Abstract
This contribution shows the relevance of implicit conditionality in the Eurozone crisis, that is, conditionality based on an implicit understanding of the stakes and sanctions involved, underlain by some measure of power asymmetry. The concept of implicit conditionality is applied to the reconstruction of Italy’s sovereign debt crisis and the structural—pension and labour market—reforms introduced by the Monti government following requests from the EU. Actual or potential access to European Union (EU) financial support, carried out through purchase of Italy’s bonds to alleviate market tensions on its debt, was the carrot. The threat of having to enter formalized, explicit conditional lending programmes with the International Monetary Fund (IMF) to avoid default was the stick. Market discipline was the operating mechanism that made implicit conditionality effective, and the role of monitoring by the EU was pervasive. Developments described in this chapter seem to support a revitalization of the fusion hypothesis between EU and member states,at least in the eurozone.
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Notes
- 1.
See Babb and Carruthers (2008) for a review.
- 2.
Caraway et al. (2012) show the relevance of looking also at the actual content of loan contracts, rather than only at MoUs.
- 3.
At the end of 2012, the ECB held Italian government bonds worth €102.8 billion, out of a total of €218 billion of bonds purchased between 2010 and 2012 through the programme (ECB 2013).
- 4.
The letter was leaked to the Italian daily Corriere della Sera, where it was published in late September, see Draghi and Trichet (2011). All quotations from there.
- 5.
The decree disregarded completely the issue of income protection in case of unemployment, mentioned in the ECB letter.
- 6.
At the end of the summit, the President of the France, Sarkozy, and the Chancellor of Germany, Merkel, made clear that they did not trust Berlusconi to keep his word. The President of the European Council, Van Rompuy, declared that he had asked the Italian government for reassurance that the measures announced would actually be enacted.
- 7.
In an interview to the Italian daily La Stampa, ECB governing council member Yves Mersch said, “If we observe that our interventions are undermined by the lack of effort on the part of national governments, we have to pose ourselves the problem of incentives”, and replying to the interviewer’s question if this meant that ECB would stop purchasing Italian bonds if the government failed to implement promised reforms, he stated “If the ECB governing council reaches the conclusion that the conditions that led it to take a decision are no longer there, it is free to change such decision at any time. We discuss this all the time” (Mastrobuoni 2011, own translation).
- 8.
For a reconstruction of the decision-making process and a discussion of the main contents of the reform, see Sacchi (2013).
- 9.
It is to be recalled that there is no severance payment in Italy.
- 10.
Cited in Spiegel (2012).
- 11.
See, for instance, the 2011 country-specific recommendations issued in the context of the European Semester just a few weeks before the ECB letter (Council 2011c).
- 12.
Source: Bloomberg.
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Sacchi, S. (2016). Conditionality by Other Means: European Union Involvement in Italy’s Structural Reforms in the Sovereign Debt Crisis. In: De La Porte, C., Heins, E. (eds) The Sovereign Debt Crisis, the EU and Welfare State Reform. Work and Welfare in Europe. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-58179-2_7
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