Ideational robustness of economic ideas in action: the case of European Union economic governance through a decade of crisis (2024)

Abstract

Is it possible to develop a robust crisis management response in a system where governance is characterized by coercive power and adversarial bargaining rather than the diversity, inclusion, and openness highlighted by extant scholarship as conducive factors for robustness? Using two instances of crisis in the European Union—the Eurozone crisis (2010‒2015) and COVID-19 pandemic (2020‒2022)—the paper argues that how actors reinterpret existing rules and institutions offers an important source of robustness in crisis management. Based on the employment of a disaggregation of robustness into degrees of robustness, as well as the concepts of ideational and institutional power, we show how actors can counter the coercive power of dominant coalitions and open up for rule adaptation through reinterpretations of existing rules that, at least in the short term, can solidify the functioning of existing institutions faced by turbulence. In the context of the Eurozone crisis, ideational and institutional power thus enabled a moderately robust response without treaty reform. In the case of the pandemic, it was possible to convince (particularly German) policymakers of the need to employ new ideas about common debt. This meant less need to employ ideational and institutional power by other actors, leading to significantly more effective crisis management than in the Eurozone crisis, what the paper terms maximal robustness.

Ideas, Robustness, Eurozone crisis, Covid 19, Crisis management

For more than a decade, the European Union (EU) has been beset by turbulence. Faced with a flurry of unexpected, inconsistent, unpredictable, and deeply uncertain events (Ansell etal., 2021)—some of which questioned the very existence of the EU—European leaders have repeatedly struggled to reach agreement not only on viable solutions but also on the very nature of the problems facing them. With the possible exception of the COVID-19 pandemic, the 2010‒2015 Eurozone crisis is a strong candidate for the most intense of the EU’s many crises, and it was the crisis that brought decision-makers closest to the edge of the abyss. After 2 years of reluctance among “creditor” countries to put the economies and financial sector of “debtor” countries on a firm footing, the Eurozone crisis moved from the initial fast-burning phase once European Central Bank (ECB) leadership pledged to do “whatever it takes” in 2012 to a period of greater relative calm and slow-burning crisis, which was largely resolved by 2015 (Schmidt, 2020, 2022). If we understand robustness as the capacity of a system for adaption and innovation (Sørensen & Ansell, 2023), as it continues to perform its vital functions over an extended period even in the face of turbulence (Howlett & Ramesh, 2023; Pot etal., 2023), the outcome of crisis management during the Eurozone crisis can be viewed as robust; that is, despite an alarming number of instances of brinkmanship (Jones etal., 2016), decision-makers managed to keep the euro monetary system functioning and even added new members after the crisis had passed. Judged on the process, however, the management of the crisis does not qualify as robust: Powerful actors long upheld highly unpopular crisis management approaches, did little to revise them when their lack of efficacy was clearly apparent, and very little was done to open decision-making processes to alternative voices or stakeholders. The literature on robust policymaking and governance has presented numerous design principles (Ansell etal., 2023) that can hardly be claimed to have been employed in the Eurozone crisis. The crisis thus presents a challenge for scholarship on policy and governance robustness in times of crisis: How was a robust outcome possible despite the deficiencies of the crisis management process?

This paper argues that untangling this conundrum requires a more granular conceptualization of policy robustness than typically employed in extant scholarship. Instead of presenting robustness as an either/or-proposition—in contrast to current conceptualizations that range from identifying policies as robust if they simply keep key basic functions in operation despite turbulence (Ansell etal., 2023) or, much more ambitiously, to continue to produce outcomes according to the original intentions (Howlett 2019)—we propose to think of policy robustness as a matter of degree. Here, the degree of robustness is determined by its temporal viability—i.e., whether it will work in the short term, medium term or long term—and the extent of coalitional support and societal legitimacy that it enjoys. Depending on how long term and broadly supported a policy is, they may be minimally, moderately, or maximally robust.

This still leaves the question of how actors can produce robust outcomes in lieu of a robust design process. Here we employ insights from recent advances in ideational scholarship in public policy and public administration to posit that an important source of robustness is the reinterpretation of existing ideas and institutions. In a context of time-pressure, conflictual bargaining, and an impossibility of fundamental reform—all characteristics typical of crisis (Hannah etal., 2022) and in our conceptualization, minimal robustness—the creative reworking of meaning related to the extant institutional setup is often the only short-term viable avenue of crisis management to ensure an at least moderately robust response. Although scholarship on policy robustness readily acknowledges that the reinterpretation of institutions through their multivocality can be a source of robustness (Ferraro etal., 2015), it has less to say about whether or how robust results may be obtained when the decision-making structures are characterized by hard bargaining and efforts to isolate and exclude alternative views.

Ideational scholarship offers important insights that help us to grapple with this question and more generally provides valuable insights to understanding political dynamics of policy robustness. Specifically, based on recent theoretical advances in ideational scholarship, this paper suggests that we may deepen our understanding of policy robustness by appreciating the creative work done by actors as they practice institutional rules in everyday policymaking, leading to significant policy change outside institutional reform. Key to understanding the potential of reinterpretation as a source of robustness in crisis management is to appreciate the dynamic nature of power in such processes. In situations where actors are unable to act in concert (i.e., through an agreement about setting up institutions that advance long-term robustness), the productive force of power instead appears through the impossibility of total control. That is, although actors find it impossible to reach agreement and act on a common vision of a new institutional structure, the potential of exerting different kinds of power—coercive, institutional, and ideational—keeps one actor from dominating crisis management and paves the way for shifting interpretations and thus actions.

Ideational power plays a particularly important role in this regard, as it may enable actors who are powerless in terms of institutional and material resources to put pressure on the dominant coalition to open the way for a more robust approach to crisis management. In the Eurozone crisis, the dominance of German decision-makers, who were able to push through their understanding of crisis management, led to non-robust solutions that time and again threatened the existence of the Eurozone. It was first when institutional actors were able to employ their ideational and institutional power that the dominant, German-led coalition opened to other actors’ reinterpretation of existing rules that could bring stability. This contrasts with the second case in the paper: the management of the economic crisis that followed in the wake of the COVID-19 pandemic. Here, we saw how greater agreement among key actors about the need for rule innovation led to the introduction of creative new ideas that produced a faster, more efficient, and robust crisis response.

However, this also gives rise to a second, sobering point: Although ideational and institutional power enabled a robust response to the Eurozone crisis, and greater agreement about the need for new ideas during the pandemic then led to robust crisis management without fundamentally reforming the treaties, this crisis management approach risks undercutting long-term robustness. Without significant reform of EU economic governance, there is considerable risk that economic crises related to the governance structure will continue to pop up, thereby undermining the effectiveness of crisis responses that merely reinterpret or add new ideas to the existing institutional setup rather than reforming the fundamental rules structuring EU economic governance. This is evidenced by recent debates about how to reform the fiscal rules that had been reinterpreted during the Eurozone crisis and suspended during the pandemic, and whether to leave the temporary EU-level debt facility created during the pandemic a one-shot deal or to allow for new EU-level debt to address the ongoing crises; in particular, climate change. Moreover, although keeping the Eurozone monetary system afloat was possible, reapplying an approach in the future that does little to support “solidarity” in the hardest-hit countries—with significant negative economic and social costs borne by the weakest members of these societies as well as the middle class—carries significant risk of sparking political unrest. Particularly problematic would be the continued rise to power of populist parties seeking to undermine the EU altogether. Put simply, with the continued reinterpretation of existing institutions and no introduction of new ideas about EU solidarity, the long-term robustness of the Union is at stake.

Practice, ideational power, and robust crisis management

The social, economic, and political problems facing policymakers are becoming more complex, interconnected, difficult to define, and unpredictable; something which recent scholarship seeks to capture through the concept of turbulence (Ansell etal., 2021). As a key part of this development, crises are becoming more frequent and complex. As argued by Pot etal.(2023, 222), crises thus create “turbulent conditions as they form periods of (extreme) disruption, create threats to existing functions of social and political systems, and are characterized by deep uncertainty and an urgency to act.” Motivated by the aim to understand variation in the effectiveness of crisis management and to develop lessons for how to handle future crises, policy scholars have increasingly deployed the concept of robustness in recent years. Defined as the “capacity of policymaking to respond to, and retain functionality amid, uncertainty” (Capano & Woo, 2018, 423), robustness is aimed at continuous development despite turbulence rather than a return to the status quo (Ansell etal., 2023).

The key contention of this paper is that reinterpretation is a source of governance and policy robustness. The notion that reinterpretation is important for crisis management is not foreign to the existing scholarship on policy robustness. Interpretive work thus plays into multiple forms of activities advancing robustness, including the promotion of multivocality (Ansell etal., 2023; Padgett & Ansell, 1993), the employment of different forms of knowledge in response to crisis (Carstensen etal., 2023), as well as the ongoing effort to diagnose uncertainty (Howlett etal., 2018; Pot etal., 2023, 5) and monitor the environment (Howlett & Ramesh, 2023). Much of the literature considers robustness as a choice and strategy that arguably places high demands on institution builders. In the words of Sørensen and Ansell (2023, 73), “this literature conceives of governance robustness as a purposeful effort to promote effective problem-solving through the strategic design of an institutional architecture, providing tools and processes that promote flexible adaptation to challenging conditions and the innovative exploration and exploitation of emerging opportunities.” The ideational perspective on reinterpretation applied in this paper in turn suggests that reinterpretation promoting robustness may also occur outside structures designed for that purpose but within the existing institutional setup.

Degrees of robustness: minimal, moderate, and maximal

To understand how this is possible, it is necessary to develop a more fine-grained conceptualization that allows an assessment of degrees of robustness. Focusing on the continued functional viability of a governance system, current conceptualizations generally suggest that a broad range of outcomes may qualify as robust. Ansell etal. (2019: 4) for example define being robust as “able to continue providing public value in the face of variable, inconsistent, unexpected, or unpredictable events and demands.” Along similar lines, Capano and Woo (2018) define robustness as “policymakers’ capacity to respond to, and retain functionality amidst, uncertainty, with such capacity often exercised through the design of effective policies or institutions.” These definitions indicate that only when the system is unable to provide public value or perform key functions would the system not be robust. However, without a more granular conceptualization, it is difficult to distinguish between outcomes that pose very different challenges to policymakers. Thus, a governance system able to remain functional amidst turbulence but with only minimal backup from the stakeholders and the public, on the one hand, and a system able to secure its long-term viability and legitimacy through its adaptive capacity, on the other, may both continue to perform their key functions, but they clearly place policymakers in quite different circ*mstances.

To understand how policymakers may reach robust outcomes under less than ideal circ*mstances, we devise a simple threefold distinction between different degrees of robustness with outputs being minimally, moderately, or maximally robust. Where an output is placed depends on how it performs on three principal dimensions. First, within which temporal scope is an output robust? Here, we draw on the fundamental insight of Howlett and Ramesh (2023) that robustness has a crucial temporal dimension. As they note, “most policies are expected not only to be effective in the immediate situation after their enactment but also to retain their effectiveness into the future” (p. 24), a quality that they themselves note is a tall expectation to meet. It is thus useful to distinguish between whether a policy output is robust in the short term, medium term, or long term.

Second, how broad a group of actors is included in the process of crafting policy outputs? Extant literature speak a clear language: to build the necessary flexibility to adapt to changing circ*mstances requires maintaining multiple repertoires (Ansell and Trondal 2018) and multivocality (Ferraro etal., 2015), necessitating the inclusion of different actors with a diversity of expertise (Carstensen etal., 2023) and a capacity to provide support from key elite stakeholders. There is an important political dimension to this (Sørensen & Ansell, 2023). Developing and implementing policies is an inherently conflictual process; making coalitional support is necessary for any output to be robust, but it may range from only providing support from an absolute minimally necessary majority of actors—enabling the production of an output, but without the support of a broad range of actors—to policy output receiving broad-based support from elite actors. Third, how much societal legitimacy does the output have at a broader societal level? The elites that craft policies depend crucially on broad-base societal legitimacy, both instrumentally to continue to stay in power, but also for the policy to work effectively in the long run (Schmidt & Thatcher, 2013; Sørensen & Ansell, 2023).

Based on a combination of these three dimensions—the time perspective, how broad support the policy has, and the amount of societal legitimacy it enjoys—we propose three degrees of robustness. First, an output may be minimally robust, meaning that it fulfills basic functions in the short term with serious threats to medium- and long-term fulfilment of policy intentions and with only fragmented coalitional support. Second, an output may be moderately robust, i.e., it meets policy intentions in the short term to medium term with measured support from a broad coalition of actors but with limited societal support. Finally, output may be maximally robust if it produces output according to intentions in the short term, medium term, and long term and enjoys broad coalitional and societal support.

Minimal and moderate robustness through reinterpretation

In this paper, we focus on crisis management, specifically how robust outcomes may be reached through crisis management, even as the process is not robust. Here, we propose to employ two recent theoretical advances in ideational scholarship. First, we highlight the interpretive processes related to making ideas actionable. The starting point is that what an idea or institution means in a specific context is not self-evident but rather subject to interpretation and potential contestation (Streeck & Thelen, 2005). That is, the ideas that were the focus of early ideational scholarship, typically originating in economic theory (Blyth, 2002; Hall, 1993), do not translate seamlessly into practice. They must be adapted, interpreted, and translated to make sense in practice. Moreover, as circ*mstances change, so too must the application of ideas and institutions. Along these lines, Jabko (2019), for example, employs the concept of a repertoire of discourse to analyze the role of ideas in the Eurozone crisis. Defined as “a cluster of discursive practices recognized as pertinent by a circle of actors who perform it in a variety of ways” (Jabko, 2019, 495), the notion of a repertoire of discourse presents a much less pure and monadic conception of ideas. The ideas that actors work with may to some extent originate in academic theory but will often also contain ideational elements developed through history as concrete experiences originating from the use of ideas. Their meaning is thus not defined once and for all, emerging instead as they are joined by other ideas and discourses and put to work as meaning-making devices (Carstensen, 2015). The work that goes into making these shared repertoires actionable under ever-changing circ*mstances is cognitive, normative, and strategic. That is, it concerns figuring out what may work to solve the problem at hand, defining solutions within what is deemed normatively acceptable, and building the necessary coalitions to get it through the policy process (Carstensen & Röper, 2022). The plastic and fungible nature of ideas enables bringing together contradictory ideas that render them less susceptible to attacks from rival interpretive frameworks (Best, 2020; Jabko, 2006), which provides an important source of ideational robustness (Schmidt & Thatcher, 2013).

Some of the most effective strategic work related to practicing repertoires of discourse happens through the interpretive discretion enjoyed by certain actors to implement policies in practice. In lieu of major political debate and contestation, and the paradigmatic shifts that were the focus of earlier ideational theorizing (Béland, 2019; Campbell, 2004), the inherent openness of implementing rules leaves significant room for strategic actors to affect what a policy does in practice. The adaptability that enables policy ideas to remain relevant in face of turbulence—what we, following the introductory paper, define as ideational robustness—may thus take place as actors, through their practice, change the meaning of key components of an idea “through the addition of further nuance or by extending and broadening the understanding of key terms” (Carstensen etal., 2024). We may think of this as a form of rule adaptability through reinterpretation. As we shall see in the analysis of the management of the Eurozone crisis, while the initial steadfast adherence of other actors to existing interpretations threatened the viability of economic governance and were at best minimally robust, the reinterpretation of existing institutions and ideas by key actors provided the primary push toward more moderately robust policy. Here, the robustness resulting from actors practicing rules initially without reinterpretation was jeopardized by a lack of adaptability of ideas during changing and turbulent circ*mstances. In contrast, when a large coalition of actors agreed to suspend the institutional rules at the time of the COVID-19 crisis, the resulting innovation and creativity ensured maximal robustness buttressed by broad coalitional and societal support.

Power and robustness

To understand how actors can effect change in the practice of ideas and discourse, we need a second piece of the conceptual puzzle: power. We may start from the above observation that for practices related to ideational and institutional reinterpretation to matter for policymaking during a crisis, they require the support of a coalition of sufficiently powerful actors that may “bring about significant effects, specifically by furthering their own interests and/or affecting the interest of others, whether positively or negatively” (Lukes, 2005, 65). As is well established, power comes in multiple shapes (Barnett & Duvall, 2005). Similar to the seminal work of Lukes (2005), we thus apply an agency-oriented and multidimensional understanding of power as coercive, institutional, and ideational (Carstensen & Schmidt, 2018a). We understand coercive power as direct control by one actor over another, where these relations allow one actor to shape directly the circ*mstances or actions of another (Barnett & Duvall, 2005, 43); typically through the threat of negative sanctions by one actor at the expense of another.

Institutional power, on the other hand, works through actors’ control over others through the formal and informal institutions mediating between A and B (Barnett & Duvall, 2005, 51). This understanding of institutional power connects with the practice perspective laid out above, because it emphasizes the significant power that may accrue from getting to decide what policies get to mean when applied in everyday practices.

Finally, ideational power concerns the capacity of actors to influence the normative and cognitive beliefs of other actors through the use of ideational elements (Carstensen & Schmidt, 2016). Following Carstensen and Schmidt (2016), we differentiate between three forms that ideational power may take. First, ideational power occurs when actors have the capacity to persuade other actors of the cognitive validity and/or normative value of their worldview through the use of ideational elements (power through ideas). Second, ideational power is manifested as a capacity of actors to control and dominate the meaning of ideas, either directly by imposing their ideas or indirectly by shaming opponents into conformity or resisting alternative interpretations (power over ideas). Finally, ideational power shows itself when certain ideas enjoy authority in structuring thought or institutionalizing certain ideas at the expense of other ideas (power in ideas). Here, ideational power is most closely related to institutional forms of power, since it concerns how historically specific structures of meaning or the institutional setup of a polity or policy area enhances or diminishes the ability of actors to promote their ideas.

One would be forgiven for expecting that, in the context of crisis management, coercive power is the most important and dominant form of power. In most instances, after all, crisis management requires massive economic resources, and whichever actor is able to muster such resources will be in charge. As we show in the case study below, however, all three forms of power—coercive, institutional, and ideational—have mattered crucially for crisis management since the financial crisis. Importantly, it is the interaction between different kinds of power that proves most central for understanding how it was possible over time to develop a robust crisis response. There are thus good reasons why, in many cases, institutional and ideational forms of power come to challenge the dominance of coercive power. First, the decisions made following the employment of coercive power must be implemented, and doing so requires the institutional power that derives from a certain level of technical expertise and practical knowhow about the concrete setting in which the policy is implemented. This places another kind of resource centrally, namely expertise, the institutional authority of which may challenge the exercise of coercive power, as experts use their expertise to devise solutions and affect what ends up on the agenda (Seabrooke & Wigan, 2016). This is particularly important in situations of high uncertainty, where actors will have to devise new institutional blueprints on the basis of a variety of forms of expertise to arrive at a robust policy outputs (Carstensen etal., 2023). In the analysis below, we thus find that expertise was a key source of power for institutional actors like the European Commission and ECB, who in the management of the Eurozone crisis, used their deep knowledge of economic and monetary policymaking to push for reinterpretations of the existing rules that went against the policy stances of Germany earlier in the crisis.

Second, and as already noted above, authority-related power requires legitimacy for long-run stability (Weber, 1978). Although legitimacy cannot be reduced to ideas, it clearly involves normative ideas about what is appropriate in terms of political authority and what is acceptable in terms of governing activities, including political responsiveness, policy outcomes, and governance procedures (Schmidt, 2020). Consequently, actors will participate in definitional struggles to shore up beliefs in the alignment between actions, rules, and the normative expectations that underpin policies (Carstensen & Schmidt, 2018b; Widmaier etal., 2007). This offers a potentially fruitful avenue for actors to employ ideational power to challenge coercive power. The theoretical upshot is that where one actor or a coalition of actors successfully dominates crisis management by using coercive power, it may undermine a robust response. That is, the capacity to effect actor-level change does not automatically translate into a capacity to effect the reform necessary to make the system robust in the short term or long term. To the contrary, we posit that power imbalances among key actors will tend to reduce the long-term robustness of the polity as a whole (see also Carstensen & Schmidt, 2021). Conversely, if actors are able to challenge this dominant coalition by using other forms of power, more robust responses become possible, since the actors thus challenged are either persuaded or forced to consider alternative interpretations, forms of knowledge and organization, etc., which is important for avoiding the myopia of sticking to a single set of interpretive lenses.

The next section demonstrates how, during the Eurozone crisis, responses emerged with different degrees of robustness from the interaction of different forms of power as EU institutional actors engaged in practices involving the reinterpretation and innovation of rules based on shifting ideas and discursive practices. We compare this to the much more effective response to the economic crisis following the COVID-19 pandemic, where actors were quickly aligned in their support for temporary rule innovation. Notwithstanding this success, we also argue that long-term maximal robustness will require more elaborate institutional innovation, the introduction of new ideas about the economy and how to best govern it, and a fundamental reform of the existing rules. This section is based on the existing research, including primary data based on EU institutional communications and reports as well as secondary sources documenting EU institutional actions and their impact, along with the process-tracing of the evolution of the Eurozone crisis.

Robust crisis management and EU economic governance

The origins of Eurozone economic governance

From the outset, the institutional make-up of the Eurozone’s economic governance system, known as the Economic and Monetary Union (EMU), was not conducive to robustness. First, it was established as an “incomplete monetary union,” where responsibility for economic governance remained at the member state level, while monetary policy was centralized—and placed outside the power of member state governments—at the European level. This meant that EU-level “solidarity” through some form of “fiscal union” based on taxation and redistribution system to make up for unequal outcomes—which might have been expected in exchange for member states surrendering sovereign control over their currencies to an independent central bank (McNamara, 1998)—was rejected. Second, the monetary stability of the EMU was ensured through adherence to restrictive rules based on specific numerical targets for deficit and debt (Schmidt, 2020). From the perspective of robustness theory, the problem was not primarily the ambiguity or contradiction of the EMU’s institutional architecture—although it could be a source of conflict and confusion in a crisis situation. More problematic was how the EMU was designed with the aim of keeping rules stable rather than adapting them when facing turbulence.

Moreover, the ideational foundation of the rules was tilted in favor of German interests (McNamara, l998). Germany accepted the loss of their currency only in exchange for the creation of an ECB modeled on the ordo-liberal principles and stability culture of the Bundesbank, without any common economic governance (Brunnermeier etal., 2016; Schmidt, 2020, Ch. 4). The resulting agreement essentially consecrated Germany’s ideational power in ideas, by institutionalizing its own ideas about ordo-liberal stability in EMU. Such institutionalization focused on guaranteeing the fiscal discipline of euro members through a combination of market discipline underpinned by the “no bail-out clause” in the Treaty together with rules for fiscal discipline (Rubio, 2015). The agreed “convergence criteria” set a budget deficit of no more than 3% of Gross Domestic Product (GDP) and a public debt approaching 60% of GDP, with any noncomplying member state being put under surveillance through the “excessive deficit procedure” (EDP) and, if it failed to take corrective action, risking economic sanctions.

From the perspective of the theory of robustness, then, as defined in the introductory chapter of this special issue (Carstensen etal., 2024), EMU governing practices from the very outset lacked the necessary prerequisites for maximal robustness. The rigid practices were a poor substitute for what would be needed to ensure optimal outcomes; politically, however, the rules-based, numbers-targeting regime was all that was possible at the time. Among the broad coalition of actors in support, while some believed that stability through rule adherence would ensure maximally robust outcomes, in particular the coalition around Germany (despite low levels of societal support when the Bundestag voted in favor), others coalesced around France believed instead that without more “E” in EMU, it would be at best moderately robust (Brunnermeier etal., 2016). But they nonetheless went ahead on the assumption that the missing pieces would be devised and agreed in response to the turbulence resulting from the next crisis because, as EU officials often said, the EU always moved forward in moments of crisis (Parsons & Matthijs, 2015). As a result, EMU was condemned to what has been termed “failing forward,” in which intergovernmental bargaining has led time and again to incomplete agreements and failed reforms carried out by the Commission that soon required new intergovernmental bargains (Jones etal., 2016).

That said, in the first 10 years after the euro was introduced, everything worked better than one might have expected. The euro members all benefited from market confidence, ensuring that their sovereign debt was treated largely the same, with the same low-risk expectations of insolvency. The only moment of turbulence occurred during a recession in the mid-2000s, when two big countries, France and Germany, broke the deficit rules without incurring sanctions, in contrast to two smaller countries, Portugal and Greece, against which punitive proceedings were begun, but dropped. The Commission’s flexible response ensured that the EMU had moderate robustness in these years, since short- and medium-term policy intentions were maintained, along with broad coalitional support and much societal support, with only long-term output in question.

Minimal robustness through rule reinforcement

The Eurozone crisis was sparked by the 2009 announcement by the new Greek socialist government that it had discovered a deficit and debt that massively breached Eurozone rules. After German leaders stipulated that the Greeks had to solve their own debt problems—as opposed to issuing common European debt—financial markets grew increasingly wary about purchasing Greek government debt. In the absence of effective EU action, and with interest rates on Greek government bonds, state bankruptcy—and thus an exit from the Eurozone—became a real risk and was followed by successive rounds of market attack on the more vulnerable Eurozone members’ debt. Other Eurozone member states—most notably Ireland and Portugal—also came under severe pressure as the cost of bailing out their heavily indebted banks became clear.

During the initial phase of the Eurozone crisis (2010‒2012), Eurozone economic governance was reinforced in ways that were only minimally robust. Whereas Eurozone policymakers did fulfill the basic functions in the short term by “saving the euro,” coalitional support in the Council was highly fragmented because divided between Nothern and Southern European member states, the policies were societally contested in both North and South, and their output posed serious threats to medium- and long-term fulfillment of policy intentions.

Rather than guaranteeing maximal robustness through completion of the EMU by creating common debt and/or making the ECB a “lender of last resort” willing and able to keep the financial markets from speculating on the solvency of individual member states, the EU response led to increasing divergence and inequalities among Eurozone members, in particular for the most vulnerable. Rather than adapting the rules in response to growing turbulence, the neoliberal ideas institutionalized in the treaties won out over all other ideas during this period, with a German-dominated coalition imposing a neoliberal “austerity for all” policy program paired with structural reforms for countries in trouble. Here, although loan guarantee mechanisms “saved” the most vulnerable countries, the negative conditionality associated with these loan bailouts along with the general austerity undermined EU economic performance and led to Europe-wide political backlash.

Rather than bold initiatives capable of quickly resolving the crisis, EU actors doubled down on the rules, sticking to neoliberal ideas that assumed that “moral hazard” was the main danger and austerity the answer. Together with the Commission and the ECB (Jones, 2015), German leaders dominated the narrative, making for their coercive power over ideas (Schmidt, 2022). Because the crisis was framed as resulting from public profligacy (based on Greece) rather than private excess (the case of all other countries forced to bail out their banks), the causes were diagnosed as behavioral (member states not following the rules) rather than structural (linked to the EMU design), leading to counterproductive remedies unable to solve the crisis (Schmidt, 2020, Ch. 9). Thus, EU leaders initially did little to fix the structure of the euro or to moderate the effects of the crisis. Instead, they chose to reinforce the neoliberal and ordo-liberal ideas embedded in the treaties by layering on new rules for more stringent enforcement of the convergence criteria toward low deficits, debt, and inflation rates. Moreover, they agreed to provide loan bailouts for countries under market pressure in exchange for rapid fiscal consolidation and “structural reforms” focused on deregulating labor markets and cutting social welfare costs, to be dictated by the “Troika” of the ECB, the International Monetary Fund (IMF), and the Commission (acting on orders of the Council) (Clift, 2018).

These many measures passed in the first 2 years thus made for minimal robustness at best. Not only was there major contestation among member states in the Council and between some member states in the Council (the “frugals” including Germany, the Netherlands, and Finland) and the Commission, but the measures taken did little to bolster EMU robustness in the medium or long term, as country after country was attacked by the markets and subsequently forced to enter conditionality programs—first Greece, then Ireland, followed by Portugal, and even later Cyprus. Repeated ECB claims that it would not back member state sovereign debt by acting as a “lender of last resort” through quantitative easing (QE) increasingly panicked the financial markets. By July 2012, however, once the markets went after Spain and Italy (two countries that were too big to bail), the ECB finally threw down the gauntlet with the ECB President Draghi’s famous pledge to “do whatever it takes” to save the euro. His statement alone stopped market attacks dead in their tracks (Moschella etal., 2020).

Moderate robustness through stealthy reinterpretations of the rules

As the crisis began slowing in 2012, European leaders incrementally began to change what they said and did in Eurozone economic governance by reinterpreting the rules and recalibrating the numbers, albeit mainly “by stealth,” without publicly admitting to these adaptations (Schmidt, 2020). All such actors had come to recognize that their policies of the previous 2 years lacked not only legitimacy in terms of results, given deteriorating economic performance (Tooze, 2018), but also political legitimacy, in light of the political backlash in the form of rising euro-skepticism and the growth of populist parties (Hopkin, 2020; Hutter & Kriesi, 2020; Schmidt, 2020, Ch. 10). Here, robustness improved as the EU actors all began applying the rules less rigidly while creating new governance instruments. But this was moderate robustness rather than maximal because the existing suboptimal rules remained, limiting how much policymakers could do to ensure long-term stability. That said, despite continued opposition from some member states, their reinterpretations did enjoy measured support from a broad coalition of actors, in particular because they helped achieve short- to medium-term policy intentions, as economic growth began to improve. Societal dissatisfaction, however, only increased. This is also when we begin to see EU institutional actors deploying their persuasive powers through ideas via discourse as they sought to legitimize their reinterpretations of the rules (Carstensen & Schmidt, 2018b), often through the use of emergency language (Rauh, 2022).

By 2012, the EU Commission began “moving the goalposts,” changing how deficits and debts were calculated while using its discretionary institutional powers to become ever more flexible in applying the rules and calculating the numbers. It gave France and Italy two 2-year extensions to meet the deficit criteria (in 2013 and 2015); it agreed to recalculate the numbers for the Spanish structural deficit (in 2013) on the basis of its unusually high unemployment rate, so that it too could avoid violating the rules; and in 2016 it recommended suspending fines for Spain and Portugal. But while making exceptions and flexible adjustments for the “normal” countries (i.e., those not in conditionality programs), it maintained a harsh discourse focused on the necessity of austerity and structural reform (Schmidt, 2020, Ch. 7). It did so because it lacked the independent institutional authority to change the rules unilaterally and because it sought to circumvent the Council’s political pressures and objections. As such, its persuasive power through ideas came not so much from the use of emergency language to justify its policies, which it used less and less in these years (Rauh, 2022). Rather, it deployed evolving discursive repertoires that slowly reinterpreted the rules of Eurozone governance (Jabko, 2019).

The Council also engaged in reinterpretation, as discursive struggles among northern and southern European member states in the Council contributed to the incremental conversion of institutions and procedures. Along with innovative instruments of deeper integration (e.g., the Banking Union, which centralized banking supervision at the European level; and the European Stability Mechanism, which offered tools to resolve failing banks using common funds) came the discursive revision of the rules concerning member state budgets and debt (SGP—Stability and Growth Pact). A coalition of southern European leaders with French backing managed to exercise their persuasive power through ideas to convince Merkel and her northern European allies to compromise by loosening the rules. By 2012, the Council moved from a discourse focused on “stability” alone to acceptance of the need for “growth,” pushed by Italian Prime Minister Monti and supported by French President Hollande, which led to Merkel’s agreement to “growth and stability.” By 2014, the Council adopted a discourse of “flexibility, pushed by Italian PM Renzi and supported by Hollande, which led to Merkel’s insistence on ‘flexibility within the stability rules’” (Carstensen & Röper, 2022; Schmidt, 2020, Ch. 5). Importantly, although this might appear to be “just talk,” since no money was attached, the change in discursive practices empowered the Commission to continue with its increasingly loose interpretations of the rules.

Simultaneously, the ECB was also reinterpreting its own rules as it engaged in a tremendous amount of crisis communication to legitimize its ever more expansionary monetary policies (Rauh,2022). Even though it continued to claim to be acting within its mandate to ensure “stability in the medium term,” it went from a highly restrictive interpretation of that mandate in 2009‒2010 to an increasingly loose one. This began in 2012 with its promise “to do whatever it takes” to save the euro, and by mid-2014 it was already announcing further reinterpretation through a QE program, to begin in 2015 (Schmidt, 2020, Ch. 6). Throughout, the ECB consciously deployed its persuasive power through ideas to legitimate its actions with a discourse that was largely welcomed without challenge (Schmidt, 2022), although over time it intensified its communications in reaction to increasing public contestation (Moschella etal., 2020).

Finally, by 2015, EU actors began admitting that they were reinterpreting the rules while discursively legitimating their reinterpretations (Schmidt, 2020). Newly appointed Commission President Jean-Claude Juncker insisted that the new watchword was investment, and the Commission created a new fund for that purpose in late 2015. Moreover, the newly appointed Commission returned to greater accountability and transparency when it admitted to easing its application of the rules, which it legitimized by insisting it had the right to do so, since it had established “rules” for its own flexibility (European Commission, 2023). The Commission also introduced new elements of solidarity, as it began to “socialize” the European Semester1 by focusing more on questions of poverty and inequality while introducing the new European Pillar of Social Rights in 2017 (Zeitlin & Vanhercke, 2018). In 2019, moreover, the Commission announced the Green New Deal to address climate change along with proposals to improve internet access through the digitization of society. Here, the main problem was the limited money with which to address these issues given the reluctance of the Council to fund such initiatives.

The splits regarding the rules among the member states in the Council began increasing in 2015. Merkel’s government continued to tout the benefits of the stability rules, applying them in particular to Germany itself, insisting on the sanctity of balanced budgets, popularly referred to as the schwarze null (black zero), limiting investment and growth. The election of French President Emmanuel Macron, who campaigned with a new vision for Europe, including proposals for an EU-level budget for investment, led some to hope for change. But that vision had little impact on Eurozone governance.

In the interim, the ECB launched QE in 2015, bringing it very close to a lender of last resort. Moreover, it continued to engage in increasingly expansive monetary policy, which finally helped stabilize the Eurozone, since QE largely eliminated the risk of market attacks for all member states. Throughout this period, the ECB significantly expanded its executive discretion as it continued to reinterpret its mandate while engaging in a great deal of public communication to legitimize its policies (Moschella etal., 2020; Rauh, 2022). The ratcheting effects of such persuasive power through ideas ensured the normalization of the ECB’s emergency politics of monetary easing, in great contrast to the rollbacks in the emergency measures of the Council and the Commission through the easing of the rules (Schmidt, 2022).

Maximal but temporary robustness in response to the pandemic

Characterized by policy innovation based on the introduction of new ideas, the response to the pandemic proved maximally robust for the time period in which it was deployed, notwithstanding initial hesitations that raised worries of a replay of the first 2 years of the Eurozone crisis. The response to the COVID-19 pandemic enjoyed broad coalitional and societal support as policymakers developed highly creative and innovative to respond to the crisis. As such, it largely met short and medium policy intentions, and even long-term ones, if we limit its definition in this instance to ensuring the survival of EMU during the pandemic. That said, although maximally robust, it was a temporary solution, since the rules were only suspended during this time period, leaving open the question of what would happen at the end of the period of rules suspension.

The decision to create the NextGenerationEU program, with the Resiliency and Recovery Fund (RRF) at its heart, is widely seen as having constituted an unprecedented integrative step for the EU since it involved the European Commission undertaking massive borrowing on the capital market for the first time (Buti & Fabbrini, 2023; Ferrera etal., 2021). Although scholars disagree on whether this was something of a paradigm shift, given the taboo-breaking nature of the RRF (Ladi & Tsarouhas, 2020), or it mainly involved policy innovation within the existing structures and ideas (Schramm, 2023), the maximal robustness of the overall response is indisputable.

Early in the crisis, however, this policy innovation was not given. EU actors were very slow to respond to the pandemic. The Commission was nowhere; the European Parliament (EP) played no role; the ECB President claimed that it was not in its mandate to deal with spreads between German and Italian bonds (triggering an increase in the spreads for Italian bonds); and member state leaders in the Council failed to act in concert, even as they quickly and unilaterally introduced major national spending policies without regard to deficit or debt limits.

Very quickly, however, EU supranational actors stepped up to the plate, suggesting that they had learned something from their Eurozone crisis experiences. The first to act was the ECB which, after its initial misstep, quickly became the “hero” of the COVID-19 crisis, as it announced major bond-purchasing programs to do “whatever it takes” to save the euro again, but this time without demands for austerity and structural reforms as in the Eurozone crisis. Its Pandemic Emergency Purchase Program was introduced much faster than in 2012 and much bigger than its 2015 QE program. Equally swiftly, the Commission suspended the European Semester budgetary criteria to allow for unlimited government spending and cleared the way for member states to rescue failing companies by suspending the state aid rules. It also put into place the European instrument for temporary Support to mitigate Unemployment Risks in an Emergency (SURE) to help maintain employment, proposed the creation of an EU-level health authority, and closed the external EU borders to travelers from outside the EU.

In contrast, the Council continued to do little or nothing, displaying the same splits as in the Eurozone crisis. It looked like a replay of the northern European power over ideas (backed up by coercive power based mainly on economic resources), as German leaders and their northern European allies again resisted action, while the French-led southern European countries pushed for quick action. This stalemate was resolved after a few months, when the French and Germans (having abandoned the frugal coalition) proposed a new €500 billion recovery fund financed by EU-level debt through grants followed by a Council vote asking the Commission to devise a plan.

The Council breakthrough came at least in part as the culmination of persuasive French power through ideas via discourse with Germany. It argued in the name of Europe for solidarity in a health crisis in which all countries were equally at risk of contagion, but some had been hit harder than others and did not have the wherewithal to recover economically without support (Crespy & Schramm, 2021). It also came with ideational changes within Germany fueled by persuasive power through ideas, arguing that this was a different sort of crisis, demanding solidarity (given the pandemic) and enlightened self-interest (given the deleterious consequences for German industry if its suppliers in Italy and elsewhere were to fail). The question remains, however, whether Germany had a lasting ideational change of heart or saw this as a one-off moment under emergency circ*mstances (e.g., Schoeller & Heidebrecht, 2023). Regardless of the particular reasons for the German shift, the EU proceeded into heretofore-uncharted territory.

In response to the Council’s request, the Commission recommended the massive €750 billion “Next Generation” recovery fund, to be financed by market-based EU bonds and made up of two-thirds grants and one-third loans, as part of a much larger multi-year EU budget (the Multi-Annual Financial Framework, or MFF) in which the EU would gain its own tax-generated resources. The RRF itself focused on paying for investment in the green transition, the digital transformation, and addressing social inequalities. Moreover, Eurozone economic governance was transformed not only as a result of the Commission suspending the rules and numbers and breaking the taboo of no EU-level debt. The Commission also revamped the European Semester from top-down oversight with negative conditionality to bottom-up promotion of investment with positive conditionality, with more carrots and fewer (but better) sticks (Vanhercke & Verdun, 2022). Ideas were thus introduced that enabled a robust economic governance approach, at least during the COVID-19 pandemic. Still left to decide was what was to happen to the fiscal rules, which were to come back into effect by 2024, and therefore required prior reform if they were not to precipitate a return to the suboptimal rules and numbers of the past.

Real reform for maximal long-term robustness?

The measures taken during the COVID-19 crisis all contributed to the largely successful management of the potentially disastrous economic fallout from the pandemic (Schmidt, 2022). The questions confronting the EU as the crisis wound down were: Will it return to the status quo ante of the fiscal rules or will it reform the rules significantly? Europe needs permanent EU-level fiscal capacity for investment and redistributive purposes to address the risks regarding sustainability, social issues, and security. Beyond this, the reform of the fiscal rules is of the essence, given the problems that would come from reinstating the unreformed rules (see e.g., Jurgeleit etal., 2022). And if no permanent EU-level fiscal capacity is forthcoming, will this mean a return to “sticks” without any “carrots?” And if so, would the European Semester still be able to succeed in its efforts to redirect member states toward the green and digital transitions while also addressing social inequalities?

The Commission proposal to reform the fiscal rules (floated in November 2022, revised in late April 2023) offered a modest revision of the numbers-based rules of the Stability and Growth Pact, focused on debt sustainability. It kept the numerical targets, notably with regard to no more than 3% deficit and 60% debt, most likely because the Commission was cognizant that Treaty change would be difficult (Jones, 2020). This would mean that, as of 2024, the 14 countries with budget deficits above 3% of GDP (representing 70% of the EU GDP) would be pushed to reduce their deficits by 0.5% of GDP or even 0.7% for four countries. That said, the Commission recommended longer time periods for meeting the numerical targets and more country-specific sensitivity when applying the rules. And it made no related proposal for a permanent EU-level debt facility, seeing little agreement coming from a divided Council, itself a missed opportunity.

In the Council, Germany again played a crucial role in the negotiations on the reform of the fiscal rules and the creation of an EU-level fiscal capacity. Its stance echoed its position at the outset of the Eurozone crisis rather than COVID-19, as it focused on pushing the EU back to the status quo ante. German Finance Minister Christian Lindner (2023) in particular called for bringing back the full force of the Stability and Growth Pack rules and numbers to ensure that all member states tighten their belts to pay down deficits and debts or suffer the consequences via the excessive debt procedure if they do not. Lindner (2022) additionally opposed any permanent EU-level fund, seeing it simply as “more debt” rather than investment in a more sustainable future. In the final compromise on the rules at the end of December 2023, Germany, with the support of the frugal coalition, ensured against any EU level fund at the same time that it imposed a more restrictive set of conditions than recommended by the Commission (including numerical targets for the pace of debt reduction), although the Commission’s recommendation for longer time periods for meeting the numerical targets and more country-specific sensitivity when applying the rules was agreed. The process is not yet over, since the EP has yet to debate the Council decision.

In the end, the upshot is likely to that EMU will be back to moderate robustness at best, without the EU-level investment capacity to meet its green transition goals, and in danger of minimal robustness in the years to come, were the rules to be applied rigorously to member states with high levels of deficit and/or debt. In such a scenario, renewed austerity could mean that output policy intentions for sustainable growth would fail in the medium and long term, coalitional support would fragment, and societal support plummet.

How do we explain the German government obsession with debt? And more specifically, its apparent lack of policy learning with regard to the lessons from the Eurozone crisis, in which the turn to austerity through rapid deficit reduction meant anemic growth and the rise of the populist extremes? Possible explanations include ordo-liberal ideas and a “stability culture” that blind German policymakers to alternatives to fiscal consolidation; resistance among German companies to internal revaluation that might deprive them of their competitive advantage in EMU; and the assumed economic benefits of such a policy for the German export-oriented growth model (Schoeller & Heidebrecht, 2023). Whatever the explanation, the German position fails to recognize the economic performance legitimacy risks of returning to restrictive fiscal rules without any EU-level investment facility, including how Germany depends on prosperous neighbors for robust export markets. Moreover, Germany also ignores the political legitimacy risks related to any return to austerity under the guise of fiscal stability, which is likely only to ignite further populist contestation.

Conclusion

The robustness of European economic governance was very much in jeopardy as the EU struggled through two major crises, first the Eurozone crisis, which started in 2010 and did not effectively end until the second crisis, and second the COVID-19 pandemic, hit in 2020. A key challenge was that the economic governance regime was at best only moderately robust in the first place. Having been the product of compromises in the 1990s that produced an incomplete European Monetary Union (EMU) in place of some kind of fiscal union (common debt), the Eurozone was instead governed by numbers-targeting rules underpinned by ordo-liberal ideas about “stability” through low deficits and debts. The initial response to the Eurozone crisis involving reinforcing the institutional rules made for minimal robustness. Although the euro was stabilized in the short term, medium- and long-term output was compromised, along with coalitional support, against a background of increasing societal dissatisfaction, all of which led to the EU’s “crisis of legitimacy” (Schmidt, 2020). Over time, however, moderate robustness returned as Eurozone governance rules were eased and partial remedies found through ongoing re-interpretative practices as member states and institutional actors employed ideational and institutional power to challenge the dominance of Germany and its northern European allies. However, only with the pandemic were long-term maximally robust solutions provided, at least temporarily, via a common debt facility and suspension of the rules. In the aftermath of the pandemic, with the reform of the fiscal rules but without a new common debt facility, the EU looks as if it will at best go back to moderate robustness.

Eurozone governance practices during the Eurozone crisis fall into three periods, followed by the pandemic as a fourth (Schmidt, 2020, 2022). During the first period (2010‒2012), EU actors led by a German-dominated coalition of northern European leaders plus the Commission and ECB used their coercive power over ideas to support ordo-liberal austerity while reinterpreting the rules of the treaties more restrictively. This made for minimal robustness, and did little to improve legitimacy, as economic performance deteriorated and political dissatisfaction skyrocketed, despite the euro being saved from total collapse. During the second period (2012‒2015), previously non-dominant EU actors began using their persuasive power through ideas via discourse to reinterpret the rules, including supranational actors (i.e., the Commission and ECB), asserting their expertise, and intergovernmental actors (mainly Italian leaders supported by the French and other Southern Europeans) contesting the northern European coalitional ideas. In so doing, they reinterpreted the rules more flexibly to ensure greater legitimacy in terms of economic performance and political responsiveness in light of the growing political backlash, but without admitting it publicly, thereby jeopardizing procedural legitimacy in terms of accountability and transparency. Nonetheless, these reinterpretations ensured a move from minimal to moderate robustness. Such moderate robustness in EU economic governance was further reinforced during a third period (2015‒2020), as EU supranational actors further eased the rules while publicly acknowledging their reinterpretations, thereby improving all three forms of legitimacy. In a fourth period, from 2020 in the midst of the COVID-19 pandemic, all EU actors, after a short delay, provided maximally robust responses (that broke with previous rules) using persuasive power through ideas via discourse to shift from a focus on “stability” through deficit and debt reduction to “sustainability” through innovative initiatives focused on investment in the climate transition, the digital transformation, and addressing inequality.

The EU now stands at crossroads. Will it come up with a new robust EU-level response to the challenges facing it, including new industrial policy and investment vehicles to combat climate change and social inequality while responding to the security risks? Or will the EU and member states at best muddle through, as the current state of affairs suggests, by returning to a slightly modified version of the fiscal rules of the Eurozone crisis and leaving the member states to their own devices with regard to dealing with investment needs (Schmidt, 2023, 7‒8)? The answer to this question will have a crucial impact on how we judge the degree of robustness of European economic governance in the future.

In the context of the existing scholarship on robustness, the theoretical perspective developed in this paper not only provides a more fine-grained analysis of robustness, by differentiating among minimal, moderate, and maximal degrees of robustness. It also gives greater prominence to power and politics in understanding the processes that undermine and support robust crisis management. The majority of work in the study of robustness thus implicitly or explicitly presents power as anathema to what produces robustness. This emerges in the limited role assigned to politics to produce robust outcomes. As noted by Sørensen and Ansell (2023, 74), “While recognizing the importance of ‘politics’, the research on robust governance tends to focus on the efficiency and effectiveness of governance arrangements, leaving politics in the background.” Even in the case of Sørensen and Ansell (2023), however, a productive role of power is only recognized to the extent that politics “can rapidly facilitate conflict mediation in ways that promote inclusion.” Generally, much of the literature has focused on ideal circ*mstances that promote robustness, but much less has been done to theorize how robustness may be obtained under less sanguine circ*mstances and the different degrees of robustness this may entail. In sum, scholarship on policy robustness neglects key insights concerning crisis management if the messy reality of contestation, politics, and power is not brought to greater prominence.

Funding

Martin B. Carstensen recognizes the support received through the Horizon Europe ‘ROBUST: Crisis Governance in Turbulent Times’, Grant no. 101061272.

Conflict of interest

None declared.

1

The European Semester is the EU framework for the coordination and surveillance of economic and social policies.

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Author notes

Submitted to the special issue “Ideational robustness: Robust policy ideas in turbulent times.”

© The Author(s) 2024. Published by Oxford University Press.

This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons-org-s-99.er.library.nenu.edu.cn/licenses/by/4.0/), which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited.

Ideational robustness of economic ideas in action: the case of European Union economic governance through a decade of crisis (2024)
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