The political economy of EMU completion  

In the decade since the Eurocrisis, the agenda for the reform of the European Economic and Monetary Union (EMU) has taken a central stage in the dynamics of European policy-making. Critics have long argued that the EMU, as originally incepted, was missing fundamental elements that would ensure the ability of the monetary union to sustain itself. In particular, considered the low levels of labour and capital mobility between participating countries, as well as the limited synchronization of their business cycles, many had argued that the EMU would have needed not only a mechanism to ensure that governments remain solvable in front of their creditors, but also instruments to ensure fiscal smoothing of the economic cycle and the delivery of some degree of social solidarity.  This broad reform agenda has touched almost every element of European economic policy-making: fiscal rules, banking union, Eurobonds, public bailout funds, the role of the ECB, economic policy coordination, and a European pillar of fiscal and social policy. While, overall, agreement existed on the need of a stronger EMU, policy-makers have been deeply divided on the actual components of the reform agenda. Such divisions encompass territorial, socio-economic as well as ideological boundaries.

Painstaking negotiations between 2010 and 2020 have led to progress in most of these areas, but the discussions are far from over in almost every dossier. In the field of fiscal rules, the tightening of the SGP in 2011 and 2013 was accompanied by a degree of conditionality associated with investment policies since 2015. The first two pillars of the Banking Union were agreed in 2012 and 2014, but the agreement on the third pillar- a joint deposit guarantee- is not yet achieved. Despite the decade-long discussions and the intervention of the ECB in the debate, no progress has been made on Eurobonds. A large, heavily conditional bailout fund, the European Stability Mechanism, had been agreed outside the European Constitutional system, but attempts to bring it back into the European legal framework, enacted since 2018, have so far achieved little. The ECB itself has changed stance with regards to country solvability, taking a key role since 2012 with its “whatever it takes” policy stance. Economic policy coordination, introduced with the European Semester and the Excessive Imbalance Procedure in 2011, and reformed in 2013 and 2015, has led to a hybrid system that is neither fully compulsory (despite a pro-active steering from the Commission) nor really incentivized (despite fiscal space ensured by the Commission to countries following its instructions). And finally, discussions on a fiscal and social pillar of the EMU, started in late 2011, have started to deliver a set of preliminary agreements on a common fiscal capacity only in late 2019.

Against the backdrop of such a massive reform effort, many have asked what European citizens make of all these reform momentum. Whether they support, overall, the need for a stronger EMU, and whether the fundamental cleavages that divide policy-makers (of territorial and ideological nature) also split the electorate apart between and within countries.  Few, however, have investigated how people’s reactions associate with specific policy designs, asking not only whether some broad policies are overall liked  or not, but also—more in detail— which specific policy features are supported, and why. The goal of this broad project therefore is to complement the study of the economic and political dynamics of EMU completion with high quality analysis of experimental information. We ask fundamental questions pertaining the areas of EMU reform: social policy, fiscal policy, and democratic legitimacy. Which economic features are the most needed? How do citizens’ support influence the EMU completion, and how is this influenced by policy design? Are there pathways of reform which can both achieve political support and deliver EMU sustainability? To address the economic and political interplay between these three areas, we not only exploit macro-level data analysis and reform process tracing, but also we make use of the 2018 EURS study (experimentally assessing the causal link between policy features and support for European Unemployment Benfits), the 2020 Fiscal Capacity study (experimentally assessing the causal link between policy features and support for European Fiscal Capacity) and the forthcoming 2022 Democratic Legitimacy Study. While the former two have been already financed and yield high level experimental information, the latter is financed as a part of this project.