EU fiscal governance and the managerial reformatting of neoliberal constitutionalism

Abstract

This article analyses the EU’s Stability and Growth Pact (SGP) to challenge interpretations of neoliberalism as an international project. The fiscal rules of the SGP are a paradigmatic example of how neoliberalism uses constitutional techniques to put limits on national democracy. These rules, however, have never worked as intended with adherence having been the exception rather than the norm. Although scholars readily admit neoliberal rules misfire in practice, conceptualisations of neoliberalism have remained largely unscathed. In contrast, this article argues that techniques of budgetary planning have had a more crucial impact on neoliberal fiscal governance than legal rules. In the case of the SGP, supranational actors have been empowered not by their capacity to put constitutional limits on public expenditure, but by analysing and intervening in the purposes and uses of public finance through managerial techniques of budgetary planning. In making this argument, I argue that neoliberal rules matter to international fiscal governance only through their failure. Instead, supranational institutions have been empowered in the neoliberal era through a managerial reformatting of governance.

Introduction

The last decade has seen the rise of supranational institutions as a discretionary force of governance. This was most visible in Europe during and since the euro crisis. The International Monetary Fund (IMF) and European Union (EU) were involved in punitive and hastily packaged bailouts akin to ‘fiscal waterboarding’, overriding the democratic sovereignty of a number of European states (Varoufakis, 2017). The European Central Bank (ECB) embarked on unprecedented monetary interventions far beyond its mandate, underlined by the former ECB President Mario Draghi’s commitment to do ‘whatever it takes’ to save the Euro. These discretionary interventions during the euro crisis were used to deepen austerity. But the malleability of supranational institutions has since at least 2014 taken form in a more relaxed approach to the SGP, flexibly reinterpreting new rules that had been introduced in 2011 (Mérand, 2021). This went further in March 2020 where, in response to the COVID-19 pandemic, the SGP’s rules were temporarily suspended entirely.

This rise of discretionary governance at an international level challenges many existing accounts of how neoliberalism works. International institutions have had an important place in accounts of neoliberalization. The SGP has been a principal example of this in Europe, but similar dynamics have been observed elsewhere. The enforcement of free trade rules through the WTO, or the coercive structural adjustments imposed through the IMF, speaks to how international institutions have been crucial to processes of neoliberalization (Peet, 2003). Scholars have seen the importance of these institutions in how they use constitutional means to secure market freedoms, depoliticising governance by taking democratic decisions out of the voting public’s hands. In a classic formulation of this, the SGP has been said to act in budgetary affairs as a form of what Stephen Gill called ‘new constitutionalism’, legally locking in limits on the progressive use of national public finance (Gill, 1998). More recently, Quinn Slobodian has provided an intellectual lineage to this as a ‘globalist’ project of ordoliberalism that legally constrains majoritarian national democracy and postcolonial resistance to ‘encase’ markets at a global level (Slobodian, 2018).

Scholars well recognised the rise of discretionary supranational interventions since 2010 and explored how it may signify a shift in neoliberalism from this rules-led ‘new constitutionalism’. A number of concepts have arisen capturing these dynamics such as authoritarian statism (Sandbeck and Schneider, 2014), bureaucratic Caesarism (Durand and Keucheyan, 2015), authoritarian neoliberalism (Bruff, 2016), crisis constitutionalism (Bieling, 2015), authoritarian liberalism (Bonefeld, 2017) or authoritarian constitutionalism (Oberndorfer, 2015). Many of these concepts update Gill’s new constitutionalism to make sense of the rise of supranational discretion. The foundation of neoliberalism’s supranational mechanics is still said to be focussed on the law. But, in times of crisis, scholars argue that the state’s coercive authority is mobilised through a ‘politics of exception’ – stepping outside of the legal order for the purpose of reaffirming its boundaries.

This article challenges such depictions. I argue that when it comes to neoliberalism’s international dynamics rules do not rule, and discretion is not exceptional. To make this argument, I focus on the case of the SGP. ¹ From the earliest days of the Eurozone, the SGP’s nominal legal order has struggled to bite. It took just a few years following the SGP’s adoption for France and Germany to rebut the austerity demands of the European Commission. Moreover, as the unravelling of global finance tore through the public coffers of the Eurozone’s most precarious members, enforcing the SGP’s nominal rules looked comically irrelevant. Instead, first in 2005, and later in 2010, major reforms to EU fiscal governance attempted to develop a means to steer budgeting beginning from a premise that fixed rules provide little leverage over national governments both in and out of crisis.

I argue that we should conceptualise neoliberal fiscal governance by highlighting this managerial function that has developed in response to the failure of nominal rules. Supranational actors in the EU have been ineffectual at placing legal boundaries on national budgets. But they have been consistently empowered as a budgetary planner of fiscal policy at critical junctures of SGP reform. Budgetary planning does not mean macro-fiscal powers akin to Keynesian demand management. Instead, it refers to micro-budgetary techniques like medium-term forecasting, fiscal modelling, cost–benefit analysis, or policy evaluation that are used to manage public finance.

Such is the expansion of supranational institutions’ budgetary planning powers that in 2010 Commission President José Manuel Barroso described incoming reforms as a ‘silent revolution’ expanding the European Commission’s intervention tools (Phillips, 2011). As planning has been woven into the fabric of EU fiscal governance, supranational institutions have found themselves fulfilling a radically different function than neoliberals had imagined and critical theorists have supposed. Although austerity has been relentlessly pursued in the EU, I argue it has been by managerial rather than legal means. What this means is that EU supranational institutions have increasingly focussed on managerial tasks of information processing (monitoring policy performance through number-based governance tools) and strategizing (writing targets or development plans) rather than traditional legal functions of rule writing and enforcement. This has created a form of fiscal governance in Europe directed not through the needs-based automatic stabilisers of a Keynesian utopia, nor the expenditure control of neoliberal dogma, but of managerial targeting and punitive conditionality.

The article has three sections. First, I engage with the neoliberalization literature’s oscillating emphasis on the legal rules of ‘new constitutionalism’ and an executive ‘politics of exception’. I argue that despite the SGP being held in the literature as exemplifying this dynamic, neither side of this coin adequately captures the manner in which neoliberal governance has developed. The second section develops my conceptual framework to make sense of neoliberal internationalism by placing it within a growing literature on the ‘managerial lineages of neoliberalism’ (Knafo et al., 2018). I build on this literature to account for the role supranational institutions have played as one component of a broader rise of managerialism in the twentieth century. The third section applies this conceptual framework to re-historicise EU fiscal governance. I show how the EU’s challenge of enforcing legal rules across national borders meant the SGP’s planning elements have been highly prominent as it has been implemented. To conclude, the article considers the political implications of focusing on the managerial aspects of supranational neoliberalization.

Neoliberal fiscal governance between constitutionalism and a politics of exception

‘New constitutionalism’ is among the most widely mobilised concepts describing neoliberalism’s international dynamics (Gill, 1998; Gill and Cutler, 2014: p. 5). ² It refers to a ‘political judicial’ governance structure that uses ‘specific locking-in mechanisms (laws, rules, regulations, procedures and institutions, such as independent central banks) associated with neo-liberal patterns of accumulation’ (Gill and Cutler, 2014: pp. 5–7). Scholars using the concept have made significant contributions to make sense of the fact that neoliberalism has not been about a straightforward reversal of state intervention. Instead, the concept reveals the new forms of political-judicial authority that entrenches market rule at a specifically supranational level by putting legal limits on majoritarian national democracy. More recently elaborating this point, Quinn Slobodian argues that neoliberalism is an international project of ‘market encasement’ (Slobodian, 2018). Slobodian provides a rich intellectual and political history to reveal how neoliberalism uses supranational legal institutions for the ‘complete protection of private capital rights’ (Slobodian, 2018: p. 12). Slobodian builds his analysis by highlighting a distinctive lineage of German ordoliberalism. This article is not the place to dwell on the intricacies of this lineage (See Biebricher and Vogelmann, 2017; Hien and Joerges, 2017). Instead, it is sufficient to say that the literature on ordoliberalism generally provides the intellectual genealogy for what scholars characterise as ‘neoliberal constitutionalism’.

In both Gill and Slobodian’s framing, constitutional rules have been key to our conceptualisation of neoliberalism’s supranational mechanics. Given this fact, developments since at least the financial crisis have posed a major puzzle to the neoliberalism literature. In Europe especially, Treaty-breaching bailouts and extraordinary monetary policy interventions belied the supposedly rules-based order of new constitutionalism. Suddenly, scholars had to make sense of how increasingly emergency-driven and discretionary political responses could be made to fit with this understanding of neoliberalism as a supranational project of legally encased market order. To get around this, scholars have widely turned to a ‘politics of exception’ to highlight neoliberalism’s authoritarian character (Bruff, 2014; Tansel, 2016; Best, 2017). If, at its core, neoliberal constitutionalism is about legal order, then the discretionary interventions seen in the Eurozone have been understood as a temporary diversion in times of crisis, organised around a mission to re-establish stability for a market order.

This dual framework of neoliberal constitutionalism and a politics of exception has been highly fruitful in revealing both neoliberalism’s global character and countering simplistic narratives of footloose capital. It has brought perspective to how supranational institutions are used in authoritarian ways to reproduce inequalities. In making sense of EU fiscal coordination, however, it does pose a series of challenges. Most fundamentally, as I show in this article, the suspension of the SGP’s rules has not been the exception but has instead been the norm over its history. It took only a few short years following the SGP’s adoption before the EU’s most powerful governments (France and Germany) were flouting the rules. Moreover, despite the widely identified beefing up of the Eurozone’s rules in the 2010 ‘Six-Pack’ and ‘Two-Pack’ reforms, there were substantial deviations and flexibility built into the measures that always diluted them as authoritative tools of constitutionalised austerity. Elaborating this point, Andrei Guter-Sandu and Steffen Murau show how Eurozone fiscal governance has gradually evolved from neoliberal rules to a highly complicated ‘fiscal ecosystem’ of off-balance sheet juggling acts (Guter-Sandu and Murau, 2021). Although rules are frequently written in the Eurozone, fiscal governance is a far more complicated affair where statistical wizardry and politicised negotiation dictate compliance.

Scholars routinely admit neoliberalism misfires in its implementation (Best, 2020). Yet this misfiring is often considered as just a symptom of neoliberalism’s contradictions. As such, the step is rarely taken to systematically think through the nature of neoliberalization beginning from the premise that it does not match up to the ‘new constitutionalism’ that usually frames discussions. As I argue in this article, in the case of the EU, the slippage of rules is not an exceptional phenomenon. Rather, legal scholars of the EU have for over a decade highlighted the profound departures of EU governance from the supposedly constitutional foundations inspired by ordoliberalism. This has often been described as a turn to so-called ‘soft law’, where new tools of governance have moved away from the traditionally disciplinary power of binding law (Dawson, 2011). To this extent, Christian Joerges argued that the Maastricht Treaty marked ‘the erosion, rather than a consummation, of the ordoliberal project’ after which EU governance has undergone a process of ‘delegalisation’ (Joerges, 2017: p. 181). Key to this was the rise of the so-called ‘governance agenda’ since the 1990s that placed soft law techniques into the heart of the EU’s institutions. In particular, the rise of techniques like benchmarking or scoreboarding, such as in the Open Method of Coordination (OMC), infused the EU with a managerial rationality focussed on setting strategy, governing through numbers, and fuelling a huge industry of policy evaluation.

In Stephen Gill and Claire Cutler’s framing, the rise of techniques like benchmarking and soft law are said to be well captured by the new constitutionalism concept. They argue they are ‘safety valves for capitalism’ managing (in a Gramscian sense) neoliberal hegemony by signalling a policy interest in issues of social protection without using binding rules that could threaten the integrity of a market order (Gill and Cutler, 2014). Such allowances arguably do little justice, though, to capture the enormous distinctions between the ordoliberal-foundations of ‘new constitutionalism’ and the ‘new governance’ legal scholars of the EU have been highlighting for over a decade. Whereas ordoliberalism preaches principle-based governance and the fundamental primacy for the rule-of-law, ‘new governance’ is led by what Joerges calls a ‘transnational executive machinery’ where numbers dictate strategic interventions and law is treated as a managerial tool to responsively adapt rather than a set of fixed obligations to follow (Joerges, 2014).

Given this fact, this article challenges the idea that neoliberalism’s supranational mechanics should be understood in terms of an interaction between a norm of constitutional order and an exception of executive discretion. Instead, I argue that the contradictory oscillation between these two ideas within the neoliberalism literature speaks to the need for an alternative conceptual vantage point. In the next section, I develop my conceptual framework by introducing an alternative lineage of managerialism as one such perspective which a subsequent section will explore in relation to EU fiscal governance.

Budgetary planning and international fiscal governance

There is a growing literature on managerialism in the study of neoliberalism (Knafo et al., 2018; Beck and Germann, 2019; Eagleton-Pierce and Knafo, 2020; Knafo, 2020). A key premise of this literature is that managerialism is more than a technical means to pursue neoliberal ends as Foucauldian literature has often treated it (e.g. Davies, 2014; Brown, 2015), and is not derivative from the ideas and politics of a ‘neoliberal thought collective’ (See Mirowski and Plehwe, 2009). Instead, it calls attention to a growing historical literature that has been exploring the legacies of Cold War planning as a way to rethink the nature of governance in the neoliberal era (Mirowski, 2008; Erickson, 2015; Amadae, 2016; Rindzevičiūtė, 2016; Andersson, 2018). Managerialism has a longer history tied to the rise of industrial capitalism (See Chandler, Jr, 1977). Emphasises of the managerial lineages of neoliberalism, however, point specifically to shifts in the post-war era with the rise of management sciences (rather than scientific management) directed by new techniques like cost–benefit analysis, system analysis, or linear programming – as well as developments in digital computing.

This literature on the managerial lineages of neoliberalism offers a novel framework to make sense of the longstanding and widely observed discrepancy between neoliberal thought and practice. Rather than re-evaluating neoliberal theorists to make sense of its practices, this managerialism literature argues that many of the practices we struggle to reconcile with neoliberal thought in fact come from somewhere else. As such, the managerial lineage of neoliberalism can offer an illuminating conceptual framework for my effort to make sense of EU fiscal governance as it is practiced rather than designed.

In looking at fiscal governance, budgeting has an important place in the history of managerialism. In the 1960s, countries across the OECD experimented with a new managerial approach to budgeting called the ‘Planning, Programming, and Budgeting System’ (PPBS). It first emerged in Robert McNamara’s war machine at the US Defense Department, building on new techniques of ‘systems analysis’ that came out of the Cold War think tank the RAND Corporation, which is at the centre of the managerial lineage (Knafo et al., 2018). Systems analysis was a tool of decision-making that emphasised evaluating various courses of action in terms of costs and benefits, manipulating parameters over means and ends in deciding what action to pursue. Systems analysis was originally used to make decisions over expensive defence investments. Where massive amounts of money were required to wage nuclear war, and the consequences of a poor use of funds meant annihilation, systems analysis provided a set of techniques through which decisions could be apparently put on a scientific basis.

PPBS attempted to apply systems analysis to the process of budgeting. It hoped to establish a stronger link between the objectives of public policy and their financial implications. In doing so, it introduced a radically different notion of budgeting. Rather than simply resource allocation or expenditure control, budgeting became construed as a decision-making tool to determine the purpose of policy. In the end, PPBS collapsed under its own weight of ambition and paperwork. Despite promising at the beginning of the 1960s to revolutionise budgeting as a rational process of planning, Aaron Wildavsky highlighted how ‘everywhere PPBS was praise; everywhere it ran into serious difficulties’ (Wildavsky, 1974: p. 182). Despite this, the actual techniques of budgetary planning proved more relevant than ever as an economic approach to questions of policy continued to have a draw for policy-makers. Although PPBS as a reform movement quietly slipped off the agenda, the fields of public management and policy analysis it germinated came to redefine the nature of social science and the political terms of debate around the question of policy choice through tools like rational choice theory, cost–benefit analysis, the language of economics, and the authority of the manager (Berman, 2022).

One space where the logic of managerial planning reverberated after the demise of PPBS was at the international level. Indeed, the rise of intergovernmental organisations (IOs) has been one of most striking institutional features of the neoliberal era. Giving shape to this rise, scholars have noted the importance of quantitative governance techniques like ranking and benchmarking (Broome and Quirk, 2015). For much of this literature, the significance of benchmarking as a technique of global governance has been in the alienating properties of quantification. International institutions have been seen to use quantification to produce a ‘construed objectivity’ that stakes their claim in policy processes as ‘cognitive authorities’ (Broome and Seabrooke, 2012; Broome and Quirk, 2015). What I argue here, however, is that the significance of techniques like benchmarking is not per se in the quantification they perform. Instead, its importance lies with the alternative conception of governance it implies that echoes a legacy of planning, and the way this had a special appeal for IOs.

IOs suffer from a perennial problem, which also makes them distinct from states, that they lack an independent coercive infrastructure and means of financing through which to govern. They are instead largely dependent on nation-states to implement their policies faithfully and fund their activities. Planning, however, gave IOs a set of techniques to get round this. By rethinking governance – and budgeting in particular – as a strategic decision-making process of goal setting and performance monitoring, fed by the quantification of social and economic life rather than dollars, planning techniques presented IOs with a mode of governance that evaded the constraints they faced. Rather than attempting to force countries to follow directives in the absence of a coercive architecture, IOs have focussed on harmonising statistics to compare countries’ policy performance. Rather than attempting to develop an independent means of financing for purposeful interventions, IOs have built policy making leverage by developing indicator-based strategic objectives against which to benchmark countries. Just as planning involved shifting away from using budgets as an instrumental tool of governance to a more detached process of decision-making, techniques like benchmarking have been used by IOs to evade the fact that they have limited independent financial and coercive policy tools. I argue that these observations reflect the importance of the legacies of budgetary planning in the making of supranational institutional authority. It is through the history of planning, therefore, that I argue we should conceptualise how neoliberalism has worked at an international level.

As the next section will show, the history of EU fiscal governance offers an important example of how techniques of planning have been mobilised by supranational institutions to deal with their constraints. National government have consistently opposed the legal authority of EU institutions to compel them to stick to the deficit limits of the SGP. They have instead routinely called for greater flexibility. Operationalising this flexibility, governments have traded off legal sanctions for deeper budgetary surveillance and personalised evaluations of compliance in successive reforms to the SGP. As discretion has become the norm in EU fiscal governance, the SGP has been reoriented (in the Commission’s own words) into a tool of budgetary planning. It is through this emergence of supranational planning that I argue we should conceptualise neoliberalism’s globalizing institutional dynamics.

The failure of neoliberal constitutionalism and rise of Eurozone planning

When the Economic and Monetary Union (EMU) was agreed at Maastricht in 1992, it was decided that monetary union would not bring with it fiscal and political union. Although members of the EU would share a currency and deeply integrate their economies, there would be no collective fiscal means to perform traditional functions of a monetary union like macroeconomic stabilisation or financial redistribution. Despite widespread criticism, the agreement at Maastricht, followed up with the 1997 SGP, relied on a system of legally enforceable rules on the size of debts and deficits. It was this governance design that led to Stephen Gill’s concept of ‘new constitutionalism’. The privileging of price stability over full employment, and constitutionalised spending limitations over discretionary fiscal capacities, led many to identify in Maastricht a neoliberalization of the European project (Bieler and Morton, 2001; Van Apeldoorn, 2003).

Often neglected in theorisations of neoliberal constitutionalism is that the SGP was in crisis from almost the beginning of its implementation. What was meant to limit state debts and deficits through constitution, quickly hit the political and administrative realities that it was both electorally unpalatable and technically difficult to control state spending through rules. The first major blow to the EU’s economic governance tools came in 2001. In the face of an overheating Irish economy, the Commission issued a critical recommendation to the Irish government over proposed tax cuts in its 2001 budget. ³ The recommendation adopted by the Council in 2001 called on Ireland to take ‘countervailing budgetary measures during the current fiscal year… [to] ensure that no reduction in the underlying budgetary surplus from 2000 takes place’ (Council of the European Union, 2001). The response from Ireland was robust. Framing the issue in longstanding tropes of integration as an incursion into ‘Irish national interest and sovereignty’, the Irish government mobilised perceptions of the inherent illegitimacy of the EU making political interventions into domestic economic policy (Meyer, 2004: p. 821). Criticising the BEPGs directly, the Irish Minister for Finance Charlie McCreevy made clear they had little relevance to domestic policy making, arguing ‘[w]e are not bound by the Broad Economic Policy Guidelines because, as their name suggests, they are broad and they are guidelines’ (Staunton, 2001).

By 2002, the SGP itself was thrown into doubt. Rising deficits in Germany, France and Portugal led the Commission to appeal to the Council to launch proceedings over excessive deficits. But, despite growing breaches of the SGP’s rules, national governments refused to recognise the legal weight of the SGP and trigger the sanction process for excessive deficits. German Chancellor Gerhard Schröder declared that, despite Germany’s deficit, it would not be aiming for a balanced budget. In May 2003, he stated that his domestic political commitments trumped any international agreements of the SGP (Heipertz and Verdun, 2010: p. 139). Similarly in France, the rules of the SGP proved too much to bear compared to domestic political priorities. In 2002, the passage of a French budget by increasingly unpopular Prime Minister Jean-Pierre Raffarin included income and corporation tax cuts and increased military and welfare spending. The European Commission was not happy (Heipertz and Verdun, 2010: p. 133). Neither were fellow Eurozone governments. A Eurogroup meeting in October saw French Finance Minister Francis Mer refuse to amend their budget, triggering ‘the most serious rift in the group since the launch of the euro’ (Heipertz and Verdun, 2010: p. 133). Frustration with the inflexibility of the SGP’s rules was growing. In October 2002, Commission President Romano Prodi declared it was ‘stupid, like all rigid decisions’ (Heipertz and Verdun, 2010: p. 135).

At the end of 2003, the SGP was effectively suspended. The crisis came after the Council refused to accept the recommendations proposed by the Commission to punish France and Germany via a blocking majority of larger states. Rather than adopting the Commission’s recommendations, as was required by the legal steps of the SGP, the Council adopted their own conclusions. The moment was pivotal for the development of the SGP. Its legal authority was lost (Heipertz and Verdun, 2010: p. 148). Political opposition to supranational intervention in the sacred area of fiscal policy exposed the idea of internationally constitutionalised austerity as illusory.

In response to this crisis, the SGP was reformed in 2005. There were four major changes: 1) More focus was placed on debt and sustainability, rather than a rigid deficit criterion. 2) The objective of ‘close to balance or in surplus’ was replaced by country-specific ‘Medium-Term Objectives’ (MTOs) for deficit reduction. 3) Country-specific economic circumstances were considered in the Excessive Deficit Procedure (EDP), thereby making the procedure tailored to individual country assessments rather than an automatic legal process. 4) Enhanced surveillance and action were introduced at the preventive stage of the SGP.

At first sight, the effect of these changes was a weakening of the SGP. For Waltraud Schelkle (2009), however, the reforms of 2005 did not weaken the SGP. They changed its logic. What was previously a rules-based instrument governing a perceived moral hazard risk became a mechanism of fiscal coordination concerned with the ‘sustainability of public finances’ (Schelkle, 2009: p. 834). In doing so, I argue this shift pushed the SGP towards a managerial form of budgeting akin to PPBS of the 1960s. There were two components to this: 1) the growing invasiveness of fiscal governance brought by the shift onto the ‘sustainability’ of public finance and 2) the rise of a strategic rather than legal orientation to fiscal governance through notions of budget ‘quality’.

The call to focus on the sustainability of public finances, and not just the quantitative level of debts and deficits, was central to the reform of the SGP (European Commission, 2004a: p. 4). The call came from a desire to take into consideration various exceptional circumstances and economic developments faced by the member states in the handling of their public finances. ‘Sustainability’ offered a more complex approach to governing state budgets than nominal rules did. It focused on a longer time horizon and budgetary composition, rather than just headline nominal debt and deficit figures. This more tailored approach, however, meant much more budgetary information was required by the Commission to make its assessments. This included a more systematic and harmonised submission of medium-term budgetary forecasts (which many states had barely begun to develop a capacity for) and more detailed information over the contents of state spending.

The effect of the shift to ‘sustainability’ in the SGP, then, was to expose member states to far greater levels of budgetary scrutiny from European authorities than under the nominal rules of the early SGP. The Commission described how, under the SGP’s reformed Code of Conduct, the submission of ‘detailed government expenditure and revenue account… has now become fully mandatory, while in the past only total revenue and expenditure, interest and balances were’ (European Commission, 2006). Remarkably, these ‘detailed accounts’ of expenditure touched almost the entirety of government policy. The Commission described how it used a ‘relatively broad definition of net implicit liabilities’ that would analyse vast and fundamental areas of redistributive policies like ‘pensions, health and long-term care, unemployment benefits and education’ (European Commission, 2007: p. 92). This was an ironic development in EU fiscal governance. The move to consider sustainability had come from an intention to limit European intervention into national budgeting. Surprisingly, though, the 2005 reforms were empowering the Commission to analyse the contents of national budgets in far greater detail.

Alongside sustainability, the SGP reforms called for a focus on ‘budget quality’. Whereas sustainability gave the Commission unprecedented access to national budgets, quality allowed European authorities to pass normative judgements in their analysis, shifting the logic of the SGP from one of legally determined expenditure control to the analytically determined strategic use of public finance. Like many new terms introduced into European discourse, the concept of quality was undefined. Operationalising quality was undertaken in the Public Finances in EMU – 2004 report (European Commission, 2004b). The report landed on a definition of quality that emphasised a managerial orientation to budgeting, highlighting the use of public money for the pursuit of strategic objectives in ways first seen in 1960s planning experiments and being widely reintroduced as part of the New Public Management (NPM) movement (Schick, 1990). The report argued that ‘the quality of public finances concerns the allocation of resources and the efficient and effective use of those resources in relation to identified strategic priorities’ (European Commission, 2004b: p. 185).

Building on this managerial definition of quality, the Commission proposed a generalisation of techniques of cost–benefit analysis within member state budgetary assessments as the means of determining it. The report described how through a ‘shift in focus from cross-country differences in fiscal aggregates towards the techniques and institutions that can be used to improve the quality of public finances… the technique of cost–benefit analysis (CBA) provides for the essential criterion for distinguishing between “productive” and “non-productive” public investment’ (European Commission, 2004b: p. 202).

In combination, the turn to sustainability and quality since the 2005 reforms radically altered the logic of the SGP. Far from being a constitutionalised instrument of austerity, it was becoming a coordination process of managerial planning. This was a point the Commission itself made explicit. Two DG ECFIN Commission officials, Servaas Deroose and Sven Langedijk, argued the 2005 reforms were ‘reorienting the Stability and Convergence Programmes towards strategic planning and away from the description of the annual budget bill’ (Deroose and Langedijk, 2005: p. 20).

Financial resources of the EU’s own, large enough to perform redistributive or stabilisation functions, had been politically foreclosed since Maastricht. Instead, ‘new constitutionalism’ has been the manner through which the neoliberal Eurozone has been understood – the use of international rules to discipline national governments into spending limits. But, as this section has shown, the fiscal rules of expenditure control in the SGP proved infeasible in the face of resistance to the EU’s legal authority. The SGP was consequently remade in the 2000s. It became less a neoliberal device for constitutionalised austerity, but instead a planning tool that required the reorganisation of domestic budgetary processes to feed a European information processing machinery. This has ironically empowered supranational institutions like the European Commission. Although governments attempted to evade the coercive power of supranational institutions, the 2005 reforms remodelled the Commission as a planner of fiscal policy, processing information on, analysing, and strategically intervening in the uses of public finance. Although the actual capacity of the EU to steer budgetary planning is certainly questionable, this ironic rise of supranational actors through the managerial reformatting of fiscal governance is among the most profound shifts of the post-Maastricht era. As the next section shows, despite the apparent resurgence of rules during the euro crisis, budgetary planning has in fact been solidified and normalised further.

The ‘Silent Revolution’ of the New Economic Governance

The overhaul of Eurozone governance following the euro crisis has been regarded by many as the epitome of authoritarian neoliberalism, using coercive power and a ‘politics of exception’ to re-establish the rules-based market order. Building on a narrative that the crisis was a consequence of failing to enforce the rules of the SGP, policy-makers reformed Eurozone governance to restore its disciplinary power and beef up sanctions for recalcitrant states. In the so-called New Economic Governance (NEG) that was adopted, the Commission was to be re-emphasised as the administrative enforcer of the EMU’s legal order that the 2005 reforms had undone.

There were three major changes to the SGP in the 2011 reforms. 1) Sanctions were added to the preventive arm of the SGP. 2) Disciplinary measures were broadened to cover states exceeding the 60% debt limit and not just deficit limits. 3) Reverse Qualified Majority Voting (RQMV) was introduced that meant a Commission proposal would be considered adopted unless a majority in the Council could block it. Overall, the changes vastly ramped up the SGP’s legal disciplinary intent – sanctions were intended to be adopted earlier, on more issues, and with less political manoeuvring.

Yet, in a familiar pattern, the implementation proved something different. To begin with, the rules were never as stringent as commonly imagined. Despite the well-publicised beefing of rules and sanctions in the Eurozone, the new SGP had significant discretion and complicating ambiguities built into it. An ‘expenditure benchmark’, alongside the already ambiguous indicator of a ‘structural deficit’, diluted the simplicity of the SGP and created options over how compliance was determined ‘effectively allowing cherry-picking by Member States of the measure less unfavourable’ (European Fiscal Board, 2019: p. 85). Other forms of flexibility built into the reformed SGP included an unusual events clause, an escape clause for severe economic downturns, and a series of permitted factors in assessing whether to open an EDP (European Fiscal Board, 2019: p. 83). This was in addition to the flexibility already added in 2005 on allowances for structural reform, implicit liabilities, and investment. Although the beefed up rules of the SGP made headlines, the significance of the actual reforms in 2011 vastly complicated the governance of deficits and debts through a number of new procedural steps and allowances.

If the new rules were loose, their implementation was even looser. The flexibility of the EU’s new rules has been actively mobilised since 2011 as national and European policy-makers have juggled the post-crisis ‘double dip’ recession and have continued to politick around who should be subject to discipline (Schmidt, 2020; Mérand, 2021). European Council conclusions in June 2014 said that the need for economic growth ‘requires making best use of the flexibility that is built into the existing Stability and Growth Pact rules’ (European Council, 2014). Following this up, the Commission issued an ‘interpretative’ communication in January 2015 that reconsidered the SGP much more flexibly (European Commission, 2015). The Commission highlighted three factors that would give national governments greater ‘fiscal space’ while remaining compliant with the SGP – public investment (specifically contributions to EU investment programmes) would not count towards deficits; structural reforms would be taken into greater consideration; and a country’s position in its business cycle would be considered (Sarmento, 2018: pp. 29–30).

Stretching this flexibility to its fullest, and giving almost total latitude to the Commission in its assessments, was the 2017 addition of a ‘margin of discretion’ into the SGP’s preventive arm (European Fiscal Board, 2019: p. 21). The change came out of heated clashes between Brussels and Italy over the country’s budgetary plans in 2016 (Brunsden, 2016). A precedent had already been set a year earlier in Spain, after a divided Commission equivocated over pursuing disciplinary action against the country potentially missing its deficit target. Compromising with the Italian government, the Commission proposed adding a ‘margin of discretion’ which allows Member States to be compliant with the rules, even if the indicators suggest a deviation from their deficit reduction objectives. The addition was only used for 2018, afterwards being dismissed by member states (European Fiscal Board, 2019: p. 86). Nevertheless, the use of the provision reflected how far the SGP had come from the draconian rules proposed in 2011. Although the reforms had preached rules, in practice it was political discretion which was implemented. For Dermot Hodson, the intensity and frequency with which the rules of the SGP have been put aside since the crisis reforms ‘challenge [s] claims that the Stability and Growth Pact entails a rigid set of fiscal rules’ (Hodson, 2017: p. 128).

This dilution of the SGP as a set of disciplinary fiscal rules was taken to its fullest extent with the COVID-19 pandemic. In Spring 2020, the Commission announced the SGP would be temporarily suspended entirely, allowing countries to do whatever it took to combat the economic consequences of the pandemic. Significantly though, this move did not involve stepping outside of the SGP’s legal framework into a ‘politics of exception’. Instead, testament to how broad the SGP has become, it worked entirely within the rules by using its flexible ‘general escape clause’. What I argue this suggests is that fiscal coordination has not been implemented through the oscillating practices of new constitutionalism/politics of exception that we normally conceptualise neoliberalism through. Instead, we must look to the more everyday techniques of budgetary planning that attempt to manage states into austerity rather than sanction them there.

Indeed, while the Commission has not been able to wield the legal authority embodied in the new rules of the NEG, it has been subtly empowered as a planner – captured in Barroso’s reference to a ‘silent revolution’. Two changes of the NEG most significantly reveal this shift. First, the so-called ‘Two-Pack’ of regulations on fiscal coordination. Second, the introduction of the coordination architecture of the ‘European Semester’.

The ‘Two-Pack’ was part of the package of reforms to EU governance passed in response to the onset of the euro crisis. The measures were framed as tidying up the loose ends of the earlier ‘Six-Pack’ reforms that had already been agreed (Schlosser, 2019: p. 61). The measures were uncontroversial among member states (Falkner, 2018: p. 242). The first part of the Two-Pack (Regulation 472/2013) normalised and institutionalised the deep levels of surveillance of countries receiving financial assistance from the Eurozone’s many bailout mechanisms and in ‘post-programme’ monitoring (Schlosser, 2019: p. 62). The second part of the Two-Pack (Regulation 473/2013) was seemingly innocuous. It synchronized the fiscal calendars of member states to better coordinate budgetary planning. Contained in its provisions, though, was a bombshell. Controversially, the Commission was given the authority to review draft budgets of member states even before national parliaments had considered them (Schlosser, 2019: p. 66). The change dealt a blow to core principles of fiscal sovereignty that the control of public finance lies first and foremost with legislatures. Instead, the change placed the Commission as a layer of managerial evaluation ahead of elected parliaments.

This latter shift was key to the silent revolution by expanding the Commission’s managerial oversight. As discussed in the previous section, the move to fiscal sustainability and quality in 2005 had shifted Commission scrutiny of fiscal policy from achieving nominal rules to reviewing the contents of budgets using techniques of planning. The NEG invigorated this process. Seemingly, it was only once the changes were passed that their enormity was registered. Provisions within the 2009 Lisbon Treaty had made possible this greater level of supranational intrusion into national fiscal policy. Interviewees reported to Laffan and Schlosser that the Two-Pack stretched this legal base ‘to their full potential’ (Laffan and Schlosser, 2016: p. 243). Indeed, the Commission was taken aback by the willingness of states to submit themselves to such supranational budgetary scrutiny, telling Laffan and Schlosser that ‘with some historical distance it is a folly. Never on earth could we have imagined this a few years ago’ (Laffan and Schlosser, 2016: p. 243).

Just as in 2005, national governments refused to countenance empowering the Commission as a legal authority over fiscal matters. But they ironically traded this off with empowering the institution as a managerial monitor of fiscal performance. The Commission’s weak legal authority, despite the new rules of the NEG, meant it was mostly unable to force states to change their budgets. The battle with Italy and Spain was testament to this (Smith-Meyer, 2019). Nevertheless, the terms of the NEG have invigorated the Commission’s leverage within EU policy-making as a managerial evaluator of fiscal policy such that it could even engage in fiscal battles in the first place. What was needed was a means for the Commission to capitalise on its managerial function of planning rather than compelling.

The second change opened the door to such a possibility with the introduction of the European Semester. Created in 2010, its purpose was the ‘coordination of coordination’ of the EU’s many policy mechanisms, bringing them together into a single cycle (Armstrong, 2012: p. 225). With the Commission at the analysis and reporting apex, a yearly ‘Annual Growth Survey’ delivers a broad analysis based on all mechanisms, followed by Country Reports/In-Depth Reviews commenting on individual country situations. Following this, the Commission issues Country-Specific Recommendations agreed by the Council and in dialogue with the Parliament to feed into national policy-making processes. This ‘vertical’ governance system has increasing levels of obligation through the EU’s various legal mechanisms (Jordan et al., 2020).

The Semester was meant to consolidate and simplify the EU’s complicated governance system. But it has also had the consequence of placing the Commission more squarely at the centre of the EU’s managerial policy machinery. This has been a development noted by the Fiscal Board in a recent evaluation of the NEG (European Fiscal Board, 2019). The board observed that the Semester had produced a ‘bilateralisation’ of coordination ‘increasingly based on negotiations between the Commission and the member states concerned’ rather than intergovernmental deliberations in the Council as was previously the case (European Fiscal Board, 2019: p. 87). This bilateralisation has been a consequence of the opaqueness of coordination through the Semester’s unitary planning process. Sonja Bekker has noted, for example, that rather than clarifying the EU's many policy coordination instruments, the Semester has introduced a high level of ambiguity in terms of what procedure is actually being mobilised when issuing national recommendations (Bekker, 2013: p. 16). By being empowered to issue singular policy recommendations to states, the Commission has a variety of mechanisms and data sources to choose from, which often pull in opposite directions. Although the SGP might preach austerity, the Europe 2020 development plan beckons states towards targets on poverty reduction. The Commission therefore has significant discretion to pursue different lines of argument in proposing recommendations, drawing on various statistical sources and legal foundations across the EU’s many policy coordination mechanisms.

The sum of these changes has been that the beefing of rules in the NEG did not empower the Commission’s neoliberal legal authority as has commonly been theorised. Instead, it has consolidated the Commission’s role as an information processor and strategiser that builds on a totally different conception of governance compared to neoliberalism. Rather than order and discipline, the Commission’s management function emphasises its capacity to process dynamic performance data in order make responsive strategic decisions on the necessary direction of national reform. The Commission’s institutional leverage is, therefore, managerial and not legal.

Conclusion

The EU’s SGP has been a major epithet for how we understand neoliberalization as an international project. But the SGP has never worked as intended, and thus defied our efforts to theorise it. Neoliberal rules have been consistently broken, watered down or put aside just as quickly as they have been written. In particular, supranational legal authority has not feasibly applied on the EU’s largest countries. Although coercive imposition worked on smaller countries, in many ways this reflected the hypocrisy of international governance ruled less by a supranational legal order in any meaningful sense than the dynamics of geo-political economy. Instead, and as an ironic consequence of government resistance to fiscal rules, a governance system has arisen attempting to subject national public finance to intrusive managerial planning.

My argument has significant implications for how we think about both the future of EU fiscal governance and the nature of neoliberalism. We tend to hold a Keynesian mirror up to the workings of Eurozone fiscal governance, hoping greater discretion on the application of stringent ‘new constitutionalist’ rules would translate into a more expansive fiscal policy and resolve the EU’s socio-economic problems. But, as I have argued in this article, as the SGP’s rules have become more flexible this has not translated into fiscal expansion as we might have expected. Instead, it has gestated a managerial pursuit of austerity. This novel approach to fiscal policy replaces the redistributive intent of traditional welfare spending with the centrally determined strategic uses of public finance and allocates resources not according to need but on the basis of performance conditions.

This has importance consequences in a post-pandemic world. In an unprecedented shift, the pandemic bailout fund ‘NextGenerationEU’ has sanctioned the European Commission to raise its own resources by borrowing from financial markets. As the bailout fund works its way through domestic ratification processes, critiques are already arising over the strings attached to funds. The arguments raised in this article suggests we should be careful hitching our hopes for more EU financial resources as a panacea to the contradictions of the EMU. We should instead interrogate more closely the history and dynamics of the EU’s managerial fiscal policy that is soon to be loaded with deficit financing.

More broadly, this article has important implications for scholars interested in the relationship between neoliberalism’s political institutions and dynamics of capitalist accumulation. The power of the concept of ‘new constitutionalism’ was how it emphasised the institutional practices used by globalizing capital to secure market freedoms at an international level. But, as I have argued, by overly focussing on the rules that in the end are never applied, scholars have overlooked the techniques of planning that have been an important feature of international governance in the neoliberal era. What is needed now is greater scrutiny of how the managerial reformatting of governance has related to patterns of capitalism accumulation. This could include questions regarding the connection between public and private budgetary surveillance in producing ‘market discipline’ (Barta and Schelkle, 2015). It could also include how greater flexibility over fiscal governance has related to particular dynamics of financialisation through the securitization of sovereign debt as governments have attempted to evade deficit reduction obligations (Gabor and Ban, 2016; Lagna, 2016; Dutta, 2018).

Finally, the arguments I have made have implications for scholars interested in the importance of supranational institutions for processes of neoliberalization. Although this article has focussed on the EU, managerial reformatting could similarly be explored in other IOs. In particular, while disciplinary ‘structural adjustment’ in punctuated moments of crisis looms large in our assessments of IOs like the World Bank or IMF, ‘surveillance’ has become an equally important aspect of their work that has gone understudied. The arguments made here suggest we should address more squarely the way in which IOs have drawn on legacies of planning, both in terms of the construction of their own authority and how they have contributed to the broader managerial shift to policy making in the neoliberal era.