Dermot Hodson

The Open Method as a New Mode of Governance: The Case of Soft Economic Policy Co-ordination

Taking economic co-ordination in EMU as a starting point, this article explores the development of the open method of co-ordination, addressing whether it is a new form of governance from two related perspectives. First, to what extent can the method be effectively applied outside the scope of economic policy? Second, will it lead to policy transfer to the EU and hence act only as a transitional mode of governance? Identified at the Lisbon European Council, the method codified practices such as benchmarking, target-setting and peer review developed in the Luxembourg, Cardiff and Cologne processes. The method offers a new approach to governance of the EU as a heterarchical, decentred and dynamic process. It supports and radicalizes the principle of subsidiarity; offers an alternative to the treaty rules on enhanced co-operation; and addresses some of the legitimacy issues inherent in the EU. In EMU, the method arose out of a specific policy framework with a common monetary policy complemented by the coordination of national economic policies. The recent recommendation issued against Ireland is the first example of the operation of the method in EMU and shows how debate can be stimulated and how different and arguably equally valid perspectives defended. The particular experience of EMU with a sound money, sound finance paradigm, a long history of project-building by key elites and the central role of the European Council suggest similar conditions are required for the effective application of the method in other policy spheres. The context within which the method has operated to date is contingent and could change either over time or between policy fields. If so, the very openness of the method may serve to reconfigure the boundaries of competence between the Member States and the Union, after all.

The New Intergovernmentalism: European Integration in the Post‐Maastricht Era

The post-Maastricht period is marked by an integration paradox. While the basic constitutional features of the European Union have remained stable, EU activity has expanded to an unprecedented degree. This form of integration without supranationalism is no exception or temporary deviation from traditional forms of European integration. Rather, it is a distinct phase of European integration, what is called ‘the new intergovernmentalism’ in this article. This approach to post-Maastricht integration challenges theories that associate integration with transfers of competences from national capitals to supranational institutions and those that reduce integration to traditional socioeconomic or security-driven interests. This article explains the integration paradox in terms of transformations in Europes political economy, changes in preference formation and the decline of the ‘permissive consensus’. It presents a set of six hypotheses that develop further the main claims of the new intergovernmentalism and that can be used as a basis for future research.

UK Economic Policy and the Global Financial Crisis: Paradigm Lost?

The global financial crisis of 2007–08 produced a sudden change in the economic policy of the United Kingdom (UK). Prior to the crisis, the government preached the gospel of price stability, fiscal prudence and light-touch financial regulation. In the wake of the crisis, the government countenanced unconventional monetary policies, a surge in public-sector borrowing and the need for a rethink of financial supervision. This article seeks to understand the significance of these changes using Peter Halls theory of policy paradigms. Its central argument is that, contrary to appearances, the UK has not yet experienced a fundamental reordering of the instruments, institutions and aims of economic policy. Third-order change cannot be ruled out as the crisis unfolds but the economic ideas underpinning UK economic policy have, for better or worse, demonstrated remarkable resilience thus far.

Economic Policy Coordination in the European Union

There are differing views about the need for economic policy coordination in the EU and about the adequacy of the system that has evolved under EMU. This article examines the case for such policy coordination, then describes and assesses the current arrangements for both ‘hard’ coordination - epitomised by the much-maligned Stability and Growth Pact (SGP) - and the ‘soft’ forms of coordination that have evolved in the EU to complement formal rules. Although the system achieves more than is sometimes recognised, it is shown to have weaknesses. Options for reforming the SGP and other facets of the system are discussed.

The little engine that wouldn’t: supranational entrepreneurship and the Barroso Commission

Abstract This paper seeks to evaluate and explain the degree of supranational entrepreneurship shown by the European Commission following the global financial crisis. Focusing on the period 2007–2011, it finds that the Commission used its right of initiative and/or mobilised ideas and information to pursue a supranational European Union (EU) economic policy in few cases. These findings are explained with reference to strategic entrepreneurship, that is the Commission’s reluctance to support integrationist initiatives unless they stand a chance of success, and by the fact that partisanship took precedence for the EU executive over the pursuit of integration in some cases. The Commission could yet capitalise on the crisis but its actions in this period call for greater attention by scholars to preference formation by supranational actors as well as a reconsideration of what it means for the EU executive to lead.

Macroeconomic co-ordination in the euro area: the scope and limits of the open method

A co-ordinated approach to fiscal policy in the euro area is desirable from a political economy standpoint if it protects against the harmful side effects which can arise from member states’ fiscal policies. At the same time, however, closer economic co-ordination between national governments is perceived by some as a threat to the independence of the European Central Bank and with it the credibility of its price stability mandate. A variant of the open method, which is known as multilateral surveillance, has been assigned the unenviable task of minimizing the costs of macroeconomic co-ordination, while at the same time delivering the benefits. Whilst the open method poses little threat to the independence of the ECB, its effectiveness is contingent, in the absence of legal obligation and the threat of financial penalties, on the impact of peer pressure and consensus- building mechanisms. This paper assesses the potential of these mechanisms and then draws lessons about the scope and limits of the open method in the light of Portugal’s recent breach of the Stability and Growth Pact.

Soft law and sanctions: economic policy co-ordination and reform of the Stability and Growth Pact

The highly formalized Stability and Growth Pact gives ECOFIN power to impose sanctions on states that breach the Pacts budgetary targets. As the ECOFIN meeting in November 2003 showed, it has considerable but not unlimited discretion. The Commission has called for a more flexible interpretation of the Pact, the strengthening of sanctions against non-compliant member states and successfully litigated the legality of the ECOFIN decision. We argue that the predominance of soft law in EMUs fiscal framework is functionally suited to the uncertainty that surrounds economic co-ordination over the medium term. This suggests an inherent tension in the Commissions proposals: although a more flexible interpretation of the Pact gives more room for fiscal manoeuvre to states that start from healthy budgetary positions, it also makes it more difficult for ECOFIN to measure compliance. This uncertainty re-emphasizes the soft law elements of the Pact, rather than bolstering the efficacy of its sanction mechanisms.

Economic and monetary union: balancing credibility and legitimacy in an asymmetric policy-mix

There is a double asymmetry in the structure of economic and monetary union (EMU). First, monetary policy is uniform while national economic policies are merely co-ordinated. The credibility of monetary policy is underwritten by an independent European Central Bank, but this is not sufficient as the objective of price stability depends on other aspects of economic policy. Thus greater coordination of national economic policies is needed to secure a credible monetary policy. This highlights the second asymmetry. The emphasis on credibility has been such that due regard has not been given to the legitimacy of the EMU policy architecture. If policy-making is to be effective, credible and legitimate, decisionmakers need to pay attention to four key legitimacy indicators: input, output, values and process. It seems inevitable that the success of the developing policy architecture and its effects, both in its monetary and economic dimension, will be judged against these broader standards.

EMU and political union: what, if anything, have we learned from the euro's first decade?

The road to Maastricht and the eventual launch of economic and monetary union (EMU) fuelled debate among scholars and policy-makers about the relationship between monetary and political integration in Europe. This article revisits a selection of these arguments ten years after the launch of the euro. It finds little evidence to corroborate claims that EMU will spur political union either out of functional necessity or the intentional choice of euro area members. If anything, the projects of monetary and political integration in Europe show tentative signs of decoupling.

The IMF as a de facto institution of the EU: a multiple supervisor approach

ABSTRACT This paper seeks to understand and explain the International Monetary Funds (IMF) evolving relationship with the European Union (EU) before and after the global financial crisis of 2007–2008. Prior to this crisis, the two sides operated on parallel tracks with little scope for mutual adjustment even during the economic turmoil of the 1970s. After the global financial crisis, the IMF emerged as a de facto institution of the EU thanks to European leaders’ delegation of supervisory powers to both the Fund and the European Commission. The reasons for, and consequences of, this dual delegation are explored here by means of amultiple supervisor variation on the classic principal-agent-supervisor approach.