Italy and EMU as a 'Vincolo Esterno': Empowering the Technocrats, Transforming the State

Abstract

This case study analyses how the Italian 'core executive' operated in the negotiation of the Maastricht Treaty provisions on Economic and Monetary Union. The record of the Italian negotiators on EMU is examined in the framework of a 'two-level' bargaining game. It argues that policy was largely driven by a small technocratic elite, with limited ministerial involvement. The overarching foreign policy imperatives were to maintain Italian participation at the heart of the European integration process and to reduce the asymmetry of monetary power with Germany. Domestically, however, the technocratic elite shared a belief in the need for externally-imposed economic discipline (a vincolo esterno - external constraint), to overcome the problems posed by the partitocrazia - the domination of government by parties. EMU was used to effect domestic reform by redistributing power. In the process they unleashed powerful transformative effects on the Italian state. The domestic effects of EMU were thus much more far-reaching than the Italian impact at the European level on the final EMU agreement.

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Italy and EMU as a 'Vincolo Esterno':
Empowering the Technocrats,
Transforming the State
Kenneth Dyson & Kevin Featherstone
Published online: 19 Nov 2007.
To cite this article: Kenneth Dyson & Kevin Featherstone (1996) Italy and EMU as a 'Vincolo
Esterno': Empowering the Technocrats, Transforming the State, South European Society and
Politics, 1:2, 272-299, DOI: 10.1080/13608749608539475
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Italy and EMU as a ‘Vincolo Esterno’:
Empowering the Technocrats,
Transforming the State
KENNETH DYSON and KEVIN FEATHERSTONE
This case study analyses how the Italian ‘core executive’ operated
in the negotiation of the Maastricht Treaty provisions on
Economic and Monetary Union. The record of the Italian
negotiators on EMU is examined in the framework of a ‘two-level’
bargaining game. It argues that policy was largely driven by a
small technocratic elite, with limited ministerial involvement. The
overarching foreign policy imperatives were to maintain Italian
participation at the heart of the European integration process and
to reduce the asymmetry of monetary power with Germany.
Domestically, however, the technocratic elite shared a belief in the
need for externally-imposed economic discipline (a vincolo
esterno – external constraint), to overcome the problems posed by
the partitocrazia – the domination of government by parties.
EMU was used to effect domestic reform by redistributing power.
In the process they unleashed powerful transformative effects on
the Italian state. The domestic effects of EMU were thus much
more far-reaching than the Italian impact at the European level on
the final EMU agreement.
INTRODUCTION
Our agenda at the table of the Inter-Governmental Conference
on European Union represented an alternative solution to
problems which we were not able to tackle via the normal
channels of government and parliament.
Guido Carli (1993: 435)
This research is part of a wider project entitled, ‘The Dynamics of European Monetary
Integration’, funded by the UK Economic and Social Research Council (ESRC), Grant:
R000 234293. This has been conducted in collaboration with George Michalopoulos,
Reseasrch Fellow. The current paper is based on some 37 personal interviews, which
remained confidential. We are very grateful to the interviewees for their help and
generosity. We have also benefited from the reviewer’s comments on the original draft of
this article.
South European Society & Politics, Vol.1, No.2 (Autumn 1996) pp.272–299
PUBLISHED BY FRANK CASS, LONDON
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The contemporary European integration process, under the combined
impact of the Single European Act and the Maastricht Treaty, is linked to
major processes of transformation affecting the Italian state. In no policy
sector are these processes more apparent than Economic and Monetary
Union (EMU) where Italy is threatened by exclusion from the inner core
of European Union (EU) members proceeding to Stage 3 (Sandholtz
1993; Dyson 1994). The effects can be seen in terms of the domestic
policy agenda, the relative power of key actors and the weakening power
base of the partitocrazia – the domination of government by parties. The
domestic policy agenda has shifted more decisively to budget
retrenchment, reform of the welfare state and privatization; wage and
price flexibility have taken on a new importance in a policy framework
that rules out devaluation; and constitutional questions have been raised
about the performance of the political system and the type of political
structure that can best support domestic discipline. There is also a shift
in the balance of power between domestic actors, upgrading the role of
technocrats and the Banca d’Italia (with, post-Maastricht, two senior
Banca d’Italia officials holding office as prime minister). Negotiation of
EMU has redistributed domestic political power in favour of certain core
executive actors – by strengthening their institutional position, their
information advantage and their ideological legitimation (Moravcsik
1994). More generally, the intensification of the European integration
process over the last decade has contributed significantly to the recent
upheavals in the domestic party system, as EU-inspired market
liberalization has undermined the traditional patronage system of the
partitocrazia.
1
This article focuses on how the Italian state came to negotiate and
agree the Maastricht Treaty package on EMU in 1990–91. Its focus is
thus shorter than the EMU debate leading to the Maastricht agreement
(see Dyson 1994; Sandholtz 1993; Padoa-Schioppa 1994). The EMU
debate had re-emerged in 1988: the Hanover European Council set up
the Delors Committee to investigate how it might be achieved, and this
reported in April the following year. The Madrid European Council of
June 1989 agreed that an intergovernmental conference (IGC) should be
called; this officially began in December 1990 and the process was
concluded at the Maastricht European Council one year later. By
focusing on the EMU negotiations, this article ignores the other parts of
the Treaty on European Union signed at Maastricht which contain
important provisions on foreign policy, institutional reform, and justice
and home affairs matters.
The article aims to shed light on elite attitudes towards the EU, the
internal policy processes of the ‘core executive’ in Italy, and how Italian
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actors are involved in the ‘two-level’ European decision-making process.
The main arguments are that:
(1) Within the core executive, a small technocratic elite dominated the
domestic policy process on EMU, against the backdrop of limited
ministerial intervention and a wider permissive consensus in favour
of European integration.
(2) Italian participation in the EMU negotiations displayed a
differentiated set of motives. The overarching foreign policy
imperative was to ensure that Italy remained at the heart of the
developing European integration process. EMU would have the
advantage of helping to redress the asymmetry of power over
European monetary policy possessed by Germany.
Set against this context of a rather general foreign policy interest
and limited ministerial involvement in the EMU policy sector, the
technocratic elite secured an agreement which it intended to use to
help overcome domestic policy problems posed by the operation of
the partitocrazia. These key actors consciously endorsed the notion
that Italy needed a new vincolo esterno (external constraint) so as to
impose a discipline on the state’s economic and monetary policies.
2
The ‘vincolo esterno’ thesis can be seen as a distinctive Italian strategy
within the ‘two-level’ European policy process. The detailed policy
priorities set by Italy in the IGC negotiations were entirely consistent
with this approach. The ‘vincolo esterno’ perspective stemmed from
the reaction against the economic indiscipline of the 1970s: it was
part of the collective memory of the monetary policy elite. The logic
of the vincolo esterno met the interests of the technocrats more than
the politicians: with notable exceptions, the latter were the chief
perpetrators and beneficiaries of the partitocrazia. The technocrats’
cause was helped by the fact that the relevant minister (Guido Carli)
himself came from a technocratic background: though struggling to
manage political pressures, he fully espoused their ‘vincolo esterno’
thesis.
A simple conspiracy theory to explain the motives and actions of
the technocratic elite co-ordinating EMU policy is, however,
inappropriate. The content of the EMU policy was largely beyond
their control; moreover, EMU is to be seen in conjunction with a
wider series of policy developments which are transforming the
context of monetary policy-making by a state such as Italy.
(3) The distinctive impact made by Italy in the EMU negotiations was
limited. In the overall course of events, the Italians were largely side-
players in a drama dominated by others (notably, the Franco-German
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axis). The paradox was that the need for a ‘vincolo esterno’ reflected
the lack of economic ‘clout’ in the bargaining process.
This article represents a contribution to elite studies and to studies of
bargaining processes and the legitimation of EU policies.
3
Stress is placed
on the role of agency, on the key policy personnel, their motives and
behaviour (Dessler 1987; Wendt 1989). Structural factors provide its
context. These include the nature of state-civil society relations in Italy;
the weakness of the domestic economy; the impact of market
liberalization, especially in the financial sector; the strengthening of the
Banca d’Italia over the course of its gradual ‘divorce’ from the Tesoro
(Treasury) and the strengthening of the Tesoro’s responsibility for public
debt management; and the implications of a policy shift towards
exchange rate stability. But these aspects are to be discussed elsewhere
(Dyson and Featherstone, forthcoming).
The analytical framework combines the concept of ‘core executive’,
as developed by Rhodes and Dunleavy (1995), with that of two-level
bargaining games, as elaborated by Putnam (1988). The combination of
these two concepts seems highly relevant to the EMU case across the
different EU member-states. Core executive analysis draws out the
complex processes of conflict management and co-ordination at the
heart of the national governmental machine. In the present case, the core
executive in Italy can be identified in terms of the strength and operation
of the small technocratic steering group established to co-ordinate policy
on EMU and its rather tenuous relations, in the main, with ministers
other than Guido Carli (see below). Two-level bargaining highlights the
interactivity of domestic and international/EC factors. This interactivity
can operate in two ways. Negotiators can make creative use of domestic
ratification problems to enhance their external bargaining strength (a
marked feature of British and German behaviour in the EMU
negotiations). Alternatively, they can exploit external challenges to
overcome domestic opposition to policy reform by using them to
strengthen their domestic policy position and tame domestic opposition
(the characteristic of Italian behaviour reflected in the ‘vincolo esterno’
concept).
The ‘vincolo esterno’ thesis cannot explain the entirety of Italian
motives on EMU. The permissive consensus on European integration
traditionally found in almost all sections of the Italian political system
applied also to EMU. There is no evidence of any concerted attempt by
any ‘external’ political force to intervene in any serious or sustained
manner in the governmental policy process on EMU in 1990–91. Indeed,
there was little public debate about the terms of the EMU package and
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its possible domestic implications. The overarching political imperative,
displayed by senior ministers and the general public, was the need to
ensure that Italy remained a full participant in the developing European
integration process. Latterly, the prospect of Italian exclusion from the
EU’s inner core has been something of a traumatic shock to the public
psychology. Remaining part of the game was the essential Italian interest
in EMU in 1990–91. Moreover, the operation of the European
Monetary System (EMS) had in the recent past exposed the asymmetry
of German power: informed opinion recognized that EMU would serve
to revise that structural imbalance. Tying Germany into EMU thus served
Italian economic interests; Giuliano Amato, when Minister at the Tesoro
in February 1988, had circulated a paper to his European counterparts
which was critical of German policy in the EMS, and this had helped to
shape the early debate on EMS reform.
4
Yet, these Italian interests cannot explain the preferences and
strategies of its chief negotiators on the bulk of the EMU package. Nor
do they offer any explanation of the domestic consequences of EMU. A
distinction can be drawn here between a political leadership which
provided a general policy direction to the negotiations and others who
accrued power over the policy content. This distinction may, indeed, be
relevant to the EMU process in other national settings (Dyson and
Featherstone, forthcoming). In other words, it is necessary to examine
how the core executive operated on EMU; the additional interests it
defined; and the strategies it pursued in the ‘two-level’ bargaining
process. The void is largely filled by the adherence of the key
technocratic actors to the vincolo esterno thesis. To them, the domestic
gains from almost any EMU bargain outweighed the costs to Italian
bargaining positions (and would translate into long-term international
gains). Thus, Italian negotiators consciously used EMU to tackle
domestic structural problems. By willingly ceding monetary policy
autonomy, they paradoxically sought to strengthen their domestic
political power (Grande 1995).
THE CORE EXECUTIVE ACTORS: POLITICIANS AND TECHNOCRATS
The established literature pictures an Italian government administration
coloured by the characteristics of the partitocrazia: in short, clientelism
mixed with a tendency to immobilisme.
5
A main consequence was fiscal
indiscipline and pressures on the technocrats in the Tesoro and the Banca
d’Italia to bail out the political system. This context provided a rationale
for technocrats to seek enhanced power. At the same time certain
conditions were required for them to pursue this purpose effectively.
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In the EMU case, these conditions appear to have been substantially
fulfilled. They included: the institutional condition of core executive
monopoly over major EC negotiations; the opacity of the content and of
the distributive effects of monetary policy to the wider political system,
making mobilization by sectoral interests on EMU difficult; the
privileged role of the Banca d’Italia in this policy area and its strong
backing for EMU (Goodman 1992); and the acceptance of the
philosophy of the ‘vincolo esterno’ by the Tesoro minister (Guido Carli)
and senior officials.
6
These conditions allowed a small group of senior
civil servants in the core executive to ‘drive’ the process of domestic
policy formation and EC-level negotiation on EMU, with only limited
ministerial intervention. The result was an information asymmetry in
favour of a few core executive actors who could in turn legitimate their
policies by reference to ‘Europe’. Though a crucial feature of the EMU
case, this pattern of core executive dominance is unlikely to be typical of
policy-making in Italy.
But ‘virtue’ was not the exclusive preserve of the technocratic class.
Merlini (1993) argues that there have been instances when political
leaders have displayed a strong European ambition even when the short-
term gain was not clear, and/or where the advice emanating from the
technocratic elite was ambivalent. Relevant cases here are the lead given
by Giulio Andreotti as prime minister in December 1978 in sanctioning
the entry of the lira into the Exchange Rate Mechanism (ERM) and the
approval of the single European market programme by the Craxi
coalition government, with its major domestic deregulatory
consequences.
The Maastricht case raises the question of how far the relevant
politicians understood the implications of the agreement being reached,
and how far they were able to revise it had they done so. According to
Carli, ‘The Italian classe politica did not realize that by agreeing to the
(Maastricht) Treaty, it put itself in the position of already accepting a
change of such magnitude that it would hardly leave it unscathed’ (1993:
437). The validity of this interpretation is almost impossible to answer.
Certainly, the scope for either the political class or the technocratic elite
to control the EMU process was very limited. Policy was determined in
a complex two-level game, domestic and European, with Germany as the
policy leader and the Franco-German axis as the motor. Italian policy-
makers were constrained to participate in a process beyond their control.
In any event, the key individuals involved in the preparation and co-
ordination of Italian policy on EMU can be clearly identified. In early
1990, Gianni De Michelis as Foreign Minister (from August 1989 to July
1992) convened a small steering group of officials to prepare for the
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Italian presidency of the EC in the second half of 1990. This group
comprised: Umberto Vattani (Diplomatic Counsellor to the Prime
Minister); Vanni d’Archirafi (Director-General for Economic Affairs in
the Foreign Ministry); Tommaso Padoa-Schioppa (Deputy Director-
General, Banca d’Italia); and Mario Sarcinelli (Director-General of the
Tesoro). These officials were to play a key role in the EMU negotiations
during the Italian presidency. In 1991, a revised group continued to co-
ordinate the Italian negotiating position for the IGC on EMU. Mario
Sarcinelli was replaced by Mario Draghi at the Tesoro at the end of
February 1991, and Giovanni Jannuzzi took over from Vanni d’Archirafi
at the Foreign Ministry in the following July. This group was
complemented by Rocco Cangelosi, who served as the Foreign Minister’s
personal representative in both the IGC on EMU and that on Political
Union. In the IGC on EMU, Mario Draghi was the senior Italian official,
being the personal representative of Carli, the Tesoro Minister. When the
IGC met at the level of officials (once or twice a week under the Dutch
presidency of late 1991), Draghi led the Italian team, with Cangelosi
alongside him and Augusto Zodda, Draghi’s deputy, behind him with
Francesco Papadia (of the Banca d’Italia). When the IGC met at the
ministerial level, Carli led the Italian delegation, which was joined on
occasions by the Italian ambassador to the EC.
This list of dramatis personae indicates the relatively small number of
core executive personnel involved in co-ordinating Italian negotiating
positions. To this list should be added Andreotti, as Prime Minister, and
De Michelis, as Foreign Minister. Carlo Ciampi as Governor of the Banca
d’Italia (1980–93) participated in the negotiations of the Committee of
Central Bank Governors throughout the period. Moreover, the senior
officials were supported by their own staff: in addition to Zodda for
Draghi, there were Francesco Papadia and Lorenzo Bini Smaghi for
Padoa-Schioppa, Fabrizio Saccomanni for Ciampi and Roberto Nigido
for Vanni d’Archirafi. Even with these additions, however, the total cast
of personnel closely involved in the EMU negotiations numbered no
more than 16, including two staff replacements.
Ministerial intervention was limited. Andreotti and De Michelis
displayed little interest in the policy content of EMU. Their attention
focused on EMU mainly with respect to the general strategy of reaching
an overall agreement: that is, to secure an EMU deal as part of a wider
package of integration measures, and to make the move to EMU
irreversible. Both accepted the general ideal of building ‘Europe’ and
assumed Italian participation within it. By contrast, Carli, as Tesoro
Minister, carried the chief responsibility for EMU. Yet, though he had
exceptional experience and technical knowledge in this policy area, he
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was already very old, tired and ill when the IGC began. Thus, Carli was
physically unable to endure the long negotiations. Moreover, the
structure of the IGC meant that senior officials met far more often to
negotiate the EMU package. Though Carli agreed the general priorities
and the parameters, a void remained: to be filled most directly by
Draghi. As a technocratic, non-party minister himself, in his soul he
believed in EMU as a vincolo esterno. His political position by mid-1991
was becoming increasingly compromised, however, by the last murky
days of the old-style partitocrazia, and his effectiveness was probably
reduced further because of this.
7
In the absence of a strong ministerial input on EMU, Italian
participation in the EMU negotiations emphasized the key role played by
three senior officials. Draghi, Vattani and Padoa-Schioppa formed the
nucleus of the ad hoc group co-ordinating Italian policy and strategy on
EMU. Their co-operation was ad hoc, operating only for the Italian
Presidency of 1990 and the IGC in 1991.
8
Each of the three had distinct
contributions to make: Vattani’s role was limited to diplomacy and
strategy, Padoa-Schioppa had an insider’s knowledge of the EC and the
genesis of EMU, whilst Draghi headed the IGC team. Draghi was in the
driving-seat for the IGC, reflecting the Tesoro’s responsibility for this
portfolio. The triumvirate was not of a uniform significance. Draghi was
central in 1991, but the relevance of each varied over time, issues and
setting. Moreover, though EMU was Draghi’s top priority in 1991, he
had to devote much time to other pressing domestic concerns, notably
the public debt. He faced the additional problem that he was thrown into
the EMU negotiations after they had started.
Domestic co-ordination by officials was a different matter from
‘control’ over the two-level bargaining process and an effective input at
the EC level. Some of the Italian officials most closely involved believed
that, in total, Italy ‘punched below its weight’ in the EMU policy process
– that it made little distinctive impact on the final EC agreement. This
contentious proposition can now be examined in relation to Italy’s
objectives and the final outcome.
BARGAINING POSITIONS, SUCCESSES AND FAILURES
By adopting the perspective of a bargaining process, the issues and
interests promoted on EMU by the relevant actors can be highlighted
(Dyson 1994; Sandholtz 1993). This analysis will serve to clarify the
Italian ‘win-set’ on EMU, that is the range of agreements that could be
ratified domestically. Later, some of the distinctive Italian features of
EMU bargaining as a ‘two-level game’ can be identified.
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Bargaining Positions
By 1990, and the start of the IGC, the Italian government’s position on
EMU emphasized three key policy priorities.
(a) Irreversibility and automaticity. The government sought a firm
commitment to proceed to the final goal of an EMU. Given an
agreement to proceed to EMU, the transition process should be
irreversible. Irreversibility would remove uncertainty over policy
implementation, not only at the EC level, but also domestically. All
governments could thus expect to gain from the mutually-binding
agreement in that it would send a clear signal to the international
financial markets.
For most members of the Italian co-ordinating group on EMU, this
commitment meant that Stage 2 should be as short as possible. EMU
could be secured in this way against the risk of an infinitely prolonged
transition period, which might arise from insufficient economic
convergence or the reluctance of some states to proceed to the final
objective. Instead of any further conditionality to the commitment to
proceed, progress to the final stage should be automatic on the basis of
a clear timetable.
Moreover, this commitment required that no country should be able
to block the progress of the majority to EMU. This concern was clearly
influenced by the perception of Thatcher’s opposition to EMU: it was
necessary to prevent a right of veto. Progress should be made on the basis
of majority decision-making.
At the same time, the Italian government was extremely concerned to
avoid being left outside any transition to EMU by a so-called ‘inner
group’ of EC states. The notion of the ‘vincolo esterno’ required Italy to
be bound by the discipline of participation; exclusion from any part of
EMU would threaten Italy’s economic progress and isolate it in the
international markets. The decision on which states would be allowed to
participate in Stage 3 should therefore be made by a simple majority
vote. Italy could assume that its chances of securing the necessary
support for its own participation would be greater on this basis. The
discussion on these aspects was closely linked to that of the convergence
conditions for progress to EMU.
(b) A strong institution for stage 2. The government’s approach to the
institution-building required for EMU was dominated by the beliefs of
the Banca d’Italia on EC monetary co-operation. Governor Ciampi
argued that the issue of the EMU architecture should be kept separate
from that of which states might participate. EMU should be seen as a
condominium, shared by all, and states should enter the building when
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able to do so. Such a formulation justified the Italian input into these
discussions. The Italian view of the foundations and design of the
architecture was that drawn up by the Banca d’Italia.
As part of the EMU architecture, a strong central monetary authority
should be created for Stage 2 which, together with the national central
banks, would have extensive monetary competence. This arrangement
was necessary for the gradual integration of monetary policies and for a
smooth transition to currency unification. As a matter of practicality, in
order to prepare for the formulation of a single monetary policy in Stage
3, the embryonic European central bank ‘must have a strong consultative
role on the quantitative aspects of monetary policy during the second
phase’ (Banca d’Italia 1990: 5). In particular, the Stage 2 institution
should be able to lay down monetary policy guidelines for the
Community. A new ‘vincolo esterno’ should be sustained throughout the
transition.
(c) The convergence criteria. A major determinant of when Italy might be
able to join in a full EMU was the specification of any conditions
concerning the convergence of national economies prior to entry to
Stage 3. Although the Delors Report had not adopted any explicit
conditions, such a notion was promoted later within the EC Monetary
Committee and the IGC. Italian negotiators had to react to such
proposals.
The major area of contention for the Italians was the set of proposals
on fiscal conditions. The Italian position, largely inspired by the Tesoro,
was that the setting of quantitative fiscal conditions was without
economic rationale. Setting explicit reference values for public debt and
deficits ignored the contrasting circumstances of individual states.
Moreover, setting strict quantitative conditions would make the Treaty
vulnerable to future unforeseen developments (such as adverse economic
shocks or a downturn in the business cycle), threatening a delay in
progress towards EMU. Once it realized that it was no longer possible to
avoid some fiscal stipulations, the Italian government supported the view
that such conditions should not be given Treaty status; they should be
established in secondary legislation open to subsequent modification by
the Council. This procedure would help to keep the EMU project on
course, whilst avoiding the danger of Italian exclusion by an overly-rigid
entry test.
Within the Italian co-ordinating group, there appear to have been
some differences of policy emphasis at certain stages. Two examples are
notable. First, for the Banca d’Italia, a top priority was to obtain an
agreement on a strong European monetary institution for Stage 2, not
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least to ease the transition to Stage 3. The Tesoro was expected to
advocate this case in the appropriate fora. However, in 1990 Sarcinelli
remained unconvinced of the necessity for such a strong institution in
Stage 2 (interview, 7 November 1994). By 1991, when Draghi succeeded
him and made the case, the momentum within the IGC was away from
such a notion. Draghi recognized that the battle was already lost. Second,
the Tesoro believed by 1991 that the most important issue was that of
flexible terms for the convergence criteria: they would be critical for
Italian participation. In the context of how the negotiations developed
the Banca d’Italia did not resist tough convergence criteria, based on a
different view of Italian interests. Again, however, they supported the
position of the Tesoro when required to do so. Thus, Italian attitudes
were not uniform or without differentiation. Yet the degree of consensus
that did exist was greater than that found in Bonn or London.
Negotiating Successes
In sum, the progress of the negotiations in 1990–91 indicated only
limited success for the Italian objectives. There were two notable
instances of victory: first, on the timetable and ‘automaticity’ formula to
proceed with EMU; and, second, on the introduction of a less rigid
perspective on the fiscal element in the convergence conditions. The
former achievement came at the last stage of the negotiations in
Maastricht; the latter involved a rearguard action to fend off the pressure
for a tough stance by the Germans and the Dutch. Apart from these
items, the Italian ‘success’ was the general one of having helped to
establish an agreement to proceed with EMU – a policy seen as, in its
overall effects, beneficial at home. In other words, relatively few
successes could be ascribed primarily to the Italian negotiators. They
were side-players to the dominant Franco-German axis.
The balance sheet of the EMU negotiations can be differentiated
according to the three priority goals that the Italian negotiators set
themselves. With respect to the commitment to go ahead with EMU, the
Italian government can claim two notable successes. First, at the Rome
European Council of 27–28 October 1990, Andreotti, as Prime Minister,
engineered an agreement that Stage 2 of EMU should begin on 1 January
1994. This agreement overcame the differences of view within Germany
on the matter, and it circumvented the entrenched opposition of Britain
and Denmark to giving such a commitment. Andreotti’s contacts with
other EC leaders prior to the Rome meeting, and the heavy spade-work
of Vattani, had established that EMU would be the main item on the
agenda. At a meeting of the European Peoples’ Party a few days before
the Rome Council, Chancellor Helmut Kohl told Andreotti that he was
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ready to set a date for Stage 2 at this first Rome Council, but that he
might not be able to do so if the issue was deferred to the second Rome
European Council in December – which coincided with the German
federal elections (The Economist 3 November 1990). Kohl favoured 1
January 1994 for the start of Stage 2. In giving this signal, Kohl was
prepared to override a domestic dispute between Hans-Dietrich
Genscher (as Foreign Minister) who favoured a start date of 1 January
1993 (the single market launch), on the one hand, and Theo Waigel (as
Finance Minister) and the Bundesbank, on the other, who opposed
setting any fixed date. In responding to Kohl’s signal, the Italians were
moving well ahead of the discussions that had taken place in an ECOFIN
meeting in Rome just six weeks earlier, which had displayed major
differences of view on Stage 2.
The UK government sought to block this agenda. De Michelis on a
visit to London in mid-October pressed Thatcher to accept that EMU
should be the major item on the agenda of the Rome Council. He
stressed that he was prepared to be very flexible in the drafting of the
relevant text for discussion: no reference to a ‘single’ currency would be
made, for example (interview, 5 February 1996). This approach was
intended to be accommodating to the British government’s separate
initiative on an alternative ‘hard ECU’ plan. Thatcher rejected his
attempt at conciliation. In the week prior to the Rome Council,
Andreotti attempted to persuade Thatcher at Chequers of the same
agenda. But at the European Council Thatcher sought to turn the
discussion towards the GATT dispute. Andreotti, who reportedly had a
distinctive attitude to the bombast of the British prime minister, simply
ruled that the GATT issue was not on the agenda: confident that neither
the French nor the Germans were keen to discuss that issue. Thatcher,
who would not survive in office much longer, later commented that
Andreotti’s chairmanship had been ‘incompetent’ (The Economist 3
November 1990).
The Italian presidency steered the summit discussion towards the
content of the communiqué that it had already drafted prior to the
meeting. Delicate diplomatic efforts weaved agreement on a Council
text. Vattani was the main interlocutor for the Italians with each of the
other government delegations, both in the two weeks prior to the
summit and also at the European Council meeting. The text favoured by
the Italians was not shown to all parties. Early discussions were not based
on a written text for fear of upsetting the favoured outcome. At Rome,
the Italian presidency told Niels Ersboll, the Council secretary, that it
would submit the text on EMU itself at a late stage, indicating the desire
to keep control of the wording. When, on the fringe of the Council
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meeting, Nigel Wicks from the British Treasury told Vattani that the
British could not accept the text prepared by the Italians, they agreed
that the British would make a separate statement at the end of the
summit. The complete Italian text, with a separate British draft, was only
circulated to each national delegation at 5 a.m. on the last day of the
meeting.
In this way the Italian presidency managed to secure a surprisingly
strong conclusion to the Rome European Council of October 1990 (see
Cangelosi and Grassi 1996). By ‘hiving-off’ the British opposition, it
made more progress than Jacques Delors or De Michelis had thought
possible. The success was reflected in several key points. First, it
established the goal of a ‘single currency’. The draft Italian text of the
last day had referred to the goal of the EC establishing its ‘own currency’
rather than a ‘single currency’, a stipulation designed to appease the
British. At a 7 a.m. meeting of the Italian delegation – involving
Andreotti, De Michelis, Vattani, Padoa-Schioppa and Vanni – Andreotti
said that the phrase ‘own currency’ could now be replaced as the British
were making their own separate statement. Andreotti proceeded to
check the revision with Kohl, who agreed; the Italian text was thus
strengthened. Second, the Rome meeting could boast that a date had
been set for Stage 2 with few conditions attached, in line with Italian
preferences. In addition, the Italian presidency believed that its text
committed the EC to a strong monetary institution in Stage 2, as it very
much desired (see discussion below).
More substantially, another related Italian success on the issue of the
EMU timetable would come at the end of the process at the Maastricht
European Council of December 1991. The Italian negotiators were
successful in having their own formula on ‘automaticity’ accepted in a
last minute settlement. At the last IGC before Maastricht, Pierre
Bérégovoy, the French Finance Minister, raised the idea of inserting dates
into the timetable for Stage 3. Ministers and their officials discussed the
notion informally over lunch (interview, 13 December 1995). Both the
French and the Italians had long favoured such a commitment. In the last
days prior to Maastricht much attention seems to have been focused on
this in different capitals, albeit in strict privacy. On the plane to
Maastricht, Padoa-Schioppa advised Andreotti that success was now
possible on setting an ‘automatic’ date for Stage 3 (interview, 14 June
1995). The French and the German governments were both referring to
EMU being ‘irreversible’. Andreotti and Padoa-Schioppa agreed a
formula for the start of Stage 3. Andreotti put the general notion to
Mitterrand at a dinner on the first night at Maastricht. At a breakfast
meeting of the Italian delegation the next morning, Andreotti reported
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that Mitterrand had agreed to this proposal. Vattani liaised with the
other delegations, especially the Germans. The European Council
approved the proposal, and the ECOFIN ministers were instructed to
put it into the Treaty. The final agreement combined dates with a
complex procedure: a qualified majority in the European Council before
the end of 1996 could set a date for Stage 3; if no date has been set by
the end of 1997, Stage 3 will begin on 1 January 1999 (Art. 109j of TEU
1992). Thus, whilst others were focused on the theme of automaticity,
the actual formula was originated by the Italians. This initiative was
possibly the most significant, lasting single success for the Italian
negotiators during the whole EMU process.
Negotiating Failures
Perhaps the greatest area of failure for the Italians was the design of the
institutions for the transition to EMU. Here the Banca d’Italia had staked
out its most prominent position. It preferred to specify as much as
possible the detailed arrangements for Stage 2 and believed in a strong
ECB to govern this key transitional phase. The progress of the EMU
negotiations left this position increasingly isolated. In the event, the
Maastricht agreement fell well short of these objectives.
The Italians felt that they had scored a notable victory with their
writing of the conclusions of the European Council in Rome in October
1990. They referred to:
the creation of a new institution comprising Member States’ central
banks and a central organ, exercising full responsibility for
monetary policy.... At the start of the second phase, the new
Community institution will be established.
The Italian presidency (Padoa-Schioppa, in particular) attached great
significance to the use of the definite article to refer to the new EC
institution at the start of Stage 2. It meant that the institution created in
1994 would be the ECB in Stage 3. This stipulation, and other references
in the Rome communiqué, suggested that a strong institution would be
established at the start of Stage 2. Certainly, much discussion had taken
place at Rome on this phrasing. The Dutch and the German delegations
insisted on the use of the indefinite article in the communiqué, precisely
because they wanted to have an institution in Stage 2 which possessed
only limited powers. During the Rome gathering, Vattani pressed the
Germans to agree to the Italian wording. Joachim Bitterlich, from the
German Federal Chancellor’s Office and representing Kohl, accepted
this wording, despite being aware that neither the Bundesbank nor the
Finance Ministry would want it. The Italians reportedly diverted the less
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pliable German Finance Ministry official present to a meeting on GATT,
in order to concentrate on winning over Bitterlich (interview, 13
December 1995). This outcome left the Dutch isolated at Rome. As the
Dutch were the only ones to raise any objection later in the full meeting
of the Council, Andreotti was able to override their opposition. To the
surprise of many (including Delors and De Michelis), the Italian
presidency had scored a notable victory for their position.
9
However, the success of the Rome European Council proved to be
short-lived. The finance ministers at their first IGC meeting in December
1990 agreed that ‘the’ in the Rome communiqué actually meant ‘a’
central monetary institution. The Germans and the Dutch sought a
minimalist institution, and the British sought to avoid any significant
institution-building at all. In February 1991, the Germans proposed a
modest revision of the existing Committee of Central Bank Governors
for Stage 2. Only the Italians and Delors defended the position of the
Rome communiqué. The French were moving away from this position in
the first half of 1991. In April 1991, Baron Snoy for Belgium proposed
the modest title of ‘European Monetary Institute’ for the new body. But
it was the Dutch, not the Luxembourg, Presidency that took up the ‘EMI’
notion. The full shift was sanctioned at an informal ECOFIN meeting at
Apeldoorn in September 1991. There it was agreed that the Stage 2
institution should be known as the EMI, leaving the ECB for Stage 3.
After the Apeldoorn meeting, the IGC negotiated the structure,
presidency and legal powers of the EMI.
One limited success was achieved by Carli at Apeldoorn. Encouraged
by Ciampi, the Italians proposed that the EMI should not exist alongside
the ECB after the start of Stage 3. This proposal aimed to avoid the
problem of some states, such as Italy, being excluded from the
management of the ECB after they had participated in the EMI. It was
also consistent with Ciampi’s notion of building the EMU architecture.
The Germans and the Dutch continued to oppose this formulation until
the last IGC before Maastricht.
The definition of the EMI’s role meant that the EC was rejecting the
assumptions of the Delors Report, the conclusions of the Rome Council
and the traditional ‘Community method’ of creating an institutional
‘engine’ to oversee the full period from transition to completion (Bini-
Smaghi et al. 1994: 35). The Stage 2 institution would be more than the
current informal and voluntaristic EC Committee of Central Bank
Governors (CCBG), but much less than the ECB in Stage 3. Many of the
detailed provisions for the EMI were settled by bilateral Franco-German
negotiations, with the Italian negotiators attempting to define the agenda
one stage removed.
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From Rome to Apeldoorn, the Italians had experienced a failure to
sustain their stance on institution building. After Apeldoorn, with a new
agenda, they enjoyed some limited success in persuading others of the
technical merits of their case. The Italian delegation was satisfied with
the decision to have an external president for the EMI; with the EMI’s
financial autonomy; and with the allocation of other responsibilities to
the EMI. But, though they had wanted the EMI to have full legal
authority, the EMI’s decisions were not to have the status of Community
law and were to be subject to the approval of the ECB upon its creation.
The Italian delegation was also satisfied that some provision for
preparing for Stage 3 was made in the EMI’s statute (albeit less than the
Banca d’Italia thought technically necessary). The Banca d’Italia and the
Tesoro had authored a joint paper detailing the responsibilities that the
Stage 2 institution should have and the transitional arrangements that it
might make. However, its partners had regarded such detailed
preparation as premature. Cees Maas, as IGC chair, was reluctant even
to discuss the paper (interview, 16 November 1995). In the final phase
of these negotiations, though, the Italian approach received some
support from the German delegation. In particular, after a bilateral
Italian-German meeting of officials in Milan in October 1991, Horst
Kohler – the senior German Finance Ministry negotiator – seemed to
recognize that the proposals of the Banca d’Italia on this matter did not
represent a threat to the Bundesbank’s authority in Stage 2. In December
1991, Carli was successful in establishing that the EMI should prepare by
the end of 1996 the ‘regulatory, organizational and logistical framework’
for Stage 3 (Art. 4.2 of Protocol on EMI). Papadia had drafted a text on
this, which Draghi and Carli had presented.
Yet the final design of the Stage 2 institution was much weaker than
that originally sought, especially by Padoa-Schioppa and the Banca
d’Italia in 1990. Kenen (1992) concluded that the final construction of
the EMI was much closer to the model promoted by the Germans and
the British than that originally advanced by the French and the Italians.
The Italian stance had been weakened by the shift of position by the
French early in 1991: an example of a wider pattern in which the French
effectively eschewed coalitions with the Italians in this period in favour
of hammering out common positions within the Franco-German axis
(see below).
The Italian objective of seeking to avoid strict and numeric
convergence criteria for entry to Stage 3 was also a battle lost in most
respects. In one sense, there was a clash of interests for the Italian
government on this issue. Tough conditions would establish a more
credible ‘vincolo esterno’: but, the tougher they were, the more difficult
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it would be for Italy to participate in the first place. Carli’s belief in the
utility of a ‘vincolo esterno’ led him to accept the principle of there being
tough convergence criteria. But the Italian delegation’s reservations
focused on the practical definition and status of these conditions. Carli
and Draghi were in the driving seat on these issues; ultimately, they had
the responsibility to evaluate the deal that was available. They were
placed in an awkward position: to be perceived as seeking more flexible
conditions might be interpreted as defending the interests of Italy’s weak
fiscal position – thereby alienating the Germans and Dutch (and
increasingly the French) – and as weakening the impact of the ‘vincolo
esterno’. In any event, compared to the Italian stance of 1990, the final
package at Maastricht was very different in content. Tough convergence
criteria were adopted, with strict and numeric reference values. Indeed,
the criteria were so tough that the prospect of Italy being able to
participate in Stage 3 by 1999 was soon seriously in question.
By the second half of 1991 the main issue of contention for the Italian
delegation was the nature of any fiscal conditions for entry, involving
references to national debts and deficits, as well as the legal status of any
such commitment. On this specific issue, at the last stage the delegation
and Mario Draghi in particular, achieved some success. The Italian
delegation persuaded its partners to introduce a wider, more flexible
perspective on the fiscal tests. An agreement early in 1991 on a formula
to identify excessive deficits had been later reinforced by a reference to
quantified criteria. The focus now turned to the level at which the
reference values should be set. Agreement on a 60 per cent debt-to-GDP
ratio was reached, leaving the debate to focus on the proposal of the EC
Monetary Committee for a 3 per cent deficit-to-GDP ratio. The Italian
delegation, and some others, believed that such a definition could be too
restrictive in certain economic circumstances, noting that conditions vary
across member states. Draghi urged greater flexibility in its
interpretation. Jean-Claude Trichet, his French counterpart, was the
porte-parole for this shared view in the IGC. The French proposed a new
form of words, and were supported by both the Italians and the British
(Nigel Wicks) in doing so. Article 104c(2) subsequently incorporated a
dynamic element in the assessment of a member state’s budgetary
situation: public deficit and debt above the reference value might not be
judged ‘excessive’ if they declined sufficiently and continuously towards
the relevant value. It was also agreed to state the reference values in a
protocol to the Treaty, making them amenable to subsequent amendment
by the Council of Ministers, acting unanimously. In addition, the Italians
joined others in pressing, successfully, for the EC Commission to have
the task of evaluating the degree of convergence achieved by member
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states, albeit supported by an advisory committee of national appointees
(Arts.104c, 109c). The Commission could be expected to favour as wide
a membership of Stage 3 as possible. The success in establishing a more
dynamic interpretation of fiscal rectitude was, then, a shared one: the
Italians managed to persuade the more powerful French delegation to
take up this cause.
The Italian government’s decision to offer itself as one of the first to
submit an EMU convergence programme to its EC partners must be seen
in this context. At an ECOFIN meeting in Luxembourg in spring 1991,
the Dutch had presented, in rather dramatic terms, the case for a ‘crash
programme’ of budget austerity by the EC partners. This proposal was
expressly designed to deal with a worsening budgetary situation in Italy:
the Dutch feared that the Germans might back out of an EMU deal
(Connolly 1995: 262). Carli was enraged, citing the damaging effects
that the use of such language might have on market behaviour (interview,
5 February 1996). Nevertheless, the Italians accepted that the EC
momentum was behind such measures, and perhaps rightly so. The
intention to submit a convergence programme was announced after the
Luxembourg European Council, and it was duly submitted to the
ECOFIN meeting on 11 November 1991. This move served to establish
the government’s ‘good faith’ in the context of increasing pressure for
budget discipline and at a time when the Italians were pressing for more
flexible rules in the IGC.
The question arises of why the Italian IGC delegation agreed to what
were still very tough fiscal conditions. All were aware that Italy would
have severe difficulties in meeting such a test. Various explanations can
be offered. First, their support for a ‘vincolo esterno’ implied a certain
degree of toughness. At home the attitude towards the convergence issue
appears to have differed within the IGC co-ordinating group. The Banca
d’Italia, and Padoa-Schioppa in particular, gave a much lower priority to
this issue. The Tesoro was left to grapple with Italy’s conflicting interests
in this respect, and Carli was the major advocate of the ‘vincolo esterno’
thesis. The convergence criteria represented a domestic weapon, as well
as a test of external rectitude. Without them, Carli and Draghi believed,
the politicians could not be relied upon to accept long-term budget
discipline. Second, the Italians were in a weak negotiating position. Given
Germany’s policy leadership on EMU, and the reality of the Franco-
German axis on EMU, they had little scope to block tough criteria, even
if they had wanted to. The insertion of the ‘trend’ notion could be sold
as a point of reassurance – in effect, a form of ‘side payment’ to give Italy
an incentive. Third, the Italian negotiating position was further
undermined by the weakness of its alliances on EMU. In particular, the
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French proved less reliable for the Italians during 1991 as they sought to
establish a reputation as part of a German-Dutch ‘stability-oriented’ EC
core. Finally, and above all, the Italian government wanted an agreement
at Maastricht and had to recognize that the only deal available must
accept German policy leadership on EMU.
Establishing a firm commitment by the EC to proceed with EMU
meant that the Italian government took a firm stance on Britain’s
reluctance to commit itself to a single currency. Andreotti had isolated
Thatcher at the Rome European Council in October 1990, as had his
predecessor Bettino Craxi at the Milan summit of June 1985 on the
decision to hold an IGC that culminated in the Single Act. In 1991 the
Italian negotiators were sceptical that any single treaty could be accepted
by all 12 governments: thus, if it persisted in opposition, Britain must be
isolated. The Italians seemed unaware of the terms of a private
understanding reached between Kohl, Lubbers and Major at the
Luxembourg European Council (Hogg and Hill 1995: 81–2). This
understanding was that the British would negotiate in good faith, but
that they would be offered an opt-out if at the end of the process they
felt unable to sign up for EMU. The IGC negotiations were thus left to
run their natural course.
The issue of opt-in/opt-out was raised most prominently during the
Dutch presidency. At the end of August 1991, the Dutch chair of the IGC
officials, Cees Maas, produced a proposal which would have granted all
governments the right to decide whether they wished to join Stage 3 at
the date that a future Council agreed the final phase should start. This
proposal involved little prior commitment to EMU by any government.
A revised text circulated by Wim Kok, the ECOFIN President, a month
later and the full draft treaty circulated by the Dutch on 28 October were
barely more acceptable to the Italians. Roberto Nigido emphasized the
dangers hidden in a less than lucid Dutch text. The Italians lobbied hard
on this issue, notably in two bilateral meetings (of officials) with the
Dutch in the Hague; a separate meeting (of officials) with the Germans
in Milan, and in a formal bilateral meeting of Andreotti and President
François Mitterrand in Perugia (Italy). Draghi, Vattani, Padoa-Schioppa
and Nigido pressed the Dutch on the terms of any opt-out. On 8
November, Draghi sent an official memorandum to the Dutch, French
and German governments and to Delors setting out the Italian
opposition to the Dutch text of 28 October. The Italian government was
the only one to reject a general opt-out in any guise; it was totally united
in doing so. It opposed a later compromise offered by Belgium and
Luxembourg which would have given an opt-out to all in the expectation
that the majority would immediately renounce it. The Italian officials
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believed that this issue could not be settled within the IGC, but that it
must be placed on the agenda at Maastricht. This background helps to
explain the attention that the Italians gave to the ‘automaticity’ formula
at Maastricht.
In sum, the Italian ‘win-set’ on EMU appears to have been relatively
broadly cast, with a large degree of permissiveness. Hence it was not
possible for the Italian negotiators to make much use of the bargaining
strategy of ‘binding themselves’ by stressing domestic constraints on an
EMU agreement. The Italian team lost on the issue of institution-
building for EMU in Stage 2, but this was clearly not a sticking point for
an agreement. Moreover, the deal struck on ‘automaticity’ at Maastricht
was regarded as the ‘cherry on the cake’ (interview, 14 July 1995):
desirable, but not an essential condition. The related issue of a possible
general opt-out was fought vigorously by the Italians. On this one issue
there was a greater likelihood that they might not have signed at
Maastricht. It is a matter of speculation whether the Italians might have
rejected a deal which was significantly more restrictive in its convergence
criteria. Most of all, Andreotti, and his team, clearly accepted that a deal
had to be signed at Maastricht in December 1991. During the
negotiations they were prepared to show a fair degree of flexibility in
order to secure that deal.
HOW ITALIAN NEGOTIATORS PLAYED THE ‘TWO-LEVEL’ EMU GAME
Italian participants in the EMU negotiations recognized their two-level
nature and the dynamic interactivity of EC and domestic factors. As one
senior official commented:
We always had a sense of a double-level strategy. You had to be
rather restrictive in Brussels – or, rather, seek to slow a liberalizing
momentum – in order to have more room for manoeuvre at home.
In Rome, we transmitted the sense of urgency of reform, and also
emphasised that we had fought a strong battle in Brussels. We were
caught in between.
10
The ‘vincolo esterno’ involved a particular version of a two-level
game: here the domestic ‘reverberation effects’ were of prime
importance. EC-level developments and commitments were used by
Italian elites to restructure the domestic policy process, thereby revising
the balance of power between key actors and opening up new
opportunities for policy reform at home. This use of the EC to transform
the Italian state is not unique: indeed, similar cases can be cited over a
longer period. They include the use of the EC to help to:
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(i) shift domestic policy towards disinflation during the 1980s;
(ii) initiate the ‘divorce’ of the Banca d’Italia from the Tesoro in 1981 and to
complete it in the reforms of 1992–94, following the Maastricht Treaty;
(iii) justify the measures to induce greater wage and price flexibility,
culminating in the abolition of the scala mobile (the Italian system
of wage indexation) in 1992;
(iv) use the introduction of freedom of movement of capital after 1990
to press ahead with market-oriented adjustment; and
(v) bring about convergence policies, including the Italian government’s
initiative in 1991 in offering a convergence programme for
ECOFIN scrutiny.
At the same time the attraction of EMU as a ‘vincolo esterno’,
empowering Italian technocrats to overcome domestic constraints, was
not matched by substantial Italian leverage in the two-level game. The
choice of strategy in a two-level game is not always easily determined,
but the Italian position was undermined by clear weaknesses: structural
power rested with German negotiators and within the Franco-German
axis (to which Italian negotiators had to adapt), whilst the breadth of EC
support in Italy meant the ‘win-set’ on EMU was relatively large. These
factors reduced the scope for Italian participation in package deals, side-
payments and threats of rejection – the normal fare of successful
bargaining. In addition, once Italian negotiators had accepted the value
of using EMU as a device for more effective domestic discipline, it
became less easy to introduce into bargaining arguments fears about the
consequent degree of ‘pain’. Their relations with their EC counterparts
were conditioned by the fact that it was relatively difficult for the latter
to calculate what deal would ultimately lead to rejection by the Italian
negotiators. More basically, the weakness of the Italian economy at home
undermined the negotiating power of the Italian representatives at the
IGC. An additional factor in closing a deal at Maastricht was the
calculation that such a deal would sustain the political capital of a
government (and a system) increasingly tarnished by scandal and
undermined by an immobilismo. The Italian government faced
impending parliamentary elections which were expected to be difficult.
The danger of no agreement being reached, and the fear of exclusion
from a deal that might be struck by the stronger economies, led the
Italians, as well as others, to cede much ground to the German
negotiators. These concessions were important in improving the
prospects for the EMU agreement being ratified in Germany. As one
senior Italian official put it, ‘the Germans set a high price, and then they
were surprised when we indicated we were prepared to pay it’ (interview,
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7 November 1994). In any event, Kohl and Genscher were probably as
accommodating as any German leaders could be.
Italian negotiators sought to strengthen their EMU bargaining
position by attempting to build alliances with their partners. However, in
the critical period they could not disturb the Franco-German axis, and
Italy was not a crucial coalition partner for either. The IGC negotiations
were, inevitably, surrounded by a plethora of bilateral contacts of
different types. Away from the IGC table, the Italian government had
important bilateral meetings. As already noted, the onset of the Italian
EC presidency in 1990 involved a large number of bilateral meetings at
the level of ministers and officials. In the second half of 1991, crucial
bilateral meetings on EMU were held with the Dutch (in The Hague);
the Germans (in Milan); and the French (in Perugia). In addition, the
normal exchange visits between finance ministry officials of the four big
EC states became enveloped by the EMU debate.
The Italian and British positions on EMU were, with rare exceptions,
very far apart. Mrs Thatcher had felt ambushed at the Rome European
Council meeting of September 1990, and this had soured relations.
Whitehall was clearly wary. A letter from Draghi to Cees Maas (22
October 1991), suggesting that states with a derogation or ‘opt-out’ from
EMU should not be eligible for financial assistance designed to foster
convergence, received a sharp rebuke from Nigel Wicks. The chief
British negotiator on EMU found the Italian position ‘unhelpful’ and as
challenging the positive spirit of the British team (Letter from N. Wicks
to C. Maas, 25 October 1991). Moreover, a later letter from Draghi to
Maas opposing a general opt-out was not circulated to London, a clear
recognition of the divide between the two camps (Letter, 8 November
1991). On EMU, there was simply little scope for the two governments
to build alliances. By default, the Italians were left to try to break into
the Franco-German axis on EMU. In sharp contrast, both the British and
the Italian governments were able to work together for the IGC on
Political Union: both governments issued a joint declaration on security
and defence matters in October 1991.
During the course of 1991, the French stance on several crucial issues
moved away from that of the Italians towards that of the Germans. An
alliance with the Italians, given their domestic economic weakness, was
seemingly less attractive, whilst compromise with the Germans was
viewed by Paris as more urgent and without alternative. As Bini-Smaghi
et al. (1994) note for the later stages of the IGC,
The pro-EMU influence that France and Italy tried to exert was
weakened by their failure to act convincingly on two points that
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were crucial for the German block: respectively central bank
independence [the Stage 2 European monetary institution] and
fiscal adjustment. (our parenthesis)
On both points, the Italian position had maintained a strong
consistency; the French stance shifted towards Germany. Likewise, both
France and Italy initially opposed any reference to long-term interest
rates in the EMU convergence conditions. In the end, Germany won on
this point. France and Italy opposed setting the entry conditions for
Stage 3 in the main body of the treaty. But France moved closer to the
German position on this point also (Bini-Smaghi et al. 1994: 23).
Indeed, on several important issues concerned with the technical
design of EMU – notably on the conditions for entry to Stage 3 and the
central institution for Stage 2 – the Italian negotiators were more willing
to press the Germans strongly for compromise than were their French
counterparts. On some issues – notably central bank independence – the
Italian position was actually much closer to that of the Germans than was
the French. In any event, the French appear to have held back in 1991,
prompted by the increasing strength of the French franc and a belief that
the problem of fiscal imbalances could wreck the EMU objective.
CONCLUSIONS: EMU, TECHNOCRATIC EMPOWERMENT AND
TRANSFORMATIVE EFFECTS
This article has argued that the Italian core executive set only general
policy priorities on EMU: the main foreign policy imperative was to
ensure that Italy remained at the heart of the developing European
integration process. In addition, there was a desire to redress the
asymmetry of monetary power possessed by Germany in the EMS. These
interests cannot explain, however, the preferences set by the Italian
negotiators on the bulk of the EMU package. Nor do they provide the
basis for any explanation of the domestic consequences, foreseen or
unseen, of EMU. Moreover, the limited ministerial input into the EMU
negotiations obscures the operation of the core executive on this matter.
By examining the role of a small, technocratic elite charged with co-
ordinating EMU policy – and taking account of the additional interests
it defined and the strategies it pursued in the ‘two-level’ bargaining
process – a more complete picture emerges. Here, a central component
of the explanation is the adherence of the key technocratic actors to the
vincolo esterno thesis.
Several factors colluded to make this ‘vincolo esterno’ strategy so
attractive to them. EMU would in effect tie the hands of those involved
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in the system of the partitocrazia by altering the future structure of
incentives and constraints in which they operated; EMU would provide
a small technocratic elite with privileged information over other actors
and a strengthened legitimation. The distributive effects of EMU were,
at least during the negotiations, too complex, diffuse and uncertain for
interest groups to mobilize against the strategy; whilst, by exposing a
crisis of structural weakness in the Italian economy, a new opportunity
was being created to gain acceptance for radical domestic measures
legitimated by EC requirements.
The nature of the Italian state led to the perception that similar
reform would be much more difficult to achieve by domestic actors
acting alone. Here history offered a lesson internalized by the
technocratic elite (Giavazzi and Spaventa 1988). Their memory was of
how during the 1970s currency instability, high inflation and fiscal
profligacy had accompanied a weak ‘vincolo esterno’. By contrast, EC
obligations since the onset of the EMS in 1979 were seen as enhancing
Italy’s international competitiveness. The ‘vincolo esterno’ thesis is thus
based on historically engendered policy beliefs, and it exploits and
reinforces the high degree of legitimacy accorded to the EU by the Italian
political system.
A relatively wide domestic ‘win-set’ combined with the weakness of
the domestic economy to undermine the external bargaining strength of
Italian negotiators. Their distinctive impact was limited to certain areas,
notably ‘automaticity’, fiscal convergence and, less directly, institution-
building. But all along, the scope for success of Italian negotiators was
also limited by German policy leadership and the difficulty of breaking
into the Franco-German axis. In the IGC, they remained for the most
part side-players, dependent for what success they could achieve on the
collusion of French and German negotiators.
Two central issues are the motivations of the relevant core executive
actors in Italy and the effects of EMU as a process of transformation.
Here it is argued that Italian negotiators were using EMU to strengthen
the state’s domestic capacity to act in relation to major problems of
structural adjustment, by weakening the position of opponents of
reform. The specific beneficiaries were the technocratic elite co-
ordinating EMU policy, rather than the politicians, who were much less
involved. In effect, considerations of bureaucratic politics and the
advancement of agency interest became married to a strategy of
enhancing technocratic control over domestic policy outcomes. EMU,
and the allied processes of financial market liberalization and exchange
rate stabilization, led to an enhancement of technocratic power over the
partitocrazia. As one senior observer commented,
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Today, the Banca d’Italia and the Tesoro are the import agents and
the authorized interpreters of the austere market sentiment. The
relative power of both institutions (vis-à-vis markets) has declined,
but the relative power of their technocratic heads has increased vis-
à-vis that of the ministers (interview, 15 December 1995).
In effect, Italian negotiators had imported, and were sharing in, an
EC-wide process of displacement of power to finance ministries and
central banks consequent on the EMU process.
Whilst the motivation behind the discipline of the EMS and of EMU
was to strengthen the relative bargaining power of the technocratic elite,
one should beware of crude conspiracy theory, along the lines of
Connolly (1995). Core executive behaviour on EMU was not principally
motivated by calculations of personal power (interview, 11 December
1995). The core motivation was to establish a more effective economic
discipline at home and to keep Italy in the EU club. Beyond that, EMU
– like the wider process of liberalization in the EC – was too highly
complex a phenomenon to ‘control’, involving a plethora of unforeseen
and unintended consequences. The relative power of the key domestic
institutions was greater before liberalization; though afterwards, senior
technocrats enjoyed an enhanced role as conduits of market and EC
pressures. In short, the EMU bargaining process unleashed EC-level
outcomes that were beyond the capability of a small elite to control.
If the ‘vincolo esterno’ is one side of the coin of Italian attitudes to
EMU, the other side is the transformative effect on the Italian state.
These effects involve the capacity for action of the state and who benefits
and who loses (cf. Walsh 1994). That action capacity is strengthened in
relation to monetary stability but potentially weakened in terms of social
solidarity. Budget retrenchment and welfare reforms favour the interests
of savers over welfare recipients; labour market deregulation shifts
power away from trade unions. As EMU becomes linked in a clearer way
to specific distributive effects and to debates about reform of political
structures, it will be drawn into new domestic problems of legitimation.
Meanwhile, in addition to representing the search for a strengthened
technocratic capability, EMU is to be conceived as embodying a
profound transformation of the domestic policy agenda and of the
distribution of domestic political power (cf. Gourevitch 1978; Milward
1992). That transformation process can be seen as inherently dynamic
and difficult to steer, raising not least powerful new legitimacy problems
for the political system.
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NOTES
1. This point was raised by a number of interviewees and it is consistent with the
arguments of Carli (1993) and Monti (1992). Regonini and Giuliani (1994:124) argue
that the shift towards liberalization in Italy in the 1980s was much more modest than
often assumed, yet they recognize that public policy has been through a profound
redefinition. On Italy and the EU more generally, see Francioni (1992).
2. The notion is most commonly identified with Guido Carli and Mario Monti; see most
recent acknowledgement of this by Michele Savati in Il Sole-24 Ore, 26 April 1996);
but see also, for example, Giavazzi and Pagano (1988) on the EMS as a vincolo esterno.
3. See, for example: Putnam (1973) and (1976) on elites; Evans et al. (1993), Putnam
(1988) and Moravcsik (1993) on two-level bargaining games; and Beetham and Lord
(1996) on legitimacy and the EU.
4. See Il Sole Ore, 25 Feb. 1988. Together with papers from Edouard Balladur (France);
Hans-Dietrich Genscher (Germany) and Gerhard Stoltenberg (Germany) during the
same period, this helped to shape the revival of the debate over EMU (see Dyson
1994:125–9).
5. There is, of course, a substantial literature on this tradition, but see, in particular:
D’Auria and Bellucci (1995); Hine (1993); Furlong (1994); La Palombara (1987).
6. The culture of administrative elites in Italy may in a much wider sense be prone to
favour northern Europe, as opposed to the Mediterranean. See Cavalli (1992: 395).
7. See the resignation letter of Mario Sarcinelli, when he left the post of Director-General
in the Tesoro, reprinted in Il Mondo, 18 March 1991. Sarcinelli resigned over Carli’s
acquiescence to foreign aid to eastern Europe and the Middle East: he saw Carli as
giving in to De Michelis and felt this was symptomatic of the fiscal laxity of the current
political leadership. The resignation letter is a severe condemnation of such laxity and,
in particular, of an entrapped Carli. It suggests the stature and authority of Sarcinelli,
who was the longest-serving DG in the modern period and clearly a forceful figure to
confront a minister. Piero Barucci, minister at the Tesoro between June 1992 and May
1994, has published his account of his term of office (described as a record of avoiding
failure) and refers to the nature of the ministry as an ‘island’ in a turbulent world
marked by populist politics (Barucci 1995: 319).
8. Until Feb. 1991 Sarcinelli was DG at the Tesoro and a key participant in the ad hoc
group; Draghi succeeded him.
9. In Dec. 1990 the Banca d’Italia presented a report to the Committee of Central Bank
Governors entitled ‘The Functions of the European Central Bank in the second phase
of EMU’. It drew a distinction between the ‘qualitative’ and ‘quantitative’ aspects of
monetary policy. It recognized that the ECB should take the lead on the former aspect.
10. This comment was endorsed in essence by other interviewees, but it should not be read
to suggest deceit or inconsistency – rather, the distinctive feature of the two-level
process.
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