When looking at some major contested issues emerged during the Euro crisis negotiations, it comes to light that the positions held by Italy on matters of fiscal discipline partly differ from those of the other South European countries and – somewhat surprisingly – seem to point to a preference for stricter discipline which is at odds with the country’s high level of public debt. Based on a new study of Economic and Monetary Union reforms negotiated between 2010 and 2015, Cecilia Emma Sottilotta argues that the “vincolo esterno” principle, a plausible explanation for this puzzle, can be dismissed in favor of Italy’s determination to avoid a formal bailout at all costs. The decisions made at the time and the lack of involvement of the parliament in the decision making process are likely to have an impact on Italy’s stance on future integration steps.
For most of its recent history, Italy has been characterized by high public debt; nonetheless, the country has also always had a good reputation in terms of debt management. Moreover –somewhat ironically – the relative isolation and ‘backwardness’ of the Italian banking sector coupled with effective supervision carried out by the Bank of Italy and a large stockpile of domestic savings and household wealth meant that when the crisis hit, Italy was better equipped than other South European countries to cope with financial turmoil. Nevertheless, as European bond markets began to show signs of nervousness, financial stability inevitably came to the fore as a major concern for Italy, whose debt/GDP ratio totaled 115.8% in 2009, an increase of over ten percentage points vis-à-vis the previous year.
While prominent scholars of European integration suggest that the preferences of national governments regarding European integration have typically reflected concrete economic interests rather than other general concerns like security or European ideals, Italy’s positions during the negotiation of the Stability and Growth Pact Reform (namely the so-called Six Pack, Two Pack and Fiscal Compact) constitute a puzzle, as they went in the direction of stricter pro-austerity rules rather than more flexibility
How to account for them? A first possible answer lies in the concept of “vincolo esterno”, that can be defined as the strategic – and distinctive – use of external constraints made by Italian policy makers with the ultimate purpose of triggering domestic change. The “vincolo esterno” principle was introduced by prominent policy-maker (and Treasury Minister at the time of the Maastricht Treaty) Guido Carli, who was convinced that only the external conditioning embodied by the European Union could “save Italy from itself” by fixing the country’s dysfunctional economic and entrepreneurial system. A firm belief in the possibility and indeed desirability of “importing” macroeconomic discipline and credibility by joining the EMU – reinforced by the overwhelmingly pro-European attitude of the public opinion – indisputably influenced the orientations of Italian élites during the negotiation of the Maastricht Treaty.
In fact, as argued by scholars of Italy-EU relations, the articulated policy priorities set by Italy in the intergovernmental conference leading to the Maastricht treaty were on all counts consistent with this doctrine.
Compelling as the “vincolo esterno” explanation would be, however, the results of the research conducted in the framework of the EMU Choices project lend little support to it. Other factors seem to have been crucial in shaping Italy’s positions. In particular, it should be recalled that at the time of the negotiation of the Six Pack and of the Fiscal Compact, Italy was struggling to regain credibility in the eyes of international markets and of the other EU countries, Germany in particular. Thus, although it would have been plausible to expect Italy to oppose an excessive tightening of the rules, the top priority for the Italian government at the time was to restore credibility, hence the commitment to austerity measures as a way to send a clear message to other EU governments and calm down turbulent financial markets. “Damage control”, that is extricating the country from a critical situation while at the same time containing the impact of external pressures, rather than using them strategically to induce domestic reform, was the primary objective of Italy’s government during the negotiations.
This also meant that the parliament was essentially marginalized throughout the whole phase of the euro crisis negotiations. The perception of a ‘national emergency’ explains why there was very little debate and virtually no opposition to the constitutionalization of the debt brake (required by the Fiscal Compact), while austerity measures such as a reform of the pension system promoted by Monti’s technocratic government were approved by the Parliament with a comfortable majority. On the other hand, it should also be noticed that, as one interviewee put it, ‘the engagement of the Parliament…[ was] very much dependent on the level of competence of MPs’ which was not necessarily high, especially considering the technical nature of the issues discussed during the negotiations. Unsurprisingly, the flow of information between government and Parliament before the relevant meetings at the EU level was also typically poor.
Fast forward a few years, and one of the unintended consequences of this lack of debate is that austerity measures became an extremely salient and contested issue in the run up to the March 2018 general election. In fact, scrapping the pensions reform was a key pledge for the anti-establishment Five Star Movement and the far-right Northern League, which ended up joining forces to form a coalition cabinet. This might mark a turning point in Italy’s positions vis- -à-vis further economic and financial integration as well as its future relationship with the EU.
For more information, see the author’s chapter on Italy and the Euro crisis negotiations in the forthcoming book “Southern Europe and the Politics of the Euro Crisis Negotiations: A Comparative Reappraisal” (Palgrave) co-edited with Leonardo Morlino