Risk of non-compliance and asymmetric power: explaining the perspective of EU member states on economic governance reforms
The design of the EU’s system of economic governance has provoked frequent disagreements among member states. Based on a new study, Fabio Franchino and Camille Mariotto demonstrate how the risks posed to Member States by non-compliance and the distribution of negotiating power in the Council help to explain the positions adopted by governments with regard to economic governance reforms.
On July 21, 2010, Wolfgang Schäuble, German Minister of Finance, and Christine Lagarde, French Minister of Economy, sent a letter to the President of the European Council, Herman Van Rompuy, as a contribution to the discussion on the ongoing reform of the economic governance of the EU.
They argued that this regime required “effective implementation of economic surveillance through appropriate sanctions”. Countries that have repeatedly failed to respect the rules established by the Stability and Growth Pact must be subject to “political sanctions such as the suspension of voting rights”. Other countries, such as Slovakia, have called for even stronger measures, such as leaving the euro zone. These positions did not obtain a sufficient majority. The deposits and fines remained fixed at 0.2% of the gross domestic product of the offending country.
This example illustrates one of the main contested issues that emerged during the negotiations on reforms to the rules of economic governance that took place between 1997 and 2012. In a recent study, we explain why EU governments have taken different positions.
Risk of non-compliance, asymmetric power and execution design
Most of these conflicts can be attributed to three major problems: a) the level of national discretion in the implementation of this regime, and the level of involvement of b) the Council and c) the Commission in its application. We put forward a set of expectations about how the risk of non-compliance and power asymmetry between countries shape governments’ positions on discretion and enforcement design.
First, the depth of cooperation and the risk of non-compliance are intrinsically linked. If a government wants to avoid the costs associated with an offense (such as monetary penalties, hearing, and reputational costs), it is likely to support provisions that expand national discretion, i.e. say allow less deep cooperation and reduce the risk of breaching such an agreement. In other words, governments most at risk of non-compliance should push for more discretionary enforcement of the regime.
Second, as a result of liberal intergovernmentalism, we should expect governments that anticipate greater difficulty in complying to be more reluctant to delegate enforcement prerogatives to a supranational agency such as the Commission. However, this expectation can be problematic if it is considered a choice between the Council and the Commission. From this perspective, we should expect governments, especially those at greatest risk of non-compliance, to prefer the enforcement process over which they can exert more influence.
Small states can favor centralization (delegation) because equal treatment within the Commission (each state has its own commissioner) increases their influence, while the Council gives more influence to larger states when decides by qualified majority. Would small states that anticipate compliance issues still prefer empowering the Commission rather than the Council? Would large states that expect to be compliant prefer to retain enforcement control in the Council rather than dilute their influence in the Commission? How do size (power asymmetry) and risk of non-compliance simultaneously shape attitudes towards app design?
Large states at risk of non-compliance may push for a council-based procedure over which they have more influence, while small states in a similar position may find themselves in a conundrum. On the one hand, centralized execution might be more attractive because it gives them more influence than a board-based procedure. On the other hand, they may be reluctant to hand power over to a Commission that is overzealous in enforcing the rules.
An empirical test
We gathered information on the positions taken by governments on the contested enforcement issues that characterized the negotiations on economic governance reforms. Our results illustrate interesting dynamics.
As expected, we find that governments facing greater risk of non-compliance prefer not only greater discretion (looser cooperation) but also greater Board involvement in enforcement. if they benefit from a higher voting power (more power) within this institution. As shown in Figure 1, governments exceeding a three percent voting power index (i.e. the Swedish government index in 2011) are more likely to prefer greater Council participation in as their risk of non-compliance increases. Above this threshold, governments in favor of greater involvement have an average debt-to-GDP ratio (our measure of non-compliance risk) that is nearly twenty-nine percentage points higher than that of governments in favor of less. involvement.
Figure 1: Marginal effect of the risk of non-compliance on the preference for greater Board involvement over voting power
To note: For more information, see the accompanying author’s article in European Union Politics.
By keeping all other covariates at their mean, if a large country like Italy were to face an increase in the risk of non-compliance (in particular, an increase in the standard deviation of the debt-to-GDP ratio from the overall average), the likelihood that his government will support more Council participation increases by forty-five percentage points very substantially. If the Maltese government were in the same situation, this probability would actually decrease by just over a percentage point, which is insignificantly different from zero. In sum, the risk of non-compliance and energy resources (size) are strong predictors of positions on implementation discretion and Council participation in law enforcement.
However, things are more complicated as regards the prerogatives of the Commission. These factors partly explain attitudes towards the role of the Commission. In some cases, different power resources stimulate support for the empowerment of this institution, with smaller states showing greater enthusiasm and larger states more reluctant. However, in other circumstances, expectations of compliance issues make governments of small countries more hesitant, especially when the Commission is seen as a harsh oversight body.
It is not easy for these governments to get out of this conundrum and it is perhaps because of this indeterminacy that we find national public support for the EU to guide the positions of governments. A decrease in the standard deviation of diffuse public support decreases by fourteen percentage points the probability that a government prefers greater involvement of the supranational executive.
In view of the growing mass politicization of European politics, this growing role of public opinion deserves greater scientific attention, in particular for the reform of the Stability and Growth Pact which may take place after the pandemic.
For more information, see the authors’ accompanying article in European Union policy
Note: This article gives the point of view of the authors, not the position of EUROPP – European Politics and Policy or the London School of Economics. Featured Image Credit: European Council