RESEARCH PROJECTS

Ideas I think about at work

FISCAL POLICY IN THE EMU: A REPUBLICAN DEFENCE OF INDEPENDENT FISCAL COUNCILS

What kind of institutions are needed in order for fiscal policy in a monetary union to be made compatible with the objective of preserving the non-domination of european citizens? 

This working paper attempts to answer to this very broad question by first describing how fiscal policies in the EMU can pose different threats to citizens’ freedom. First of all, the spending decisions of each national government have transnational effects on other members of the union and can prevent them from reaching their desired level of output and inflation. With the help of Lovett’s definition of domination, it is argued that these externalities can be seen as a form of arbitrary interference from the perspective of other countries.

The current EMU fiscal framework tackles this conflict of interest by inscribing its members in a system of numerical rules that constrain countries’ spending choices and fiscal policies. Member states’ surveillance is administered by a technocratic Commission whose decisions on the probity of individual governments’ spending is then politically endorsed by the Council. The justification for placing the center of decision-making in the hands of a technocratic body supported by the group of national executives is commonly found in the idea that, first, governments have consented through different treaties to this distribution of power and, secondly, that Union powers ultimately relies on national enforcement structures and legitimating mechanisms.

However, the paper challenges this logic and departs from Lord’s (2017) argument, according to which EU powers are indirectly legitimate only to the extent that they help national democracies meet their own obligations towards their own public.


These obligations can be interpreted in a republican way. In particular, states should subject their use of power to public control, so as to prevent citizens from seeing their decisions as arbitrary interferences. Unfortunately, the existence of deficit bias –namely: the tendency of governments to finance spending through additional deficit– speaks of normatively problematic information asymmetries between the people and their representatives, which, in turn, suggest that those republican obligations have not been fulfilled. The potential domination of citizens by their own national executives justifies the deployment of EU powers aimed at the creation of national Independent Fiscal Councils tasked with the objective of making fiscal policy a form popularly controlled interference.

NON-DOMINATION IN THE EUROZONE

By bringing together macroeconomics and political theory, the paper explores the possibility that the conception of freedom as non-domination can be meaningfully applied to evaluate, from the point of view of justice, the Eurozone sovereign debt crisis.


The analysis will highlight how member States’ capacity to autonomously determine how to weather the impact of the crisis has been unjustly curtailed by the dominating power of financial markets. The system of rules that govern the single currency has led investors to question the capacity of member states to finance their debts. The self-fulfilling sudden-stop crisis that ensued as a consequence of such uncertainty has unjustly diluted member states’ autonomy. In motivating this line of argument, the paper will touch upon the recent debates on the sources and site of domination and on the appropriate stance republican scholars should take toward competitive markets. The paper concludes by noting that, if European citizens are truly free only if they live in a state that is not dominated by external institutions and forces, then Eurozone countries have an obligations to establish institutions that increase private and public channels of risk-sharing.

POST-CRISIS EMU LEGITIMACY

In this work (written with Ben Cum) we analyse from the point of view of democratic legitimacy, the institutions that were created to face the Eurozone crisis.