Conditionality by other means: EU involvement in Italy’s structural reforms in the sovereign debt crisis

Abstract

This article 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 European Union (EU). Actual or potential access to 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 in order 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 article seem to support a revitalization of the fusion hypothesis between EU and member states – at least in the eurozone.