Framing the Eurozone Crisis: A Case of Limited Ambition

Abstract

The eurozone crisis provided a new opportunity for obtaining supranational fiscal integration within the European single currency area. This study applies a framing analysis to the crisis discourse that emerged from within the European Union’s (EU) intergovernmental forums involved in fiscal policy coordination. As well as linking policy frames to two different integration scenarios for the Economic and Monetary Union (EMU), the broader influence of macroeconomic ideology is also emphasised. It is found that the response to the intensification of the crisis in Europe was to employ framing devices supporting intergovernmental fiscal discipline. While there were emergent supranational discourses over the longer term, these were reflective of a limited reform ambition. A key constraining factor here were the sovereignty concerns and issues of moral hazard circulating amongst member states, which together have ensured that a supranational fiscal policy is unlikely to be obtained in Europe. 

Introduction

This article considers
the response from within the intergovernmental forums to the eurozone crisis
and the future prospects for fiscal supranationalism in Europe more broadly. When
political scientists have turned their attention to the politics of the crisis,
it has often figured as a case study to support the grand theoretical claims
made by the ‘new intergovernmentalism’ (Bickerton et al. 2015; 2015a). This approach has tried to theorize a new paradox
in European integration in the post-Maastricht era: ‘Member States
pursue more integration but stubbornly resist further supranationalism’
(Puetter 2012, 168). Certain institutional dynamics associated with the new intergovernmentalism can be found
to be at work within EMU where, particularly since the onset of the crisis,
there have been marked increases in intergovernmental policy coordination
within the European Council and ECOFIN Council structures (Hodson 2011; Puetter
2012). However, the approach is still at an early stage of development and deep
empirical analysis of the political deliberations and policy environment within
these settings are still lacking. Further criticisms have been made. In
particular, Schimmelfennig (2015, 724) points out that, ‘They do not
distinguish intergovernmentalism and supranationalism by the integration
outcomes (either substantive or in terms of the level or scope of
integration)’. Thus, claims of an ‘integration paradox’ taking place within EMU
specifically or across the wider EU remain uncertain.

This article
focuses on the issue of EU fiscal governance reform following the
intensification of eurozone crisis. The
potential role of ideas as engines of policy change within EMU is a prospect taken
seriously here (Dyson 2000). With this in mind, the discursive institutionalist theoretical
framework proposed by
Schmidt is employed (Schmidt 2008, 2010). This approach is well suited to
considering the role of ideas and discourse interactions in bringing about
change in an EU institutional context (see Schmidt 2015). It is applied
through a framing analysis of the reform discussions that emerged from within
the key intergovernmental forums involved in guiding the crisis response
(Goffman 1974). This article identifies
the dominant policy frames (‘problems’ and ‘solutions’) organising the reform
debate, and links them to two alternative reform paths for EU fiscal
governance: intergovernmental and supranational. In doing so, this article
clarifies far more precisely the different political and economic policy
options for reforming EMU governance, as well as previously underdetermined
concepts such as ‘fiscal union’ and ‘political union’. As well as linking
individual policy frames to different integration scenarios, the important role
of macroeconomic ideology in guiding framing preferences is also emphasised.

Theoretical and Methodological Framework

It could be
assumed that the eurozone crisis would confirm neo–functionalist beliefs concerning the dynamics of the
European integration process: the weaknesses
revealed in the asymmetric single currency area create strong pressures for a functional ‘spillover’ of supranational
competencies to the European level (Rosamond 2005). However, when
political scientists have turned their attention to the crisis, it has often
been directed at the intensified intergovernmental policy coordination that has
taken place within the European Council and ECOFIN Council (Hodson 2011; Puetter
2012; Bickerton et al. 2015; 2015a). While broader new intergovernmentalist claims of an ‘integration paradox’ in
Europe involving integration without supranationalism remain undetermined (see
Schimmelfennig 2015), these findings do suggest that deep supranational
integration may not be obtained in EMU. Moreover, it has previously been found
that a supranational reform agenda was not internalised by the Commission[1].
Together these findings are important as the long-term sustainability of the
single currency area without significant steps being taken towards a more
deeply integrated fiscal union has been questioned (De Grauwe 2013). Through a
framing analysis this article will seek to explore if the crisis response from
within the intergovernmental institutions was to push for supranationalism
within EU fiscal governance, or alternatively, a retaining of intergovernmental
control at the EU level. And, if the later course prevails, it will seek to
offer a more complete theoretical explanation of why member states continue to
resist supranationalism, even in the face of significant centralisation
pressures. A
deeper understanding of the political determinants of the EMU policy
environment will also help facilitate a more complete explanation of why a
supranational reform agenda was found not to have been internalised within DG
ECFIN.

The overarching theoretical
framework informing this analysis is discursive institutionalism (Schmidt 2008;
2010). Of particular relevance here is the distinction made by discursive
institutionalism between ‘coordinative discourse’—which
takes place internally within the EU policy making setting—and ‘communicative discourse’—which take place externally between EU policy
actors and the general public (Schmidt 2005). This study integrates discursive
institutionalism alongside a frame analysis. Framing has been criticised for
its lack of consistency in application of theory and method, with many
different variants being operationalised without adequate clarification (Cacciatore et al. 2016). Framing has also been found
to share common processes with agenda-setting and priming, although framing
offers a more ‘encompassing conceptual approach’ (Aday 2006, 768). Here, a
sociological approach to framing is adopted, which can be traced back to the
work of Goffman (1974). A frame is understood as a ‘schemata of interpretation’,
which can shape actors’ perceptions of reality and, in turn, influence political
behaviour (Goffman 1974, 21). Inspired by Goffman’s approach, Benford and Snow
(2000) make an important distinction between ‘prognostic’ and ‘diagnostic’
framing: the construction of particular problem representations and possible solutions. This is valuable for
facilitating a deeper understanding of the diagnosis of the causes of the
eurozone crisis arrived at, as well as an exploration of the interlinking
reforms suggested to solve or at least deal with the problems posed by the
eurozone crisis. 

Ideas within frames can be understood as occurring at different levels of generalisation: specific policy ideas related to problem and solutions (e.g. strengthened rules-based surveillance versus debt mutualisation); normative ideas which attach value to political action (e.g. fiscal discipline versus fiscal solidarity); and finally these can be connected to programmatic ideas related to broader policy paradigms and ideologies (Schmidt 2005; 2008). As a means to locate the key framing ideas that are likely to figure in the institutional discourse on the eurozone crisis, a wider review of the reform literature on EU fiscal governance will be completed (see the section below, ‘Literature Review’). Table (1) helps to link the different problem and solution policy frames that will be uncovered as part of this discussion to two different integration scenarios for EMU: intergovernmental and supranational. As well as showing how ideas relate to different policy measures (problems and solutions) and normative arguments, the wider role of macroeconomic ideology in guiding framing preferences for EMU reform is also highlighted here. Following a framing analysis, the dominant frames uncovered will also be explored in relation to the wider interplay between ideas and institutions within EMU[2].

 Two guiding macroeconomic
ideologies are important for understanding developments in European monetary
integration: neoliberalism and Keynesianism. Neoliberalism is a highly
contested term, although from an ideological standpoint it favours market based solutions and methods over government intervention
(Holden 2011). In
contrast, perhaps the most important insight of Keynesianism is the recognition of the need for demand management by the state both
in economic downturns and booms (Skidelsky 1992, 572-624). Keynesian theory,
therefore, demands a far more active role for the state in managing the economy
through fiscal policy. Neoliberal
ideas have been found to have become deeply embedded within the EMU policy
framework, including the prevalence of ‘sound money’ and ‘sound finance’ ideas imparting fiscal
discipline (Dyson 2002). There
is no prior reason why neoliberalism should be associated with
intergovernmentalism and Keynesianism with supranationalism. However, when applied to events
taking place during the eurozone crisis, a Keynesianism philosophy demands a
level of centralised fiscal solidarity amongst member states, which would imply
edging towards a more supranational model of fiscal integration. On the
contrary, building on, rather than replacing, the Stability and Growth Pact
(SGP) arrangements for fiscal discipline would preserve the intergovernmental
logic of EMU governance, and is more aligned with neoliberal preferences.

The focus here is on the framing activities that took
place within the European Council and ECOFIN Council (shadowed by the informal
‘eurogroup’), althoughthese frames will also be located in
the context of the wider crisis discussions taking place within the EU
Commission and ECB settings. The analysis distinguishes between two distinct phases of the eurozone
crisis: a crisis ‘escalation’ and crisis ‘normalisation’ phase. The crisis
escalation phase can be traced back to the intensification of the global
financial crisis in the summer of 2007. With attention focused on the frailties
of the American financial system, the eurozone economy at first assumed a
‘safe-haven’ status for many commentators (Wyplosz 2009)—although
there was some prescient warnings as to the multiple risks the downturn could
pose to the institutions of the European single currency area (Feldstein 2008).
In early 2010, following significant upwards revisions in the budget deficit
figures for Greece,  there was a sudden erosion
in market confidence in the Eurozone leading tolong-term
government bond yield spreads increasing dramatically for the periphery member
states (Checherita et al. 2010). With
the risk of sovereign default and uncontrollable contagion effects
at its most serious, the President of the European Council, Herman Van
Rompuy, swiftly put together a case for the supremacy of a European Council led
Task Force in guiding a ‘fast-track’ process for EMU reform.  

By the fall of 2012, market reactions
towards the eurozone had normalised significantly. Key
here was the ECB fulfilling its function as a lender of last resort (De Grauwe
2016, 126-141), which was aided by Mario Draghi’s statement at the end of July 2012 that
‘[w]ithin our mandate, the ECB is ready to do whatever it takes to preserve the euro’. In response to the calming
in market conditions, the attention of European leaders switched to the
measures required to stabilise EMU over the longer term. Laying the
foundations for these reform discussions were two strategic documents: the
December 2012 report, prepared at the request of the European Council by
President Van Rompuy, jointly with the Presidents of the European Commission,
the ECB, and the Eurogroup, entitled Towards a Genuine Economic and Monetary
Union and the Commission’s own A Blueprint for a Deep and Genuine Economic and
Monetary Union: Launching a European Debate, published in November 2012. Building on the previous
documents, in June 2015, the President of the Commission, in close
cooperation with the Presidents of the Council, the ECB, the Eurogroup and the
European Parliament, presented the so-called ‘Five Presidents’ Report’ entitled
Completing Europe’s Economic and Monetary
Union. Official documents and
speeches throughout these deliberation phases will be supplemented by a
series of semi-structured interviews that were conducted with senior EU officials
located within the European Council, ECOFIN Council and DG ECFIN during the
most important phases of the crisis. It is important to differentiate between
the full internalisation of discourse within institutions and discourse that is
deployed in rhetoric as a strategic political device (Hay 2006). Interview data
is then useful for forming a comparison between communicative discourses to the general public and the internal coordinative
discourses of policy construction taking place among policy actors (Schmidt
2008).

Literature Review

The escalation of
the Eurozone crisis in 2010 fixed attention on the design failures of the
eurozone and the practicalities of having a monetary union without the
accompanying integration of the fiscal side (De Grauwe 2013). Since 2010, most
of the reform proposals suggested to complete the architecture of EMU have
centred on the prospect of implementing two neo-Keynesian fiscal solidarity
mechanisms: 1) centralised fiscal capacity (or federal budget) for
stabilisation purposes; 2) and the introduction of debt mutualisation schemes.
A Policy Contribution for Bruegel details the four main options for developing
a fiscal capacity for the eurozone with stabilisation functions: 1)
unemployment insurance; 2) payments related to deviations of output from
potential; 3) the narrowing of large spreads; 4) and discretionary spending
(Wolf 2012). Suggestions for debt mutualisation include the so called European
Safe Bonds (Euro-nomics group 2011) and Redemption bonds (Bofinger et al. 2011). In view of the salient
features of fiscal policy, it is understood as imperative that progress towards
a more supranational fiscal union is accompanied by deeper political
integration to guarantee the democratic legitimacy of EMU governance (Schmidt,
2015).

Despite calls
being made for EMU to be completed through a process of supranational fiscal
integration, there is an altogether different integration route that would
maintain the intergovernmental logic of fiscal arrangements in Europe.
Neoliberal monetarist principles are pervasive here, with discussions of fiscal
solidarity being disregarded in favour of a limited fiscal discipline agenda
(von Hagen et al. 2009; 2011). The main concern under this integration scenario
is with heightened budgetary surveillance and enforcement mechanisms, which could
be secured under the preventative and corrective arms of the pre-existing SGP
framework. The fundamentally decentralised character of EU fiscal governance
would also be preserved. In the literature, support for such a limited reform
agenda is often supported by a belief that the
eurozone crisis was primarily the result of excessive fiscal profligacy in
the periphery member states (Sinn 2010). Of course, the distinct lack of
political integration envisioned here would mean that channels of democratic
legitimacy would remain largely indirect via member state governments.

Through this
discussion of the literature, two reform scenarios for EMU have been
identified: intergovernmental and supranational. These two models can be
understood as being supported by a selection of different policy frames, implying different definitions of what the problem is and different ideas of what the suitable policy solutions may be (see Table 1). First, the intergovernmental reform scenario is
guided by a simplistic fiscal profligacy diagnosis of the eurozone crisis. Such
an interpretation of the crisis strongly implies neoliberal policy solutions in
the form of strengthened rules-based fiscal discipline. Framing the crisis in
these more limited terms may also be both politically and intellectually
attractive. This is because these frames do not demand challenging integration
steps being taken towards a deeper level of fiscal
and political union. Alternatively, the more far
reaching supranational reform scenario is informed by a broader interpretation
of the crisis problem as a problem of regional imbalances. In turn, possible
solutions are understood as going far beyond neoliberal fiscal discipline in
the direction of the implementation of neo-Keynesian solidarity measures, including debt
mutualisation and an enlarged EU budget. The need to ensure the democratic legitimacy for decisions taken at the Union
level is also problematized under this integration scenario, leading to demands
for the simultaneous development of a flanking political union.

Table 1: Framing the Eurozone Crisis

Building on [name deleted
for peer review]

Framing the Eurozone Crisis 

Crisis Escalation Phase

Following the intensification
of the global financial crisis in July 2007, the eurozone was at first
considered by some to be a ‘safe haven’ (Wyplosz 2009). With the full implications of the deepening global financial crisis for
the eurozone not yet apparent, the crisis problem was initially framed
by European leaders as one created externally by the financial excesses built-up
within the ‘Anglo-Saxon’ economies. As one DG ECFIN official observed, ‘Governments
believed the crisis to have originated primarily in poor regulatory practices
in New York and London…and Europe was being pulled into the crisis through
the global financial system’ (Secretariat Official in DG ECFIN 2 2013). A
similar sentiment was also reflected in more communicative discourse as
European leaders attempted to externalise the crisis. The German Chancellor,
Angela Merkel, was uncompromising in asserting before the German Bundestag that
‘excessively cheap money in the US was a driver of today’s crises’ (Financial
Times 2008). Moreover, French President, Nicolas Sarkozy, proclaimed in similar
terms that ‘the crisis was a product of the Anglo-Saxon model’ (Financial Times
2009).

Despite European
leaders framing the 2008 financial collapse as an almost exclusively
‘Anglo-Saxon’ phenomenon with epicentres in New York and London, European
leaders, led by Nicolas Sarkozy as the then acting president of the Council,
did push for a strong coordinated European response alongside the G20 and American
economies (Hodson 2011). In this early period, the framing of solutions to the
crisis in Europe, overlapping with the international response and IMF
recommendations, was guided heavily by Keynesian principles as leaders sought
to avert financial contagion and recessionary spillovers into the real economy
through coordinated fiscal expansion. In Europe, this translated into an
attempt to combine both national and EU resources to ‘support demand’ and
‘cushion economies from the worst effects of the financial meltdown’ (Secretariat
Official in DG ECFIN 1 2013). In November 2008, after an extraordinary summit
of the euro area Heads of Government led by Nicolas Sarkozy, the Commission proposed a Keynesian ‘European
Economic Recovery plan’ (ECRP), which championed a substantial coordinated
fiscal stimulus: ‘The Commission is
proposing that, as a matter of urgency, Member States and the EU agree to an immediate
budgetary impulse amounting to € 200 billion (1.5% of GDP)’(Commission
2008).

Importantly though,
a key principal underpinning the plan was that any budgetary stimulus should be
‘timely, targeted, and temporary’—and
that ‘Member States should commit to reverse the budgetary deterioration and
return to the aims set out in the [SGP’s] medium term objectives’ (Commission
2008, 6-7).  As Joaquín Almunia, Vice President of the European Commission, commented
at the time: ‘we have red lines, we cannot put
an excessive burden on the next generation’ (Commission 2008a, 6).
Similarly, the conclusions of the ECOFIN Council continued to support the
long-term application of the SGP: ‘we remain fully committed to
sound and sustainable public finances. The Stability and Growth Pact provides
adequate flexibility to deal with these exceptional situations’ (Council 2009).
Thus, while European leaders led by Nicolas Sarkozy, along with the broader international
community, embraced more Keynesian orientated fiscal stimulus in order to counter
the expected downward trend in demand presented by the intensification of the
global financial crisis, the long-term European commitment to the neoliberal
rules-based SGP framework remained relatively stable during this early crisis
period.

 In the Spring of 2010 Greek public debt was
downgraded by the main credit rating agencies to junk status and a growing
spread in yields emerged in Eurozone sovereign bonds (Checherita et al. 2010). Recalling these events later, President
Van Rompuy noted that this sudden loss of confidence in the Eurozone provoked
by Greece was a ‘real shock’ for which ‘we were not prepared’ (Council 2014). As
one official in DG ECFIN remarked: ‘It was now internal: a crisis of the
Eurozone’ (Secretariat Official in DG ECFIN 2 2013). As the crisis intensified
within the eurozone it was reframed by European leaders as a problem of fiscal
profligacy amongst the periphery member states. On 11 February 2010, in a short
emergency statement issued by Heads of State, they remarked that ‘all euro
members must conduct sound national policies in accordance with the agreed
rules’ (Council 2010). The discussion was also centred on Greece, with the
Greek government being told ‘to implement all these measures in a rigorous and
determined manner to effectively reduce the budgetary deficit by 4% in 2010’
(Council 2010). From a reading of the coordinative discourse, it was now
Germany that was seen to be providing ideational leadership for framing the
crisis in behavioural terms on Greek fiscal profligacy.

As the largest eurozone country of
course Germany’s voice was perhaps louder than the rest. I think it is fair to
say that there was a perception in Germany that the troubles in the sovereign
debt market had been caused by excessive government spending by certain
periphery member states. (Council Directorate for Economic Policy Official
2013).

The Commission
also concurred with these views. In fact, the EU executive took the
unprecedented step of issuing a series of strict recommendations to ensure
that the budget deficit of Greece was brought below 3% of GDP by 2012
(Commission 2010a). Joaquín Almunia, Vice President of the European Commission, commented
that ‘this is the first time we
have established such an intense and quasi-permanent system of monitoring’
(Commission 2010a).

In response to the
escalating crisis in the eurozone, President Van Rompuy argued the case in
March 2010 for the pre-eminence of a European Council led Task Force in driving
reform negotiations on EMU governance. The framing of policy solutions within
the framework of the Task Force setting was guided more by a neoliberal
ideology towards the imposition of strengthened intergovernmental fiscal
discipline. In the first statement issued by the Task Force on the 25 March
2010, the shift in policy responses by European leaders was already firmly
established: ‘the current situation demonstrates the need to strengthen and
complement the existing framework to ensure fiscal sustainability in the euro
zone’ (European Council 2010b). Moreover, the final conclusions of the March 2010
European Council summit further instructed the Task Force ‘to identify the measures needed to reach the objective of an improved crisis resolution
framework and better budgetary discipline…exploring
all options to reinforce the existing legal framework’ (European Council
2010a).

Again, in the coordinative
discourse, officials drew attention to the renewed ideational leadership played
by Germany in framing policy solutions for the crisis:

You have to understand that for
Germany in particular the idea of having enforceable rules and sanctions to
maintain budgetary discipline is central to their vision of how EMU should
operate. And during the crisis it was Germany that pressed the hardest for
heighted budgetary surveillance (Member of the Cabinet for the European Council
President, 2014).

A separate official
commented on what they perceived as the inevitably of Germany’s leading role in
setting the reform priorities within the task force: ‘But of course Germany
takes a leading role here in view of its economic size. So Germany
automatically was seen to take on a leading role, whether it wanted it or not
‘(Council Directorate for Economic Policy Official 2013). In contrast, French
President, Nicolas Sarkozy led continued pleas for more fiscal solidarity: ‘The
euro is our currency. It implies solidarity. There can be no doubt on the
expression of this solidarity’ (BBC 2010). However, while it has been observed
that ‘France under the stewardship of
Sarkozy also had a role to play here’, it has been noted that he, in effect,
was ‘forced to concede too many of Germany’s demands during the crisis
deliberations’ (Council Directorate for Economic Policy Official 2013). Thus,
while Nicolas Sarkozy played an important role in leading a more Keynesian international
response at the onset of the global financial crisis, as the crisis intensified
within the eurozone the French President was forced to abandon solutions
involving fiscal solidarity in favour of Germany’s more limited fiscal
discipline objectives.  

These framing
priorities were reflected in the Final Report of the Task Force released to the
public in October 2010. The main pillar of the suggested reforms was geared
towards ‘greater fiscal discipline… through a stronger stability and growth
pact’ (European Council 2010, 3-4).  As
part of its ongoing institutional dialogue with the Task Force, the ECB also
offered its public support for legislative measures supporting a more rigorous ‘quasi-automatic’ implementation
of the SGP rules (ECB 2010). Three key objectives were embedded in the
Final Report of the Task Force: ‘the need for a greater focus on debt and
fiscal sustainability’, ‘to reinforce compliance’ and ‘to ensure that national
fiscal frameworks reflect the EU’s fiscal rules’ (European Council 2010, 1-12).
In remarks following the final meeting of the Task Force, President Van Rompuy
documented that the ‘task force’s commitment to a stronger Pact was high from
the beginning to the end’ (European Council 2010c). Converging with the framing
 activities of the Task Force, in
September 2010 the Commission proposed the so-called ‘six-pack’ of legislative proposals
centred on the concept of ‘prudent fiscal policy-making’ (Commission 2010, 1). These
‘fast-tracked’ proposals sought to strengthen the impact and effectiveness of
the preventative arm of the SGP by giving it ‘teeth’ (EU Commission 2010, 4-5).
These early framing activities led by deliberations within the Task Force also helped
set the subsequent policy agenda in the form of a legislative ‘two-pack’
(proposed in November 2011) and intergovernmental ‘fiscal compact’ (agreed 8-9
December 2011). Building on the legislative six-pack, both measures were
limited to strengthening intergovernmental fiscal discipline under the SGP,
through strengthened budgetary surveillance and reinforced compliance (see Commission
2012).

Crisis Normalisation Phase

From the summer of 2012
to the winter of 2013 there was a gradual reduction in the eurozone periphery
bond yield spreads. Key here was the ECB fulfilling its
function as a lender of last resort (De Grauwe 2013; 2016). With the ECB able
to temporarily normalise market reactions within the eurozone, it offered the
prospect that European leaders may seek to reframe the crisis as demanding more
supranational solutions. This assumption appeared to be confirmed when
President Herman Van Rompuy, following a European Council summit at the end of
June 2012, first mentioned the prospect of laying down a ‘longer-term vision’
for strengthening EMU (European Council 2012c). Following prior negotiations in the European Council, President
Van Rompuy, jointly with the Presidents of the European Commission, the ECB,
and the Eurogroup, presented in December 2012 a report entitled Towards a
Genuine Economic and Monetary Union.
However, despite the possibility of a critical juncture event, the framing of policy
solutions within the report continued to prioritise the strengthening of
intergovernmental fiscal discipline over the short-term.

The
near term priority is to complete and implement the new steps for stronger
economic governance…The other elements related to strengthening fiscal
governance in the euro area (‘Two-Pack’), which are still in the legislative
process, should be finalised urgently and be implemented thoroughly (European
Council 2012, 8).

These reform
priorities were also reflected in the coordinative discourse: ‘The priority has
remained the implementation of the measures contained in the ‘‘six-pack’’ and ‘‘two-pack’’
proposals’ (Council Directorate for Economic Policy Official 2013). And again,
Germany’s ideational leadership in framing policy solutions was observed to be
pivotal here: ‘There is an understanding amongst member states that budget
discipline has to be ensured before more financial support can be offered. This
is also a German insistence’ (Council Directorate for Economic Policy Official,
2013). Moreover, while the ECB internally called for a ‘quantum leap’ in
integration within EMU, this was strictly interpreted in terms of ‘further
strengthening the budgetary discipline of the euro area Member States’ (ECB
2012:8).

When discussing
the reform solutions for implementation over the long-term (five years and
more), there was a shift in the discourse of the Towards a Genuine Economic
and Monetary Union report towards the language of supranationalism.
However, these framing devices were only reflective of a limited reform
ambition. For example, the report mentions the possibility of gradually
developing a ‘fiscal capacity’, which could help ‘cushion the impact of
country-specific shocks’ and ‘prevent contagion across the euro area’ (European
Council 2012, 9). Yet the precise form that any fiscal capacity should take
within the euro area was left vague, with the report acknowledging that ‘the
exact conditions and thresholds for the activation of transfers would need to
be studied carefully’ (European Council 2012, 11). Moreover, it was also
emphasised that the development of a fiscal capacity within the eurozone should ‘not lead to permanent transfers between countries’ and that this
process should occur ‘without resorting to the mutualisation of
sovereign debt’ (European Council 2012, 10-12). Tellingly, within the
subsequent Conclusions of the December 2012 European Council, any mention of a
fiscal capacity or shock absorption function for EMU was omitted, along with
plans for debt-mutualisation (European Council  2012a).

In the
coordinative discourse, officials were able to account for the limited ambition
shown in framing supranational solutions to the eurozone crisis by pointing
towards a mixture of sovereignty concerns and issues of moral hazard amongst
member states. For example, one official highlighted the constraining influence
of these national interest ideas on integration within EMU:

A degree of debt mutualisation or financial risk sharing could, in
theory, help lower borrowing costs amongst the periphery member states and help
ward off pressure from the financial markets… but
it effectively means the transfer of sovereignty, at least to some extent. That
is the biggest obstacle: that is what it is all about. In the end it comes down
to sovereignty and money (Council Directorate for Economic Policy
Official 2013).

Similar ideas were
raised by one official who, when asked to comment on the probability of
securing supranational fiscal integration, answered candidly: ‘I think it is not very probable because of state
sovereignty concerns’ (Advisor to the Cabinet of the European Council President
2014). The official argued that this is because a ‘fiscal union with tax powers
going
to the European Union level would be completely turning upside down the way the
Union is currently running’ (Advisor to
the Cabinet of the European Council President 2014).
A separate official also drew attention to the importance of ‘concerns of moral
hazard’, predominantly amongst the ‘core member states who want to be able to
influence the periphery member states’ debt situation’ (Member of the Cabinet for the European Council
President 2014).

There were also discussions in the Towards a Genuine Economic and
Monetary Union report concerning the development of a
flanking ‘political union’ aspect, although again the supranational framing of
the discourse was lacking in ambition.  In
order to underpin the ‘democratic legitimacy and accountability’ of decision
making the report called for the ‘the involvement of the European Parliament as
regards accountability for decisions taken at the European level’, while at the
same time ‘maintaining the pivotal role of national parliaments, as
appropriate’ (European Council 2012, 16-17). The promise to maintain a
‘pivotal’ role for national parliaments, even in the event of a vertical
transfer of powers to the European level, would appear to stem from an
observation made in the report that ‘decisions on national budgets are at the
heart of Member States’ parliamentary democracies’ (European Council 2012, 16).
The report, then, explicitly divorced itself from supranational political
solutions. In the coordinative discourse, sovereignty concerns were again
raised as major hurdle to political integration: ‘People have different interests and different concepts of what a
political union would be and as to what sovereign powers should be transferred’—adding
that ‘we are not even discussing this’ (Council Directorate for Economic
Policy Official 2013).

In November 2012 the Commission published its own Communication
outlining A blueprint for a deep and genuine economic and monetary
union: Launching a European Debate. Converging with the Van Rompuy report, the
immediate framing of policy solutions was restricted to fiscal discipline
objectives: ‘immediate priority should be given to
the full deployment of the new economic governance tools brought by the ‘‘six-pack’’
as well as rapid adoption of current Commission proposals such as the ‘‘two-pack’’
(Commission 2012, 12). Once again, like the Van Rompuy report, the
blueprint did cautiously embed more supranational frames when addressing the
long-term reform agenda for EMU (five years and more). This is in keeping
with the EU Commission’s pledge that ‘steps towards more responsibility and
economic discipline should be combined with more solidarity and financial
support’ (EU Commission 2012, 11). Accordingly, the framing of solutions
shifted to demand more in the way of fiscal solidarity, with tentative ideas
for a ‘fiscal capacity’ (or ‘federal budget’) and even ‘debt mutualisation’
schemes being  aired as possibilities ‘to
support member states in the absorption of economic shocks’ (Commission 2012,
25-26). However, these solidarity mechanisms were envisioned as being implemented
strictly after the new arrangements for fiscal discipline have been fully
implemented. Also, the procedural details and legal basis for the solidarity
mechanisms was left vague, with proposal covering options from ‘contractual
arrangements’ to an ‘insurance’ type system. As one official commented: ‘I
think there needs to be some ingredients of fiscal union. It’s not entirely
clear which ones and to what extent; there are different views and these are
tricky questions’ (Senior Fiscal Policy Advisor in DG ECFIN 2013).
Moreover, the blueprint also shied away from committing itself to any process
of supranational political integration, with the EU Commission arguing that the
‘the Lisbon Treaty has perfected the EU’s unique model of supranational
democracy’ (Commission 2012, 35). 

In June 2015, the
President of the Commission, in close cooperation with the Presidents of the
Council, the ECB, the Eurogroup and the European Parliament, presented the
so-called ‘Five Presidents’ Report’ entitled Completing Europe’s Economic and Monetary Union. It is notable that
in the updated report the framing of policy solutions for fiscal integration
was even less ambitious than it had been in earlier institutional reports
drafted during earlier periods of the crisis. Apart from repeating the
need to improve compliance with the new rules contained in the ‘six-pack’,
‘two-pack’ and Treaty on Stability, Coordination and Governance, there were no
institutional innovations suggested for implementation over the short-term.
Instead, intergovernmental fiscal discipline was again framed as the
priority solution—with repeated
references made to ‘responsible budgetary policies’ (Commission 2015, 14). The
report also warned that ‘every Member State must stick to the rules, or the
credibility of this framework is at risk’ (Commission 2015, 14-15).

 In terms of the framing of solutions over the longer-term
(five years or more), previous references to a ‘fiscal capacity’ and limited
forms of debt mutualisation were completely omitted. Instead, the Five
Presidents tentatively floated the idea of a ‘euro area-wide fiscal
stabilisation function’ (Commission 2015, 14-15). Postponed strictly for ‘in
the longer term’, the development of such a 
function is envisioned as the culmination of a process of ‘convergence’
and ‘further pooling’ of decision-making on national budgets (Commission 2015,
14-155).  The report also cautioned that
‘it should not lead to permanent transfers between countries’ and that efforts
should be made to ‘guarantee it is consistent with the existing EU fiscal framework’
(Commission 2015, 15). Tellingly the report was also explicit that ‘the exact design of such
euro area stabilisers requires more in-depth work’ (Commission 2015, 14). As
part of the Commission Presidents’ 2015 ‘State of the Union’ address, he argued
for ‘a more effective and democratic system of economic and fiscal
surveillance’ (Commission 2015a). However, there was again a noticeable lack of
progress on political union. While the report affirmed ‘a key role
for the European Parliament and national Parliaments’, practical steps to
ensure the democratic legitimacy of decision making were limited to proposals
to consolidate the external representation of the euro and the integration
intergovernmental solutions (i.e. Treaty on Stability, Coordination and
Governance) within the EU legal framework (Commission 2015, 17-18).

Framing in Context

The
dominant framing activities uncovered need to be understood in the context of
the wider EMU policy environment. One of the key
foundations of EMU was the ideational consensus reached in Europe on neoliberal
economic principles in the 1980’s (McNamara 1998). However, while there
developed a relative consensus that monetary policy would function in
accordance with neoliberal principles, very little thought was given during the
deliberations at Maastricht on the 1992 Treaty
on European Union (TEU) as to the possibility of accompanying these
integration steps with progress towards a supranational fiscal union. As Verdun
commented:  ‘Fiscal policy harmonisation
was just simply one step too far; there was no support for a transfer of
sovereignty over these matters to the European level’ (Verdun 1998, 122). From
an early stage, therefore, political necessity dictated that fiscal policy
would remain firmly in the intergovernmental realm. Yet from the perspective of
underpinning EMU with an institutional framework that is in keeping with
neoliberal ideas of ‘sound money’ and ‘sound finance’ (Dyson 2002), European
economic and monetary integration was not completed at Maastricht. It was against this backdrop that the then German Minister
for finance, Theo Waigel, advanced a proposal for a rules-based ‘Stability Pact
for Europe’ in 1996. In summary, owning to the political constraints preventing
fiscal supranationalism, coupled with the importation of neoliberal ideas,
intergovernmental fiscal discipline became institutionalised at heart of EMU
early on.

Since
its formation, the course of EU fiscal governance reform has been characterised
by a strong ‘path-dependency’ (Pierson 1996). In fact, in view of the
path-dependent constraints of the political environment, on top of the
prevailing neoliberal ideational consensus, the rules-based framework for EU
fiscal governance was never seriously challenged by European leaders throughout
the first ten years of the single currency area (see Heipertz and Verdun 2011. While the onset of the eurozone crisis had the
potential to represent a ‘critical juncture’ in the path for EMU integration
(Bulmer 1994), the revival of concerns amongst member states over sovereignty
and moral hazard have continued to render the intergovernmental structure of
EMU a political necessity. However, although the minimal structure of EMU
remains a manifestation of different conceptions of national interest, the
prevailing neoliberal ideology has simultaneously continued to condition
perceptions as to the efficacy of the SGP rules-based framework for fiscal
discipline.

Thus,
while French President Nicolas Sarkozy, in tandem with the international
community, was seen to be influential in leading a brief resurgence of more Keynesian oriented demand
stimulus during the early stages of the crisis, European leaders defended the
continued application of the SGP as the overarching framework for EU fiscal
governance. The dramatic shift in early 2010 from ‘Anglo-Saxon’ external
excesses to the internal vulnerabilities within the eurozone only exaggerated
the path-dependent effect of competing national interests amongst member states
while reinforcing the reversion to neoliberal solutions.  First, policy makers were responding with a degree of shock
and panic to a crisis of potentially ‘existential proportions’ (as termed by a
Member of the Cabinet for the European Council President, 2014). Operating in
this environment of crisis, diagnosing the crisis in behavioural terms as
resulting from fiscal profligacy and offering intergovernmental reform
solutions limited to strengthening the SGP would have been both intellectually
and politically attractive. Not only were these
policy frames fully in line with the
neoliberal logic of ‘sound money and
finance’ enshrined since Maastricht (Dyson 2002), but they could also be implemented
via secondary legislation under the current legal basis provided by the SGP
framework. Moreover, buttressed by its economic weight and its considerable
structural power within the EMU set-up, Germany was also increasingly in a
strong position to provide ideational leadership in framing neoliberal
solutions to the crisis. This can be contrasted with France who, as the crisis
progressed, was forced to abandon more Keynesian solutions in favour of
Germany’s more limited fiscal discipline objectives.

Conclusion

The intensification
of the crisis within the eurozone brought with it a marked intensification of
intergovernmental policy coordination within EMU. As the crisis progressed, the
response by European leaders was to adopt problem and solution frames
supporting intergovernmental fiscal discipline. Importantly, these frames were
intellectually attractive as they were fully consistent with the neoliberal
foundations underpinning EMU governance. Also, these frames were politically
simple to express as they could be implemented in full under the pre-existing SGP
legal framework. While there was a partial shift in the discourse towards
supranationalism following the normalisation of the crisis, these discourses
were always reflective of a limited reform ambition. In this context, a supranational
framing of the crisis was found to be limited by constraining ideas of national
interest concerning state sovereignty and issues moral hazard. Germany was also
able to draw on its economic weight and bargaining power to provide ideational
leadership, further directing the reform agenda towards intergovernmental fiscal
discipline.

In relation to the
wider literature, these findings are broadly consistent with ‘new intergovernmentalist’ claims that
supranationalism is unlikely to be obtained in the post Maastricht integration
phase. This study though has helped develop a deeper political
understanding of the current integration impasse in EU fiscal governance, and
of the ideational and institutional path-dependencies working to limit the
scope for far reaching reform. This analysis has also contributed to existing
critical analysis on European integration by emphasising the central importance
of neoliberal ideology in guiding framing preferences. Finally, one major
consequence of these findings is that the imbalance between monetary and fiscal
integration within the EMU framework will likely remain. However, further
investigation will be needed to assess the long-term sustainability of running a
single currency area with a decentralised system of fiscal policy.

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[1] [name deleted for peer review].

[2] Informed by the wider ‘new institutionalism’ literature, this broader theoretical exploration charts the ideational as well institutional path dependences working to limit the scope for reform within EMU (Bulmer 1994; Pierson 1996; Hay, 2006).