Conditionality by Other Means: European Union Involvement in Italy’s Structural Reforms in the Sovereign Debt Crisis

Abstract

This contribution shows the relevance of implicit conditionality in the Eurozone crisis, that is, conditionality based on an implicit understanding of the stakes and sanctions involved, underlain by some measure of power asymmetry. The concept of implicit conditionality is applied to the reconstruction of Italy’s sovereign debt crisis and the structural—pension and labour market—reforms introduced by the Monti government following requests from the EU. Actual or potential access to European Union (EU) financial support, carried out through purchase of Italy’s bonds to alleviate market tensions on its debt, was the carrot. The threat of having to enter formalized, explicit conditional lending programmes with the International Monetary Fund (IMF) to avoid default was the stick. Market discipline was the operating mechanism that made implicit conditionality effective, and the role of monitoring by the EU was pervasive. Developments described in this chapter seem to support a revitalization of the fusion hypothesis between EU and member states,at least in the eurozone. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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