the crisis of the Stability Pact and the problems of Germany in meeting its commitments. The short period of economic growth in 1999 and 2000 was conducive to steps taken during the ‘expansion phase’ of policy co-ordination, which were marked by the scope expansion and ambitious target setting. Conversely, the global economic downturn in the second half of our observation period (2000/2001) has clearly impacted on the willingness of national governments to comply with, deepen or extend the scope of economic policy co-ordination. However, a cyclical economic downturn does not amount to a crisis or an economic shock. Neither the terrorist attacks of 11 September nor the gradually rising oil price have played this role so far. The intensification of trade with the US and Asia has, if

The Limitations of European Economic Governance 231

anything, bolstered the performance of many economies during the observation period. We could therefore not observe the impact of an external economic event or crisis on the evolutionary path of economic governance. This may well change as discourse about how to respond to economic globalisation spreads across European economies. However, the construction of economic imperatives still varies substantially across European countries, as Rosamond and Hay have shown (2002). Indeed, even in scientific discourse there is uncertainty about whether globalisation is eroding or rescuing the European national state, with good evidence for both positions (Genschel 2003). At the same time, some assumptions about globalisation pressures have come to dominate official EU discourses and agendas. In particular, the argument is voiced that European economies will face adaptation pressures towards more innovation and knowledge-based services, given that some labour-intensive industries are likely to relocate or settle in regions or countries with better unit/labour costs. The need to become more competitive is also increasingly linked to the rapid growth of and competition from India and China, which made itself felt for the first time at the EU level in the controversy over cheap textile imports. Despite the rise of the globalisation discourse, we note that the dominant impetus for structural reform and better co-ordination of policies in Europe seems to derive from specific European problems, in particular the threat to the sustainability of public finances given ageing populations, longer life expectancy and rising costs for health provision. The proliferation of non-Treaty soft policy co-ordination modes can be plausibly explained by the growing realisation among policy-makers that there could be European ‘added-value’ to a pan-European problem, without, however, leading to a consensus about the exact role EU institutions and instruments should assume. It is also worth noting that citizens still look predominantly to the state as the actor to tackle the issue of the highest concern – the fight against unemployment.

Outlook and lessons: the future of economic governance This study has examined the evolution of economic policy co-ordination modes, both hard and soft, since new legal provisions were agreed at Amsterdam in 1997. In this concluding section we want to explore the most recent developments and some lessons to be learned for the future evolution of economic governance in the EU. Earlier on we have distinguished an ‘expansion phase’ in the evolution of governing modes between 1997 and 2001, followed by a phase of procedural simplification and fine-tuning up until 2004. Since 2005 we argue that the EU has entered a new phase, which could be called ‘bringing national politics in’. The sub-Treaty changes made since then aimed to ‘refocus’ the existing policy co-ordination instruments on ‘jobs’ and ‘growth’ by improving ‘delivery’

232 Economic Government of the EU

at the national level (European Council 2005). National ownership of the co-ordination processes is to be enhanced through a ‘renewed commitment’ of member states and the submission of comprehensive and detailed national reform programmes (NRPs). These processes are to be rooted in national political life through measures aimed at enhancing the involvement of civil society actors, parliaments and the public in the drawing up and implementation of these plans (European Council 2006). This new phase has largely been prompted by the lessons learned from the five-year review of the Lisbon strategy and other independent studies, including the present one. They revealed that economic policy co-ordination in the EU has suffered from multiple problems: a lack of coherence and prioritisation in the objectives and measures advocated by different instruments, insufficient national ownership, public visibility and parliamentary scrutiny of national action plans, flouting and watering down of agreed rules by coalitions of states and ultimately problems at the level of policy implementation when it mattered most. Some of the more wide-reaching remedies suggested in the reform debate would have involved changing the Treaty-based legal provisions, especially those regarding fiscal policy co-ordination, the mandate of the European Central Bank and the role of the Euro Group. Scholars like Loukas Tsoukalis (2006) have even argued that the division of labour between the centre and its member states – one responsible for tough liberalisation, the other for social welfare – needed to be fundamentally rethought. His idea is to strengthen substantially the centre institutionally, to make better use of the budget, and generally to give ‘Europe’ also ‘a caring role’ – in short, more not less integration would be the answer to the current growth of diversity and centripetal forces in a Union of 25 members. The predicament for policy-makers and scholars is that the option of adapting the legal DNA of European economic governance by amending the Treaties seems currently off the table – not only because the Constitutional Treaty would not have improved economic governance substantially, but also because any future Treaty change is conditional on the EU extricating itself from the current ‘constitutional trap’ (Diedrichs and Wessels 2005). Moreover, beyond the substantial problems associated with ratifying new legal provisions, the debates in the European Convention as well as in core EU member states have demonstrated that there is currently no consensus on whether and what kind of European economic government is needed. Such a consensus is unlikely to evolve overnight even if economic growth in the EU picks up and key political personnel are replaced in key countries such as France. We would also agree with those who argue that the economic problems of founding EU members such as France, Germany and Italy are in scale and nature beyond the capacity of EU policy co-ordination to resolve. The constant demands for structural reforms emanating from ‘Brussels’ may well have been counterproductive to the goal of building a domestic consensus for the kind of

The Limitations of European Economic Governance 233

adjustments economists deem essential for a successful monetary union, where there is no central government to pursue discretionary policies and no large federal budget that could soften adjustment problems. Indeed, one of the key problems of EU economic policy co-ordination has been arguably that it has raised expectations regarding an EU role in co-ordinating national policies that the available instruments are ill-equipped to meet. It is this mixture of systemic reform problems and uncertainty at the domestic level in key member states over the direction of economic reform that makes us sceptical whether the so-called ‘fresh start and step change’ in the Lisbon strategy announced by the Barroso Commission and underwritten by the European Council will be able to overcome the identified problems. At the same time, the evolution of economic governance could also be seen as epitomising a change in the traditional dynamics of the integration process itself, where new instruments, strategies and objectives used to be instituted on the European level ahead of a domestic political consensus. There is a greater readiness within Europe’s publics today to compare how different member states cope with pan-European problems such as rising health care and pension costs or how they respond to the challenge of globalisation and the rapid growth of India and China. What remains to be seen is whether this public debate will also converge around the idea that the European Union has a central role to play in helping member states adapt and to deter them from pursuing policies which undermine the collective good of a common currency. If the outcome of such a debate and elections at national and European level did give political representatives at some point in the future a new mandate to revise the legal provisions for economic governance, they should take care to avoid the pitfalls of the past. One important lesson emerging from this study is that if one wants legal provisions to deliver compliance in all situations, one has to work with worstcase scenarios when designing voting procedures, incentives and sanctions. Provisions for policy co-ordination which implicitly rely on optimistic assumptions about the evolution of policy environments and governments’ willingness to comply are vulnerable to failure in the face of reality. Secondly, if policy co-ordination is going to work, conflicts between competing socioeconomic interests, perspectives and approaches cannot be avoided at the European level, conflicts which are tackled in member states by heads of government as the ultimate arbiters of policy-making. However, without a reform of the current institutional arrangements to improve citizens’ representation, political will formation and political leadership, progress towards a better policy-mix for Europe will remain limited. Hence the future direction of economic governance is an integral part of the wider question about how a more diverse Union of 25 states can be led and legitimised.

Chronology of Events Milestones of EMU before Maastricht (from 1958 to 1993) 1958

01 January

Treaties of Rome in force • Co-ordination of conjunctural policies (art. 103) • Co-ordination of economic policies, including provisions for a Monetary Committee (art. 105 para. 2)

1960

09 March 20 September

Conjunctural Policy Committee established European Social Fund established

1964

15 April

Medium-term Economic Policy Committee established Committee for Budgetary Policy established

08 May 1969

01–02 December

Summit of The Hague • Decision to progressively transform the community into an economic and monetary union

1970

08 October

‘Werner Report’: Proposal to structure the establishment of the Monetary Union into three stages

1971

August

‘Bretton Woods’ – system of fixed currency exchange rates collapses

1972

24 April

The ‘snake in the tunnel’ is set up: the Six agree to limit the margin of fluctuation between their currencies to ⫾2.25% The reformed European Social Fund (ESF) becomes operational

01 May 1974

18 February

The Economic Policy Committee emerges from the 3 former committees

1979

13 March

European Monetary System (EMS) in force, based on the European Currency Unit (Ecu) as well as an Exchange Rate and Intervention Mechanism (ERM)

1985

07 January

Delors Commission takes office

1987

01 July

SEA in force

1989

12 April

Delors Report on objectives within the three stages of EMU

1990

01 July 14–15 December

EMU 1st stage European Council/Rome • Intergovernmental conference (IGC) on economic and monetary union launched 234

Chronology of Events 235 1991

09–10 December

European Council/Maastricht • Draft Treaty on the European Union • Timetable and conditions for the move to EMU

1992

11–12 December

European Council/Edinburgh • Initiative for growth and employment

1993

July/August

Crash of ERM. EC ministers of finance agree to widen the fluctuation margins to ⫾15% Maastricht Treaty in force • Accurate schedule to carry out EMU • Definition of institutions managing monetary policy • Convergence criteria (art. 109j) and excessive deficit procedure (art. 104c) • Overall aim of a high level of employment (art. 2) Commission recommendation on the Broad Economic Policy Guidelines (BEPGs) Delors White Paper on Growth, Competitiveness and Employment European Council/Brussels • Endorsement of the BEPGs ECOFIN recommendation on the BEPGs

01 November

24 November 05 December 10–11 December 22 December

EMU after Maastricht (from 1994 to 2003) 1994

01 January 01 June 06 June 24–25 June 11 July 05 December 09–10 December

1995

31 May 19 June 26–27 June 10 July 15–16 December

1996

15 May

EMU 2nd stage European Monetary Institute (EMI) established Commission recommendation on the 1994 draft BEPGs ECOFIN prepares report on the 1994 draft BEPGs for the Corfu European Council European Council/Corfu • Endorsement of the 1994 BEPGs ECOFIN recommendation on the 1994 BEPGs Commission White Paper ‘Growth, Competitiveness, Employment’ European Council/Essen • Integrated European strategy for employment Commission recommendation on the 1995 draft BEPGs ECOFIN prepares report on the 1995 draft BEPGs for the Cannes European Council European Council/Cannes • Endorsement of the 1995 BEPGs ECOFIN recommendation on the 1995 BEPGs European Council/Madrid • January 01, 1999 confirmed as introduction date of the single currency (‘Euro’) • Priority target groups for employment policy Commission recommendation on the 1996 draft BEPGs

236 Chronology of Events 03 June 21 June 08 July 13–14 December

20 December 1997

23 April 09 June 16–17 June

17 June 07 July

16 July

21–22 November

12–13 December 15 December

1998

03 May

13 May 26 May

01 June

05 June

ECOFIN prepares report on the 1996 draft BEPGs for the Florence European Council European Council/Florence • Endorsement of the 1996 BEPGs ECOFIN recommendation on the 1996 BEPGs European Council/Dublin • Agreement on legal and technical aspects of the euro and on the Stability and Growth Pact • Dublin declaration on employment adopted Council decision establishing the Employment and Labour Market Committee (ELMC) Commission recommendation on the 1997 BEPGs ECOFIN prepares report on the 1997 draft BEPGs for the Amsterdam European Council European Council/Amsterdam • Treaty of Amsterdam signed • Endorsement of the 1997 BEPGs Resolution of the European Council on the Stability and Growth Pact (SGP) SGP: Council regulations 1466/97 ‘on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies’ and 1467/97 ‘speeding up and clarifying the implementation of the excessive deficit procedure’ adopted ECOFIN recommendation on the 1997 BEPGs Commission presents ‘Agenda 2000’ • Reform of the Structural Funds (including the European Social Fund) Extraordinary European Council on Employment/ Luxembourg • European Employment Strategy (EES) European Council/Luxembourg • Economic policy co-ordination Council (Labour and Social Affairs) resolution on the 1998 Employment Guidelines according to art. 128(2) Special Council decides that eleven member states satisfy conditions for stage three of EMU (‘Euro zone’) Commission recommendation on the 1998 BEPGs European Council appoints the members of the Executive Board of the European Central Bank (ECB) by common agreement Creation of the European Central Bank and the European System of Central Banks (ESCB), end of EMI ECOFIN prepares report on the 1998 draft BEPGs for the Cardiff European Council

Chronology of Events 237 15–16 June

01 July 06 July 01 December 1999

01 January

22 February 24–25 March

01 May

25 May 03–04 June

12 July 29 November 2000

24 January 14 February 13 March 14 March 23–24 March 11 April 08 May 19–20 June 19 June 12 October 27 November

European Council/Cardiff • Multilateral review of economic reforms • Endorsement of the 1998 BEPGs Stability and Growth Pact: Council regulation 1466/97 in force ECOFIN recommendation on the 1998 BEPGs Joint Employment Report 1998 adopted EMU 3rd stage End of EMS. The ERM is replaced by ERM II Stability and Growth Pact: Council regulation 1467/97 in force, hence SGP fully implemented Economic and Finance Committee: Council decisions adopting its composition and statutes in force Council Resolution on the Employment Guidelines for the year 1999 Special European Council/Berlin • Agenda 2000 reforms, inter alia reform of the Structural Funds Commission recommendation on the 1999 BEPGs Amsterdam Treaty in force • Employment Policy integrated into the treaty as Title VIII (‘matter of common concern’, art. 126(2) TEC) ECOFIN prepares report on the 1999 draft BEPGs for the Cologne European Council European Council/Cologne • Macroeconomic dialogue • Endorsement of the 1999 BEPGs ECOFIN recommendation on the 1999 BEPGs Joint Employment Report 1999 adopted Council decision establishing the Employment Committee (EMCO) Council recommendation on the implementation of member states’ employment policies Council Decision on Employment Guidelines for the year 2000 Commission presents implementation report on the 1999 BEPGs Special European Council/Lisbon • ‘Lisbon strategy’ Commission recommendation on the 2000 draft BEPGs ECOFIN prepares report on the 2000 draft BEPGs for the Santa Maria da Feira European Council European Council/Santa Maria da Feira • Endorsement of the 2000 BEPGs ECOFIN recommendation on the 2000 BEPGs Economic Policy Committee (EPC): Council decision adopting its composition and statutes in force Joint Employment Report 2000 adopted

238 Chronology of Events 2001

02 January 19 January

24 January

12 February 07 March 25 April 05 June 15–16 June

25 July 03 December 2002

01 January 30 January

12 February 18 February

21 February 15–16 March 24 April 20 June 21–22 June 21 June 17 July 03 September

24 September 16 October 18 October

Greece becomes the 12th member of the Euro zone ECOFIN decision on Employment Guidelines for the year 2001 and recommendation on the implementation of member states’ employment policies Commission asks ECOFIN to address a critical recommendation to Ireland under art. 99(4) TEC (‘early warning procedure’) ECOFIN adopts a revised version of the recommendation (of 24 January) towards Ireland Commission presents implementation report on the 2000 BEPGs Commission recommendation on the 2001 BEPGs ECOFIN prepares report on the 2001 draft BEPGs for the Gothenburg European Council European Council/Gothenburg • Endorsement of the 2001 BEPGs ECOFIN recommendation on the 2001 BEPGs Commission White Paper on Governance Joint Employment Report 2001 adopted Issuing of Euro notes and coins Commission recommends that an early warning according to art. 99(4) TEC be issued to Germany and Portugal to prevent the occurrence of an excessive deficit ECOFIN decides to close the early warning procedures in the cases of Germany and Portugal Council (Agriculture) decision on Employment Guidelines for the year 2002 and recommendation on the implementation of member states’ employment policies Commission presents implementation report on the 2001 BEPGs European Council/Barcelona • Synchronisation of annual BEPGs and EES proposed Commission recommendation on the 2002 draft BEPGs ECOFIN prepares report on the 2002 draft BEPGs for the Seville European Council European Council/Seville • Endorsement of the 2002 BEPGs ECOFIN recommendation on the 2002 BEPGs Communication from the Commission: Five-Year Evaluation of the EES Communication from the Commission: Streamlining the annual economic and employment policy co-ordination cycles Commission initiates an excessive deficit procedure against Portugal under art. 104(3) TEC Commission opinion that an excessive deficit exists in Portugal under art. 104(5) TEC Negative statements about the SGP by Pascal Lamy and Romano Prodi

Chronology of Events 239 05 November

19 November

03 December 2003

08 January 14 January

21 January

01 February 06 March 20–21 March

20 March 02 April 24 April 07 May 03 June

19–20 June

26 June 18 July 22 July

08 October

21 October

ECOFIN decides that an excessive deficit exists in Portugal under art. 104(6) TEC and issues a recommendation according to art. 104(7) TEC Commission recommends that an early warning according to art. 99(4) TEC be issued to France and initiates an excessive deficit procedure against Germany under art. 104(3) TEC ‘Streamlining of policy coordination processes’ report adopted by ECOFIN Commission opinion that an excessive government deficit exists in Germany under art. 104(5) TEC Communication from the Commission: ‘The Future of the EES’ Commission presents implementation report on the 2002 BEPGs ECOFIN adopts an ‘early warning’ recommendation to France, decides that an excessive deficit exists in Germany under art. 104(6) TEC, and issues a recommendation according to art. 104(7) TEC Nice Treaty in force Joint Employment Report 2002 adopted European Council/Brussels • Three-year perspective to BEPGs, EES and Internal Market Strategy (formerly annual review) Tripartite Social Summit Commission initiates an excessive deficit procedure against France under art. 104(3) TEC Commission recommendation on the 2003–2005 BEPGs Commission opinion that an excessive deficit exists in France under art. 104(5) TEC ECOFIN adopts report on the 2003–2005 BEPGs and Employment Guidelines for the Thessaloniki European Council ECOFIN decides that an excessive deficit exists in France under art. 104(6) TEC, and issues a recommendation according to art. 104(7) TEC European Council/Thessaloniki • Endorsement of the 2003–2005 BEPGs and Employment Guidelines ECOFIN recommendation on the 2003–2005 BEPGs Draft treaty establishing a constitution for Europe Council (Agriculture) decision on Employment Guidelines for the year 2003 and recommendation on the implementation of member states’ employment policies In accordance with art. 104(8) TEC, Commission recommends to decide that France has taken no effective action in response to its recommendation (of June 3) In accordance with art. 104(9) TEC, Commission recommends ECOFIN to request France take measures to remedy its excessive deficit situation

240 Chronology of Events 18 November

25 November 26 November 2004

13 January 21 January 04 March 25 March 07 April 28 April

11 May 12 May

19 May 20 May 02 June

17–18 June

24 June

05 July

In accordance with art. 104(8) and (9) TEC, Commission recommends ECOFIN to decide that Germany has taken no effective action in response to its recommendation (of 21 January) and to request Germany take measures to remedy its excessive deficit situation ECOFIN decides to abandon the excessive deficit procedure against Germany and France Report of the Employment Task Force chaired by Wim Kok Commission decides to sue the member states for their decision to suspend the Stability Pact Commission presents the first implementation report on the 2003–2005 BEPGs Joint Employment Report 2003/2004 adopted Tripartite Social Summit Commission recommendation on the 2004 update of the 2003–2005 BEPGs Commission recommends that an early warning according to art. 99(4) TEC be issued to Italy, initiates an excessive deficit procedure against the Netherlands under art. 104(3) TEC, and recommends to abrogate the excessive deficit procedure against Portugal ECOFIN decides to abrogate the excessive deficit procedure against Portugal according to art. 104(12) TEC Commission initiates an excessive deficit procedure against six of the new member states, namely Cyprus, the Czech Republic, Hungary, Malta, Poland and Slovakia under art. 104(3) TEC Commission opinion that an excessive deficit exists in the Netherlands under art. 104(5) TEC Commission initiates an excessive deficit procedure against Greece under art. 104(3) ECOFIN adopts report on the 2003–2005 BEPGs and Employment Guidelines for the Brussels European Council Council decides that an excessive deficit exists in the Netherlands under art. 104(6) TEC, and issues a recommendation according to art. 104(7) TEC European Council/Brussels • Endorsement of the 2003–2005 draft BEPGs and Employment Guidelines Commission opinion that an excessive deficit exists in Cyprus, the Czech Republic, Hungary, Malta, Poland, Slovakia and Greece under art. 104(5) TEC ECOFIN approves 2004 update of the BEPGs and Employment Guidelines ECOFIN decides that an excessive deficit exists in Cyprus, the Czech Republic, Hungary, Malta, Poland, Slovakia and Greece under art. 104(6) TEC, and issues recommendations according to art. 104(7) TEC ECOFIN decides to close the early warning procedure in the case of Italy

Chronology of Events 241 13 July

22 September 04 October 14 October 03 November 01 December 14 December 22 December

2005

18 January

27 January 09 February

16 February 17 February

03 March 08 March 20 March

22–23 March

22 March

ECJ annuls the ECOFIN’s conclusions in which the excessive deficit procedures are held in abeyance. As further action is not stipulated, the verdict has no consequences on the deficit procedures Greece admits the breach of the SGP in the year 2000 Council (EPSCO) decision on Employment Guidelines for the year 2004 Council (Environment) recommendation on the implementation of member states’ employment policies Report from the High Level Group chaired by Wim Kok Commission launches an infringement procedure against Greece Commission decides to suspend the deficit procedures against Germany and France In accordance with art. 104(8), Commission recommends ECOFIN to decide that Hungary and Greece have failed to take effective action in response to its recommendations (of 05 July) ECOFIN decides that additional steps in the deficit procedures against Germany and France are not necessary at this stage and that measures taken by the Czech Republic, Cyprus, Malta, Poland and Slovakia are in line with its recommendations (of 5 July 2004) ECOFIN decides pursuant to art. 104(8) that Hungary and Greece have failed to take effective action in response to its recommendations (of 05 July 2004). As Hungary is not a member of the Euro Group, 104(9) and subsequent steps are not applicable Commission presents the second implementation report on the 2003–2005 BEPGs In accordance with art. 104(9) TEC, Commission recommends ECOFIN to request Greece take measures to remedy its excessive deficit situation Commission recommendation for ECOFIN recommendations to Hungary according to art. 104(7) ECOFIN decision pursuant to art. 104(9) that Greece has failed to take effective action in response to its recommendations and requesting measures to remedy its excessive deficit situation Joint Employment Report 2004/2005 adopted ECOFIN issues recommendations to Hungary according to Article 104(7) TEC ‘Improving the implementation of the Stability and Growth Pact’ report for the Brussels European Council presented by ECOFIN European Council/Brussels • Revision of the Lisbon Strategy • Agreement on reform of the SGP (ECOFIN report of 20 March) Tripartite Social Summit

242 Chronology of Events 12 April

20 April 18 May

07 June

22 June 27 June

29 June 12 July

20 July 20 September

21 September 11 October 20 October

08 November

ECOFIN considers that action taken by Greece is in line with the Council recommendations (of 17 February) Commission recommendation on the ‘Integrated Guidelines’ (Broad Economic Policy Guidelines and Employment Guidelines) 2005–2008 Commission proposal to amend the underlying regulations of the SGP (1466/97 and 1467/97) Commission recommendation for an ECOFIN Decision abrogating the excessive deficit procedure against the Netherlands ECOFIN decides to abrogate the excessive deficit procedure against the Netherlands according to art. 104(12) TEC Commission initiates an excessive deficit procedure against Italy under art. 104(3) TEC Commission initiates an excessive deficit procedure against Portugal under art. 104(3) TEC ECOFIN adopts regulations 1055/05 and 1056/05, amending regulations 1466/97 and 1467/97 (adopted on 07 July 1997) Commission opinion that an excessive deficit exists in Italy under art. 104(5) TEC ECOFIN decides that an excessive deficit exists in Italy under art. 104(6) TEC ECOFIN adopts the ‘Integrated Guidelines’ 2005–2008 Commission opinion that an excessive deficit exists in Portugal under art. 104(5) TEC ECOFIN decides that an excessive deficit exists in Portugal under art. 104(6) TEC, and issues recommendations according to art. 104(7) Commission initiates an excessive deficit procedure against the United Kingdom under art. 104(3) ECOFIN approves a ‘Code of Conduct’ relating to the SGP and the Stability and Convergence programmes In accordance with art. 104(8) TEC, Commission recommends to decide that Hungary has failed to take effective action in response to the recommendations (of 08 March) ECOFIN decides pursuant to art. 104(8) TEC that Hungary has failed to comply with its recommendations (of 8 March 2005)

Sources: Official Journal of the European Communities Eur-Lex Database (http://eur-lex.europa.eu/en/index.htm) Rapid-Database of the European Commission (http://europa.eu/rapid/searchAction.do) GOVECOR Project/University of Cologne AGF-Project/University of Cologne

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Index Austria

60–9, 75–88, 97–9, 103–9, 111–14, 134–5 automatic stabilisers 77–9, 84–5 Balassa–Samuelson hypothesis 47 Barroso, Manuel José 222 Belgium 60–8, 75–7, 97–101, 103–8, 111–13, 134, 155 Broad Economic Policy Guidelines (BEPGs) 15, 18, 42, 73, 78–9, 100, 141–61 recommendations 141, 146–7, 149–53, 156–8 scenarios for 143–5, 159–61 streamlining of 149–50, 154 budget deficit see Stability and Growth Pact Cardiff process 12, 148 Chirac, Jacques 151 collective choice 165 collective good 39–41 Cologne process 12, 57 Commission see European Commission commitment-implementation gap 4, 212–13, 220 committee 168–85, 223–4, 227 Budgetary Policy 146 Economic and Financial (EFC) 13, 33, 145, 152, 171–4, 176–8, 181 Economic and Monetary Affairs of the EP 153 Economic Policy Committee (EPC) 147, 152, 171–3, 176, 178–9 Employment Committee (EMCO) 13, 59, 70, 169–74, 176–80 Medium-term Economic Policy 146 monitoring 136 of Permanent Representatives 169 of the Regions 63 parliamentary 155 relations to social partners 169, 180 Social Protection (SPC) 70, 175–80

constitution legal 18, 136 living 18, 137 Constitutional Treaty 38, 89, 119, 160–1, 220, 232 Convention see also Constitutional Treaty 17, 119, 139, 160 convergence criteria 157 convergence programme see Stability and Growth Pact Council of the EU see also ECOFIN 13, 66, 122, 126, 149–51, 168, 205–6, 222–3 Council for Employment, Social Policy, Health and Consumer Affairs 169, 175 Council of European Municipalities and Regions (CEMR) 63 Cyprus 77 Czech Republic 77 deliberation 164–8, 177–85, 228 deliberative transnationalism 165 elite deliberation 184 Denmark 60–9 DG Economic and Financial Affairs 56, 58, 59, 152, 172–3, 214 DG Employment and Social Affairs 56, 59, 152, 169, 173, 175 ECOFIN 37, 56, 72–4, 78–81, 85–8, 89, 149–51, 172, 195, 200, 223–5 economic governance hollow coordination 26, 144–5 loose coordination 27, 109, 137, 144, 159–60 supranational government 29, 143, 161, 218 tight network governance 28, 110, 143, 218 economic government 29, 49, 143–4, 232 Eichel, Hans 151 EQUAL 131–3, 135 265

266 Index ESF-NAP Impact Assessment Cell (ENIAC) 68, 134 Euro Group 33, 151–2, 161, 173, 209, 225, 227 European Anti Poverty Network (EAPN) 57, 62–3 European Central Bank (ECB) 17, 47, 81, 86, 152–3, 172–3, 220, 225 European Commission 56–9, 62–3, 66, 72–4, 79–81, 85–8, 122–6, 132–3, 135–8, 158, 168–9, 205–9, 220–2 European Council 12, 24, 122, 150–1, 195, 221 European Court of Justice (ECJ) 13, 72 European Employment Strategy (EES) 12, 18, 53–71, 102–9, 119–40, 167, 181, 208 five-year evaluation 54, 58 Local Action Plan (LAP) 64–5, 69 media coverage of 195–209 National Action Plan (NAP) 56, 59–65, 68–70, 102–9, 122, 126 social partners 57–9, 62, 65–6, 69, 104, 107–8, 111 European Parliament see parliament European Social Fund (ESF) 64, 65, 68, 104–5, 120–40 Europeanisation 93, 109–16, 188 compensatory 190–2 conceptualisations of 22, 95 horizontal 188, 192 measures of impact 109 of public discourses 187–209 regulatory 189–90 vertical 192 Finland 63, 64, 88, 97 Fischer, Joschka 151 fragmentation 26, 142, 159 France 37, 61–4, 75–82, 96–102, 103–8, 111–14, 151, 195–208 free-riding 38, 44, 48–9 fusion 26, 142, 159, 215–16, 221–4 fusion thesis 31 game of chicken 44 gate-keeper 54, 63, 69 Germany 37, 49, 60–9, 75–80, 96–101, 103–8, 111–14, 134, 151, 95–208 golden rule 50, 76, 86–7, 99

gouvernement économique 17 GOVECOR xi, 4, 7, 92 governance Community method of 12–13 economic 12, 50, 157, 187–8, intergovernmental method of 12 multilevel 11 new mode of 2, 11, 141 Grasser, Karl-Heinz 207 Greece 64, 76, 84, 96, 151 Guidelines Package 150, 153 Hungary

77

ideational entrepreneur 125, 133 Implementation Package 149 inertia see Europeanisation institutionalism 20–1, 30, 95 integration theory 16–18, 30, 221–31 liberal intergovernmentalism 30, 34, 164 neo-functionalism 30, 121, 164, 30 Ireland 47, 61–5, 78–9, 97–101, 105–8, 111–14, 131, 134–5, 199, 206 Italy 62–8, 75–81, 97–102, 103–8, 111–13, 133, 135, 151, 154 Joint Employment Report 58, 59, 65 Juncker, Jean-Claude 161 Keynes, J. M. 48, 49 Kok Report 38, 61, 116 Lafontaine, Oskar 225 legitimacy 15–16, 27, 30, 37, 44, 59, 165, 183–5, 221 Lisbon strategy 12, 107, 114, 149, 159, 226, 233 Luxembourg 62 Luxembourg process 123 macroeconomic dialogue see also Cologne process 152–3 Malta 77 Mèr, Francis 206 misfit thesis 112–13 Montoro, Cristóbal 207 Nash equilibrium 39 National Action Plan see EES

Index 267 national parliaments 100 national stability pact see Stability and Growth Pact Netherlands 64–8, 88, 97–101, 104–7, 111–14, 134 new mode of governance see governance Open Method of Co-ordination see policy co-ordination opportunity structure 54–6, 63 Optimum Currency Area (OCA) 42 parliament European Parliament (EP) 13, 66, 125, 153, 158 national 37, 61–2, 100, 153, 155, 160 Pigouvian federalism 50 Platform of European Social NGOs 57 Poland 77 policy coordination 13, 91–116, 218–33 of economic policies 38, 40, 73, 81, 83, 89, 101, 150, 232–3 of employment policies 19, 53–71, 102–16, 119–39, 169–85, 95–209 of fiscal policies 19, 49–50, 72–90, 96–102, 110–16, 195–209 hard 13–15, 23, 110–16, 195 Open Method of (OMC) 12–13, 57–9, 119, 139, 149, 157, 160, 163–8, 177–85, 226 soft 13–16, 53–6, 65–70, 110–16, 160, 195, 209 policy mix 42, 44, 70, 158 Portugal 60–7, 76–84, 96–102, 103–8, 111–14, 131, 154 pro-cyclical 72, 77, 78, 84, 86 Prodi, Romano 101 public discourse 94, 100, 109, 111, 158–9, 187–209 public investment 74, 84, 85–7 public sphere 26, 29, 184 Regional Action Plan 64 retrenchment see Europeanisation Reynders, Didier 225

Slovakia 77 social dialogue 57 Social Summit 57 Solbes, Pedro 222 Spain 60–7, 75–88, 99, 111–12 spill-over see also integration theory: neo-functionalism 16, 126, 226 cultivated 31, 35, 121, 125, 133, 135, 138–9 functional 32, 35, 39–41, 121, 134–5, 138, 157 political 32, 121, 138–9 Stability and Growth Pact (SGP) 12, 14–15, 18, 40, 43–4, 72–90, 96–102, 151 Early Warning 79–80, 98–100, 151, 160 Excessive Deficit Procedure 19, 79–85, 100, 154, 173 media coverage of 195–209 national stability pact 75, 199, 216 reform of 38, 72, 85–90 sanctions 14, 74, 87–8, 113 stability and convergence programmes 73–5, 78–80, 85, 87, 97, 100 stability programme see Stability and Growth Pact Strauss-Kahn, Dominique 225 structural funds compare European Social Fund 93, 120–4, 135 super ministries 69 Sweden 60–9, 97–9, 104–8, 111–12, 133, 195 tax competition 41, 49, 83 trade union 57, 65, 111 transformation see Europeanisation transparency 33, 152, 180–1, 183 two-level game 54, 66 Union of Industrial and Employers’ Confederations of Europe (UNICE) 57 United Kingdom (UK) 62–4, 97–102, 103–8, 111–14, 134, 195–208 upgrading see Europeanisation Werner Report

Sapir Report 38, 48, 51, 81, 83 Schröder, Gerhard 151

Zalm, Gerrit

146 207