This article 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 European Union (EU). Actual or potential access to 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 in order 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 article seem to support a revitalization of the fusion hypothesis between EU and member states – at least in the eurozone.
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Caraway et al (2012) show the relevance of looking also at the actual content of ‘loan contracts’, rather than only at MoUs.
At the end of 2012, the ECB held Italian government bonds worth 102.8 billion euro, out of a total of 218 billion euro of bonds purchased between 2010 and 2012 through the programme (ECB, 2013).
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.
The decree disregarded completely the issue of income protection in case of unemployment, mentioned in the ECB letter.
At the end of the summit, the President of 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.
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).
For a reconstruction of the decision-making process and a discussion of the main contents of the reform, see Sacchi (forthcoming).
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Financial support from the Collegio Carlo Alberto (project ‘Flexicurity Reforms in the EU’) is acknowledged, and from the Italian Ministry of Education, University and Research (project ‘Economic Crises and Quality of Democracy in Europe’). Elements of this article have been presented in conferences and workshops in Europe, Japan and the United States – thanks to all the participants for their comments. Special thanks to David Natali and Josef Hien. The article was written while holding the Luigi Einaudi Visiting Chair at Cornell University, Cornell Institute for European Studies, whose generous support and warm hospitality I gratefully acknowledge.
We have updated some references in this final version.
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Sacchi, S. Conditionality by other means: EU involvement in Italy’s structural reforms in the sovereign debt crisis. Comp Eur Polit 13, 77–92 (2015). https://doi.org/10.1057/cep.2014.42
- implicit conditionality
- eurozone crisis
- structural reforms
- fusion hypothesis