9 Fighting the Financial Crisis or Consolidating Austerity? The Eurobond Battle Reconsidered
DIETER PLEHWE
Introduction: The Eurobonds Controversy
In 2015, newly elected Syriza government leaders in Greece started an international campaign to change the European terms of the Greek deep austerity regime. A key demand of Finance Minister Varoufakis’s “modest proposal” (Varoufakis 2013) was the conversion of public debts into European loans in ways conforming to the European treaties. Prime Minister Tsipras and Varoufakis thereby revived the Eurobonds controversy at the centre of earlier (2010–12) struggles over the euro-saving operation. Greece’s Secretary of State Nikos Kotzias recently emphasized the significance of the Eurobonds demand due to the related question of recognizing the causes of European financial crisis: If the private, speculative financial-sector origins of the crisis are recognized, the pooling of resulting public debts is an adequate solution, which also shields the primary and most vulnerable victims of the crisis – people dependent on public spending – from recurring speculation on financial markets and a repetition of the vicious circle of international finance. Avoiding Eurobonds instead blames the crisis on “free-spending” (Greek) public authorities and allows (European) political authorities in favour of the austerity regime to maintain external control over public budgets through financial markets on top of whatever conditionality is imposed by the European Union and international monetary fund institutions (private conversation, 23 January 2016; compare Kotzias 2013).
Syriza and its international allies lost this battle. Regardless of the rejection of the deal in a popular referendum, the country’s leadership eventually had to succumb essentially to the European institutions. Rather than focusing on the interlinked banking, public debt, low-investment, and social crisis as suggested in the “modest proposal,” national public finance remains the primary focus of euro politics in the periphery. European socio-economic asymmetries – between core and periphery, between social market and liberal market rules (Scharpf 2010) – are maintained, even if the Greek exit from the Eurozone has been avoided. While the enormous tensions within Europe’s uneven and combined development are presently overlaid with the refugee crisis, the fundamental mismatch between transnational economy and finance, supranational economic and monetary union, and further reduced national public financial authority is hard to miss. But how has the likely temporary solution to the euro crisis been manufactured, and why could such a regime last?
This chapter contributes to answering this question by revisiting the original Eurobond controversy. A clarification of the competing social forces and relevant structural dimensions of the EU since the crisis in light of the Eurobonds controversy is helpful to avoid prevailing (or revitalized) methodological nationalism/ inter-governmentalism in European studies. Much of the media presentation in Germany pitted European Union and national officials in the Eurobonds controversy against Merkel and her finance minister Schäuble, who had actually signalled willingness to compromise on debt mutualization in an interview with the Wall Street Journal around the same time the Eurobonds proposal was rejected (28 June 2012). Media in Germany and other Northern EU member states played free-spending Italy and Brussels off against fiscally prudent Germany, creating an image of “Southern Sinners” and “Northern Saints” (Matthijs and McNamara 2015). This simplification is utterly unconvincing, because European Commission President Juncker’s Eurobond proposal was also backed by the British Prime Minister Cameron and Business Europe, unlikely supporters of “free spending.” While it is tempting to blame Germany (“Mr Schäuble,” “ordo-liberalism”) for the unprecedented European austerity regime, we have to open the black box of European “interstate federalism” (Hayek’s term 1980; compare Streeck 2013) in order to better understand the political sociology of Europe’s national and transnational power relations. Although German elements form a significant part of Europe’s austerity lobby and anti-Eurobond coalition, neither can all of Germany or German austerity forces alone be held responsible for the defeat.
Few scholars have examined the Eurobond controversy so far. The notable exception is Matthijs and McNamara (2015, 229), who argue that “the response to the euro crisis was heavily informed by broader social logics that constructed the problem and the solution heavily toward ordoliberal and neoliberal ideas.” The authors emphasize the interplay of economic policymaking, and academic theorizing in general, apply a social perspective of co-production of (austerity) knowledge, and claim to heed the call for analytic symmetry in their effort to analyse why alternative Eurobond proposals were not employed. While I share the general thrust of the argument of Matthijs and McNamara – the defeat of the Eurobonds approach was grounded in a more general knowledge and power regime of austerity – the explanation for the reproduction of economic thought and ideologies behind Europe’s austerity regimes, and the varieties of neoliberalism within and across borders deserve closer scrutiny.
Matthijs and McNamara emphasize a rather uniform and continuous knowledge dimension – a policy-related knowledge and advisory regime “frozen in time” (Straßheim 2013, 77). The weight of historical institutionalization, and the resulting social logics of the neoliberal economic knowledge regime in Germany in particular, appear to require little maintenance and adaptation. To the contrary, I am arguing that in addition to the efforts to secure the overall entrenchment of austerity-related expertise and ideas, greater attention needs to be paid to a variety of knowledge and power struggles, the political logics of the reproduction and transformation of Europe’s austerity regimes, in order to not let some of the paradoxical agents of austerity off the hook. The Eurobonds controversy cannot be as neatly isolated as Matthijs and McNamara suggest in their analysis, since struggles across Europe, and within Germany in particular, tied different economic policy instruments and objectives together, notably the Eurobond controversy, the financial umbrellas to rescue the euro, and the financial transaction tax controversy. If the battle between Eurobond supporters and detractors is separated too neatly from the broader public finance debate, we get a black-and-white picture of good anti-austerity fighters and consolidation monsters, which amounts to a simple reversal of the Southern sinner and Northern saint metaphor that Matthijs and McNamara (2015) describe.
Since the German government eventually embraced the financial transaction tax and an investment program to integrate the opposition in 20121, and defended the transfer components of the financial umbrellas against right-wing critiques, the conflict lines between more and less pragmatic as well as truly rigid austerity forces cannot be fully explained by a general notion of the social co-production of austerity bias. The call for analytic symmetry, in other words, requires attention to economic policymaking proposals beyond the Eurobonds, and more attention on the ways in which neoliberal hegemonic constellations are (re)produced in social struggles between centre-left and centre-right on the one hand, and within the (centre-)right on the other hand. The social and political logics of the integration of the majority wings of Germany’s Greens and Social Democracy into the austerity coalition in particular needs much closer attention.
In the remainder of this chapter I will revisit and reconstruct relevant parts of the Eurobond battle between 2010 and 2012 in order to gain a more detailed understanding of the social forces and alliances involved. While Eurobonds were supported by a formidable alliance of business and political forces, the Eurobond coalition was also full of contradictions in the pending debate on the future of European integration (pro Eurobonds, but against closer union in parts, and in favour of austerity regimes). Within the political party spectrum, nominally pro-Eurobonds (Social Democratic) parties also suffered from asymmetrical distribution of power of real supporters within the parties in the different countries. The opposition to Eurobonds instead appears to be more homogeneous across the whole of the EU – except for the United Kingdom, which needs additional explaining, since the Tory government supports both rigid austerity at home and Eurobonds abroad. Contrary to the pragmatic austerity policy line, which failed to keep the public debate focused on the financial-sector causes of the crisis, the restrictive austerity perspective managed to mobilize moral hazard concerns about public spending in Southern member states. Beyond austerity, the campaigns served to strengthen nationalist worries about deeper integration.
The chapter is structured in the following order. Section 1 serves to refresh the memory of the Eurozone crisis and the original Eurobonds proposal. Section 2 deepens the analysis by providing background on the restricted Economic and Monetary Union established by the Maastricht Treaty, and the dynamics of Europe’s pragmatic austerity union leading up to the financial crisis of 2007. Against this backdrop we will take a closer look at the Eurobond proposals in section 3, and will investigate in which ways mainstream economic policy–think tanks in general, and Bruegel in particular, played such an extraordinary role in the debate. Less prominent, though arguably no less important than Bruegel was the right-wing liberal Center for European Politics (CEP) in Freiburg, Germany, which is part of much wider neoliberal think tank networks that supply important normative orientation, and theoretical and empirical ammunition in European policy controversies. Section 4 will look at the intellectual munition supplied to the rigid austerity camp by CEP and others. The broader participation in the pro and contra Eurobond discourse coalitions will be tackled in section 5 by looking at the European consultation following the publication of the Commission Green Book. In section 6 a brief discussion of the difficulties of Bruegel to sustain the Eurobond policy line serves to discuss strength and limits of think tank independence and power. The concluding section sums up the results of this investigation and points to research that still needs to be done to more thoroughly scrutinize the transnational dimensions of the larger discourse coalition of “increasing austerity” in particular.
The Eurobonds Controversy, 2010–2012
The “North Atlantic financial crisis” (Kotz 2011, 44) began in 2007, and rapidly turned into a European sovereign debt crisis due to the bailout of banks deemed “too big to fail.” Within a few years, in turn public debt rather than financial speculation and short-term risk-taking occupied centre stage in the European discussion of the Great Recession following the Great Crisis. Although it has been widely acknowledged that the crisis of public finance in most EU member states (and the United States itself) was due primarily to the financial crisis, and decade-long lax regulation (Sorge 2011), the apparent manipulation of public finances in a few EU member countries, most notably Greece, served to shift the blame in public debates to public authorities.2
The emphasis on fiscal consolidation quickly replaced Europe’s short flirt with coordinated Keynesian stimulus programs (2008–9). Led by the “Troika” (European Central Bank, European Commission, IMF), the recommended policy to deal with public sector deficits henceforth was fiscal restraint, or restrictive austerity, focusing mainly on the reduction of public spending, even if some effort was going into improving tax collection, broadening the tax base, and thus somewhat increasing the share of the wealthy in carrying the consolidation burden.3 Europe, clearly, is on its way to a new type of austerity union far beyond the Maastricht criteria, unless the main thrust of European economic policy developments and the economic governance mechanisms established are revised. Blyth (2013, 51) calls it “permanent austerity,” but “increasing austerity” might be more adequate for the cumulative impact of welfare state shrinking and fiscal contraction in general.
Even if the mainstream moved swiftly from stimulus to austerity and fiscal consolidation in 2009 – “Half drew she him, half sank he in,” as in Goethe’s famous “Fisher” – the discussion still remained divided between those who did not want to forget the financial-sector causes of the public debt crisis on the one hand, and those who were increasingly eager to use the present fiscal crisis of the state to recover private sector ground lost after the crisis on the other hand. The former maintained criticism of financial capital and policy-driven financialization, but refuse to blame the public sector unilaterally (Wolf 2014). In politics, moderate public officials who thought along these lines pursued a pragmatic austerity line, which was searching for ways to lift some of the burden from the countries and social classes suffering most. The latter focused on national responsibility and aimed to avoid or at least limit the extent of fiscal solidarity and shared liability instead. This position can be described as the restrictive or radical austerity line, which aimed to restrain the (welfare) state, shrink public spending, and defend the status quo of globalized capitalism prior to the crisis in general (Plehwe 2010; Mirowski 2013). Between 2009 and 2012, the battle line between pragmatic and restrictive austerity forces was drawn in a particularly lucid way in the debate over a new financial policy instrument: the European sovereign bonds, or Eurobonds, for short.
The present EU Commission president (2016), Jean-Claude Juncker, publicly proposed Eurobonds as a new policy instrument to overcome the European public debt and euro crisis in December 2010. Eurobonds are European debt investments. Instead of loaning strictly to a national authority, an investor would lend a certain amount of money, for a certain amount of time, with a certain interest rate, to the members of the Eurozone. Once the instrument would be in place, all or part of public debt (old or new) would be mutualized. With the integration of the European public debt (market), financial speculators could no longer single out public debt of a particular country to create speculator pressures. As a result, the spread of interest paid on public debt across Europe would be greatly reduced, though low rates of less-indebted countries could rise, reflecting a somewhat higher risk of insolvency of particular members of the Eurozone covered by all.
Juncker was Luxemburg’s prime minister and treasury minister as well as head of the euro group – members of Europe’s monetary union – at the time. He, along with Italy’s minister of economy and finance, Giolio Tremonti, advanced a highly contentious proposal in the face of the ongoing crisis: “In spite of recent decisions by European fiscal and monetary authorities, sovereign debt markets continue to experience considerable stress. Europe must formulate a strong and systemic response to the crisis, to send a clear message to global markets and European citizens of our political commitment to economic and monetary union, and the irreversibility of the euro. This can be achieved by launching E-bonds, or European sovereign bonds, issued by a European Debt Agency (EDA) as successor to the current European Financial Stability Facility” (Juncker and Tremonti 2010).
Juncker and Tremonti’s proposal went far beyond the established European public policy line on exclusively national public debt, and concomitantly, continued sovereign public finance of the European nation state. Juncker and Tremonti opened a joint European liability perspective, possibly in contradiction to the existing European treaties, since shared liability would no longer be restricted to extraordinary emergency circumstances (no bailout, Article 125 of the Lisbon Treaty).
After a heated debate following, first, the high-profile publication of the sophisticated “blue bond” by the Bruegel think tank in March 2011, and second, a European Green Book on the facility of introducing stability bonds (European Commission 2011) in November 2011, Germany’s head of government Angela Merkel eventually ended the ensuing debate over the advantages and disadvantages of Eurobonds by categorically excluding the Eurobond option (“only over my dead body”; Spiegel 2012). While the euro-saving operation had compromised European treaty obligations that exclude the bailout of foreign sovereign debt – at least in the eyes of right-wing critics of Merkel in Germany, the German government was still navigating a pragmatic austerity course in continuity with the Maastricht regulatory framework. Harsh in theory, Maastricht still provided considerable room for public finance manoeuvring. Before digging deeper into the Eurobonds controversy, we have to ascertain key aspects of Europe’s economic and monetary union.
Europe’s Unreliable Economic and Monetary Union
The course of European Integration has been shaped increasingly by supply side economics and neoliberal thought in general, since the passing of the Single European Act in 1987 (single market program). From the creation of a European common market to the euro convergence criteria of the Maastricht Treaty, with its strict overall debt levels (60 per cent of GDP), maximum deficit criterion (3 per cent of GDP), and obligations for member states to keep inflation low (1.5 per cent), a whiff of neoliberal thought, supply side economics, and austerity ideas is evident (McNamara 1999), far beyond the influence of neoliberals in the early history of the European Community in some areas (competition policy in particular; compare Wegmann 2002).
With the introduction of a common currency in 2002, the elimination of trade barriers and monetary integration was taken a step further, and the European Central Bank (ECB) centralized the monetary policy framework across, and arguably beyond, the euro-group. While the move towards the euro and the creation of German-style central banking was regarded as a consolidation of neoliberal monetary politics by many critics on the left, many right-wing liberals, from Germany in particular, expressed strong reservations about the common currency, because they did not trust that Maastricht Treaty stipulations would be sufficiently – let alone rigidly – enforced. The right-wing liberal opposition against the common currency objected to the perceived pragmatism on fiscal discipline – Maastricht was not quite neoliberal or rigid enough for them. Since not only Southern European countries, but indeed Germany and France were missing Maastricht targets regularly, such fears were not just fantasies or neoliberal imagination. Rather, the flexibility on Maastricht criteria expressed the dominance of pragmatic austerity politics, and a moderate version of neoliberalism with an eye for the needs of social integration and compromise with important stakeholders (Europe’s trade unions in particular). The early benefits of European monetary integration, low rates for government bonds in the South, and the subsidy effect of an undervalued currency for the export-oriented industries in the North additionally helped to keep down the critics who pointed to abstract principles.
Yet the development of fiscal and monetary integration was challenged heavily by the banking crisis, starting in 2007, which quickly turned into a governmental debt crisis for several European countries. States like Ireland or Spain, and to a lesser extent Portugal and Greece, which had performed quite well overall since the passing of the Maastricht Treaty, faced the collapse of major banks like in the United Kingdom or Germany, but lacked domestic funds to socialize the losses. In order to avoid such bankruptcies, national and foreign governments had to step in, and the result was extremely fast-rising fiscal deficits and growing public debt rates. As triple-A ratings of some national bonds turned into junk overnight, and financial market actors started testing the commitment to the common currency, the Eurozone was drifting apart. While Germany and other Northern European states became low-yield havens of financial stability, the burden for Greece, Spain, Ireland, and Portugal became too heavy to carry. Speculations also started to address the financial situation of France and Italy, which would certainly have exacerbated the already huge problems of the Eurozone.
While the euro had bestowed low interest rates for weaker-currency countries equal to the level of Germany for five years, the euro regime suddenly foreclosed common fiscal instruments for handling the public debt crisis: since the weaker countries cannot simply print money, or increase debt levels beyond certain points to meet obligations (due to speculation against their national bonds, even if they are denominated in euros), the only choice is to cut spending and lower production costs, in the hope that austerity will increase competitiveness as promised by the “expansionary fiscal contraction hypothesis” economics (Giavazzi and Pagano 1990; Alesina and Perotti 1995; and just before the Troika rule, Alesina and Ardagna 2010, critical: Guajardo, Leigh, and Pescatori 2011; Blyth 2013;Krugman 2014).
The extent of the economic downturn in the different countries and the contagious effects of a collapse of a Eurozone member country required transnational financial solidarity, sharing liability and an extended bailout interventionism among the member states. This was encountered by setting up financial umbrellas such as the European Financial Stability Facility being replaced by a more permanent solution in 2011: the European Stability Mechanism.4 The financial umbrellas ended speculation against the weaker Eurozone members, and thereby secured their refinancing of government debt like the Eurobonds. But such financial transfer pragmatism was accompanied by rigid conditions, introducing radical austerity agendas, which insinuated a temporary character of emergency transfers and aimed to maintain the EMU notions of national self-responsibility and sound finance, disregarding centralization and cross-border socialization under conditions of European monetary union. The parallel effort of the European Central Bank (monetary easing) likewise can be regarded as an effort to “hide the state,” namely the extent to which the European monetary union relied on fiscal federalism to function over the long run.
This is the core tension of Europe’s austerity union: a de facto need for shared liability and fiscal federalism to accompany monetary union on the one hand, and the normative credo of fiscal sovereignty and national self-responsibility on the other hand; public finance inter-governmentalism versus supranational and multi-level governance regimes in monetary and economic policymaking. These tensions can also be identified in the already mentioned pragmatic and restrictive austerity perspectives. While the Eurobond solution is frequently presented as a departure from austerity capitalism, the proposals were really still part of the effort to align public finance needs and pragmatic austerity perspectives. Even if some of the economists proposing Eurobonds had liked to go beyond austerity, the proposed instruments were designed to meet the fundamental concerns of the critics. Austerity ideas and policies, therefore, are not well represented as a singular or uniform agenda: fiscal consolidation can be achieved in a variety of ways if only we consider both sides of the public finance equation: the spending and the income side of government.
In contrast to the mainstay of Europe’s new economic governance regime, however, Eurobonds aim explicitly to directly improve the income side of public finance beyond higher tax income, which can help to reduce the need for spending cuts to meet budget and deficit goals. A common bond market would remove the spread of bond rates and lower the cost of financing by creating a very large common bond market. A common Eurobond market, in turn, could even permanently end speculation against individual country bonds, although each of the proposed Eurobond mechanisms resolved to keep pressure on national governments to reduce debts by using a spread in the conversion rate of national to Eurobonds. This makes it difficult to present Eurobonds as a complete departure from austerity politics. The primary aim clearly was to solve the euro crisis, however, and that requires an end to disruptive speculation against the bonds of financially weak member states. Eurobonds thereby also address the perceived private-sector causes of the financial crisis in addition to meeting public finance objectives. Eurobonds would arguably even have lowered the cost of the stabilization of the euro (Verhofstadt 2012). But compared to the required negotiations of conditions of aid with individual debtor states in companion with the transfers of the financial umbrellas, Eurobonds would have reduced the direct pressure from lenders to debtor countries, and lowered the structural position of power of Germany in particular.
While recognizing the differences between pragmatic and rigid austerity voices, the common neoliberal austerity heritage should certainly not be overlooked. Rejecting deficit spending and consolidated budget ideas clearly are a part of the discourse coalition in support of Eurobonds as much as they are a more central part of the anti-Eurobond coalition, expressing the shift from deficit spending to fiscal deficit discourse. Timothy Sinclair’s (2000) examination of the social construction of the deficit discourse shows how (public choice) anti-deficit writers – most prominently James Buchanan – rely on methodological individualist frameworks to principally explain excessive deficit spending with a collapse of traditional moral values (of the “responsible classes”). The extension and abstract generalization of historical moral hazard arguments (in the insurance business, compare Baker 1996) in economic theory in turn have been highly relevant in the fight against Eurobonds, even if the proposals themselves addressed moral hazard concerns, once again displaying the battle line between moderate and radical neoliberalism, between pragmatic and rigid austerity perspectives. We will take a closer look at the Eurobond proposals and their political ramifications next.
The Making of the Eurobond Coalition: The Intellectual and Political Discourse
The recent history of Eurobond proposals has been documented first by Erik Jones (2012).5 Jones credits Paul De Grauwe and Wim Moesen (2009) for launching the Eurobond debate (Jones 2010, 2). De Grauwe and Moesen addressed the sharp widening of yield spreads in the sovereign bond markets and proposed common bonds, possibly issued by the European Investment Bank. National liability would be relative EIB share of the country, and political mechanisms were considered to simulate market discipline. Their paper was published by the Brussels-based think tank CEPS, together with other papers opposing Eurobonds and discussing the idea of a new European Monetary Fund. CEPS is a major European policy think tank founded in 1983 (CEPS 2017a). With a budget of almost €8 million from a variety of sources (notably EU research projects amounting to 37 per cent recently), CEPS clearly is a leading European policy think tank of centrist, pro-integration orientation. Board and staff members include former government and commission officials (CEPS 2017b). Although the presence of pro and contra Eurobond publications suggests that CEPS was not a part of the Eurobond coalition as an organization, the presence of Eurobond proposals at CEPS suggests this was part of mainstream reflection.
Jones’s own proposal from 2010 was published in the ISPI Policy Brief (of the Istituto per gli Studi di Politica Internazionale). Alongside his plan, the first outline for a European Debt Agency was offered by Belgian Prime Minister Yves Leterme (Bonds News 2010). Jones reports that he later came across a Wall Street Journal article by John Springford (2009) propagating a debt agency in a September 2009 opinion piece.6 Springford is a British author who wrote at CentreForum, a London-based liberal think tank (now the Education Policy Institute), which counted the City of London, major banks, news, consulting and energy firms among its corporate partners. The board expressed a liberal yet cross-party orientation, with members belonging to advisory bodies of the Tory government and the previous Labour administration (CentreForum 2016). The organization was originally (1990s) related to the Liberal Party and turned into a non-aligned research and policy think tank in 2003.
In the proposals that Jones lists from the CEPS, the Belgian government, and the British think tank (CentreForum), it is interesting to note that they originate from countries burdened by high public debt and potential difficulties to emit national bonds (Italy, Belgium), from the European capital of financial markets (London), and from centrist European institutions that are embedded in mainstream pro-integration networks (CEPS). In any case, the Eurobond discourse coalition crossed party political lines, and at the same time brought to light divisions within major political parties and party families (like the European conservatives).
British Prime Minister David Cameron was reported to have urged French President Hollande to push for Eurobonds, while he clearly rejected the Tobin tax proposal (Bloomberg 2012). From a (British) financial market perspective, the stabilization of European financial markets by creating a common bond market was considered positive (see also below for the results of the Commission Consultation on Eurobonds), and the potential restriction of financial market activities through European taxation were considered negative. While Cameron led the European party alliance against an increasingly close union (Alliance of European Conservatives and Reformists, AECR), he thus was siding with Juncker and Southern European leaders (conservatives and socialists) against Angela Merkel and other conservative leaders on the Eurobond question back in 2012. In 2009/10, Eurobonds clearly were not synonymous with a genuine progressive (let alone left-wing) European integration perspective promoting fiscal solidarity. Rather, they were handled as a pragmatic approach to quell the financial crisis, needed to stabilize the major debtor countries and the whole Eurozone. The framing of Eurobonds as “stability” bonds in subsequent EU proposals underlines such a perspective.
The “blue bond” proposal by Delpla and von Weizsäcker (2010) dwarfed the other proposals mentioned so far. It distinguished between blue bonds (European sovereign bonds) as senior bonds to be served before any other government liabilities on the one hand, and red bonds, the remaining national level debt obtained at market rates, on the other hand. The policy brief was short, comprising only eight pages. But it was not the brilliance and clear structure of the proposal alone that made it quite popular. While Matthijs and McNamara (2015) refrain from discussing the background and linkages of the Eurobond proposals mentioned so far – Springford’s CentreForum base referred to as a liberal think tank only, for example – Delpla and von Weizsäcker, and Bruegel, are introduced in greater detail. The “broad intellectual profile” of the authors – experience in private banking and the French Finance Ministry (Delpla), the World Bank and venture capital (von Weizsäcker) – are noted. “Their outsider views of what to do about the crisis were tempered by the insider position of Bruegel in the field of European economic policy making” (Matthijs and McNamara 2015, 237). It remains unclear, however, why this was an outsider view and what makes for Bruegel’s insider position. The authors mention government and corporate backing, including from Germany’s Deutsche Bank, but they are missing the German-French origins and the relevance of (new) Social Democracy for the early history of the highly influential think tank, which benefits from a unique position in the international economic policy discourse arena.
Bruegel has become a think tank that is highly regarded in the international media indeed, and enjoys a high-level US audience in particular. Bruegel was founded in 2005 after a German-French initiative to establish a European centre for international economics. The German government constituency was Social Democrat, closely aligned with Tony Blair’s new Labour ideas, but also backed by funding from the French Central Bank, for example. Financing from major corporations (€50,000 each) and various EU member countries, including Germany (contribution varies by size), allows Bruegel to develop a European policy research position that maintains independence from the EU-level institutions, and thereby greater legitimacy than EU-funded organizations can obtain. It is clear, however, that Bruegel has become a major European voice in the EU policy debate that is closely related to the commission, despite financial independence, as evidenced by the flexicurity discourse,7 for example.
Bruegel is considered one of the most influential think tanks in general, and the most important European think tank in international economic policy, by insider evaluation reported in the U.S.-based think tank report published by James McGann (2017). The organization has been inspired by the example of the Washington-based Peterson Institute. The two organizations in the meantime share staff and have jointly organized projects. A review of American literature on the European financial crisis confirmed the relevance of Bruegel in the transatlantic community: most authors were referring to the Bruegel-based blue bond proposal if talking about Eurobonds (Plehwe 2013). Bruegel thus was home to the somewhat paradoxical alliance of transatlantic (financial capital) linkages and New Social Democratic ideas. What still fitted reasonably well with the German domestic power structure in 2009 when Christian Democrats governed with Social Democrats, did not fit so well in 2010 when Social Democrats were filling the opposition banks facing a right-wing Christian Democrat-Liberal coalition.
Delpla and von Weizsäcker obviously knew that they were fighting an uphill battle in Germany. They discussed likely objections from the neoliberal right wing, namely the legal status and the cost of Eurobonds for less indebted countries like Germany. They considered their proposal in line with the “no bailout” clause and other treaty requirements, because the limitation of Eurobonds of up to 60 per cent of public debt levels would not violate the requirements of the Maastricht Treaty “in economic substance” (Delpla and Weizsäcker 2011 6). The authors regarded only blue bond proposals that cover up to 100 per cent of public debt as violating the treaty clause. On the cost of Eurobonds, they suggested savings in general, due to the huge size of the market. They held it is likely that borrowing costs would even fall below current levels in Germany (7).
While other proposals floating in Brussels may have been easier to neglect, government authorities in Germany could hardly avoid the discussion of the blue bond proposal. Bruegel in a major way was officially set up and funded by the German economics and finance ministries. In 2010, when the blue bond proposal was written by the Social Democrat von Weizsäcker and his French colleague, it was impossible to avoid party political conflict over this proposal in Germany. The economics ministry – then under control of a neoliberal Free Democrat (first Brüderle until 2011, then Philip Rösler) – was facing rising pressure from the anti-Euro wing in its own party. The Bruegel proposal clearly added the German major opposition party (additionally backed by support from the trade unions) nominally to the transnational Eurobond discourse coalition, which made it difficult to maintain a united perspective of “national” interests regarding this question, although the Social Democratic party was certainly not united in its support for Eurobonds. In fact, the former Social Democratic party leader, Franz Müntefering, opposed his successor, Sigmar Gabriel, in May 2012 on the issue of Eurobonds. Gabriel was making no secret of his admiration for Francois Hollande and his initiative for Eurobonds, while Müntefering and the right wing opposed Eurobonds because there were alleged high costs for Germany (Medick 2012) (as calculated at the IFO Institute in 2011; compare Berg, Carstensen, and Sinn 2011, contradicting the claims made by Delpla and von Weizsäcker). The popular IFO calculation made Müntefering fear for the loss of Social Democratic voters, who might become easy prey for populist scaremongers.
Germany’s mainstream Christian Democrats and Liberals nevertheless were under considerable pressure from abroad (including from the United States) and at home to pursue Eurobonds. At the same time they were also already under strong pressure from the right wing within their own parties in response to their support for the euro rescue operations.
The business wing of the Christian Democrats and the hardcore neoliberal wing of the Free Democrats “Liberaler Aufbruch” became a serious constraint for the Merkel government in conjunction with extra-party opposition against the financial umbrella. Already in 2005, 250 economics professors had launched a proclamation (Hamburger Appell) to put pressure on the Christian Democrats ahead of the upcoming federal elections. The group pursued a hardcore austerity line, raised moral hazard concerns, and objected to any demand-side policy measures (Truger 2013, 4). Two leading members of the German Bundesbank and the ECB, Axel Weber and Jürgen Stark, resigned in opposition to ECB purchases of government bonds of countries in trouble following the crisis (2).
Both the Hamburger Appell and the attacks on the European financial umbrellas, as well as the ECB rescue operations were backed by the Initiative for a New Social Market Economy (INSM) (Truger 2013). INSM is a neoliberal campaign operation financed by the German metal industries’ business association with up to €8 million yearly since 2000 (compare Kinderman 2005, Speth 2004). Interestingly, the opposition did not talk much about Eurobonds, but focused on the steps already taken to erect financial umbrellas for the highly indebted states. With regard to the Eurobond debate, it is highly instructive to realize the criticism of the European financial mechanism first.
Intellectual Resources of the Anti-Eurobond Coalition
Much like the Eurobond discourse coalition drawing heavily on think tank output, Germany’s Initiative for a New Social Market Economy relied on a think tank to oppose fiscal federalism and joint liability. INSM turned to the Centrum für Europäische Politik (CEP) in Freiburg to intellectually back up arguments against the bailout operation. In 2011, CEP authors published a study financed by INSM on the “demands on the restructuring of the euro-states: debt brakes and additional conditions.” When Juncker and others were raising the stakes in the pragmatic Eurobond debate, the rigid austerity-minded opposition stepped up its own campaign for a more restrictive euro rescue campaign. This report unilaterally blamed irresponsible public finance as the cause of the financial crisis, complemented by economic structures that endanger credit-worthiness of corporations and states. While the neoliberal bottom line requires holding the public sector responsible, somewhat arcane language on problems with the “real economic structures” indicates recognition of additional private sector issues. The key consequences for the authors are nevertheless, first, restoration of sound public finance; second, economic reforms; third, solution for the “too big to fail” problem of financial organizations; and fourth, ensurance of credit practices in recognition of risks for the public sector in particular (Gerken, Roosebeke, and Voßwinkel 2011, 2).
According to the authors, the mechanism established by the stability and growth pact has failed. Since the European Union is incapable of securing the Maastricht criteria, a debt brake at the national level is recommended as an alternative. Debt brakes must be complemented by competitiveness-enhancing economic reforms, which lower trade deficits by lowering unit labour cost and bureaucratic constraints. Banks are to increase their net equity, and a European insolvency procedure is required to deal with insolvent financial institutes. Last but not least, credit supply needs to be more considerate of risks involved. Banks are also requested to price risks related to public bonds (ibid.)
It is clear from this study that the key question to be solved from this perspective is how to constitutionalize a rigid austerity regime and to cement “competitive nationalism/federalism.” Interestingly, the EU is still to be in charge of insolvency procedures. The study mentions Eurobonds once (Gerken, Roosebeke, and Voßwinkel 2011, 11). Common bonds are regarded as counterproductive since they encourage increasing debts, which is exactly the opposite of what the study aims to achieve through the instrument of a national debt brake. The two instruments are therefore considered incompatible and Eurobonds are rejected. The austerity extremism of this group of authors is best expressed by the demand that German lawmakers make the European umbrella payments conditional on implementation of automatic debt-reduction mechanisms at the national level, before asking for help (ex-ante conditionality known from IMF/World Bank discussions).
CEP has been a key resource of the ordo-liberal right wing in European policymaking since 2006. The think tank is funded by the Ordnungspolitik foundation (Stiftung Ordnungspolitik) headed by Lüder Gerken, who is also the head of CEP. The statement for the European Transparency Register claims donations of 1.5 million, without specifying the sources. Four individuals are listed with access to the EP premises (European Commission 2016).
Based in Freiburg, both the foundation and the think tank have close ties to the Walter Eucken Institute, which was the home of Germany’s ordo-liberal orthodoxy, and also of Friedrich August von Hayek after his return from the United States. Gerken headed the Eucken Institute from 1991 to 2001. Gerken’s CEP board includes (January 2017) former German president Roman Herzog (since deceased), former head of the Polish Central Bank and leading Polish neoliberal economist Leszek Balcerowicz, former EU Internal Market commissioner Frits Bolkestein, former president of the German Bundesbank, Hans Tietmeyer, and former head economist of the ECB, Jürgen Stark (CEP 2017b). Both Balcerowicz and Bolkestein are members of the Mont Pèlerin Society, and CEP is a member of the Stockholm network of neoliberal think tanks (like the British Institute of Economic Affairs, for example) across Europe.
In terms of services, the CEP offers policy briefs in basically all relevant fields of European legislation. About twelve experts work in different clusters (such as internal market, or transport). EU legislation is summarized and assessed from an economic perspective, specifically neoliberal (ordo-liberal) and with regard to existing (EU and German) legislation. CEP authors provide information on “options to influence the political process” (e.g., naming the lead directorate general) and signal the overall assessment of the proposal by assigning a traffic light value.
CEP authors were involved in many policy briefs on the euro crisis and in the externally funded study on the euro rescue operation discussed before. A search for the impact of the “debt brake” study for INSM yielded a very limited result, surprisingly. Only Hishow (2012) included a reference in a study on debt brake mechanisms conducted at the key advisory think tank of Germany’s government, Stiftung Wirtschaft und Politik (SWP). The SWP study written to advise the German government is far more balanced than the CEP study, and rather critical of the pro-cyclical impact of debt brake versions.
The INSM/CEP study was apparently not meant to promote a media campaign. Likely it served the purpose of elite coordination in opposition to fiscal solidarity, joint liability, and Eurobonds (compare Schmidt 2002 on the distinction between public and elite coordination objectives). CEP information made available to the author in private communication suggested it would have been the task of the INSM to market the study to the media, which was apparently not done. CEP’s own work is also directed mostly at a professional or expert audience, not the citizenry at large. We will describe the specialized public informed by CEP experts in relation to the CEP policy brief on the EU Commission Green Paper on the feasibility of introducing Stability Bonds (European Commission 2011). Green Papers of the commission of course are tools to increase the salience of issues, and can test the mood of European Council members and other stakeholders. This was certainly the case with the Green Paper on Stability Bonds.
European Stability Bond Green Paper: Opportunity to Watch the Transnational Coalitions
Following the original Eurobond proposals from Juncker and Tremonti, the Commission did not proceed to propose legislation. It is possible that the conflict lines within the conservative mainstream were also presenting an obstacle from within the Commission, where there must have been concerns about Council opposition from Germany in particular, at least. The European Parliament eventually pushed the Commission to present options in a decision on the financial, economic, and social crisis of 6 July 2011 (European Parliament 2011), which resulted in the Green Paper published four months later.
The Green Paper in turn presented three different options for the introduction of “stability bonds.” The options differed in the degree to which common bonds replace national bonds, and with regard to the guarantee regime. Option one considered the complete replacement of national bonds in conjunction with joint liability. Option two distinguished between European and national (blue and red) bonds akin to the Bruegel proposal, and envisioned joint liability for the blue bonds. Option three foresaw liability for the European bond share according to the share a member state contributes, thence a limited liability for a limited amount European bond contingent. Obviously the different models are more and less compatible with the existing primary law. Options one and two would likely require treaty changes. Option three, however, would likely be less effective in r combating speculation attacks on national bonds of weak member states because the risk would still be relegated mostly to the national system of public finance.
The Green Paper was followed by a public consultation. Interestingly, public entities from six countries opposed the Green Paper, including Swedish, Danish, Finnish, German (and Bavarian), Austrian, Dutch, institutions. French and Czech institutions and the European Economic and Social Committee came out in favour. Among the business groups, thirteen came out in favour. Only Deutsche Bank, Germany’s chamber of industry and commerce (Industrie und Handelstag), and the Austrian federal economic Chamber came out against the Eurobond proposals. An individual from Germany’s chamber of crafts (Handwerkskammer) also opposed the proposal.
The spread of opinions is quite interesting. Most importantly, most business statements, including the principal European business association Business Europe, endorsed the Green Paper. Yet German business interests and the public anti-Eurobond coalition from Germany, Austria, the Netherlands, and Scandinavia obviously also are not representative of their countries as a whole. Germany’s trade union federation, for example, endorsed the Eurobond proposal. The understanding of the social logic of austerity thinking needs complementary insight from the political logic of austerity-related battles in order to understand the reach and the limits of knowledge regimes and related institutions. If German austerity orthodoxy is taken for granted, there would be no need for dedicated efforts to reproduce an austerity-minded hegemonic constellation.
Feeding the Opposition in Germany and Elsewhere: CEP Policy Briefing
Just in time for the public consultation and discussion of the commission Green Paper, CEP published Eurobonds (Kullas and Hohmann 2012) to assess the Green Paper. The think tank has a regular format for such policy briefs, which give the reader the net result with the symbol for a traffic light: green for endorsement, yellow for mixed record, and red for no go. The Green Paper, unsurprisingly, was given the red light. The brief summary on the top offers a short summary of pros and cons. CEP saw no pros. The cons were summed up in two points: “(1) Eurobonds suspend market disciplining, thereby reducing budgetary discipline and the willingness of Member States to reform. The policy processes proposed by the Commission cannot compensate this. (2) Eurobonds of option 1 infringe the German Bundestag’s budget responsibility which is protected by the Basic Law’s guarantee of the permanence of basic principles” (Kullas and Hohmann 2012, 4).
Evidently the brief focused on the moral hazard concern and strongly objected to joint liability and complete replacement of national bonds by Eurobonds, pointing to German constitutional obstacles. European treaty concerns are listed in the detailed discussion, but evidently could not be presented as a game-killer. The European treaty obstacles are correctly considered less severe than the requirement of a two-thirds majority to change the German constitution. It makes sense for a transnational discourse coalition to focus on the German domestic veto position in such a case.
CEP policy briefs are published in German and in English. The responsible official in financial policy suggested that the English-language and German-language audiences were of roughly equal size. Briefs are mailed to people who signed up for the service if CEP staff consider them appropriate recipients. The distribution is tailored to experts in politics, business, media, and academic worlds. The Eurobond brief would be sent to the groups such as the Economic and Monetary Committee of the European Parliament and similar groups in the German parliament, for example. CEP clearly aims for an expert audience. CEP in fact has a framework contract with the EP Economic Committee to supply expertise regularly (personal communication of CEP official, 12 February 2015).
Even if individual studies and policy briefs do not seem to target the media, CEP officials are featured regularly in relevant media. Lüder von Gerken was cited several times late in 2011 (Die Welt 2011; Berliner Morgenpost 2011), when the threat by Standard & Poor to lower the ratings for Germany fuelled concerns about the euro rescue operation. Bert van Roosebeke is the CEP individual most frequently mentioned as chief witness for debt brakes and against Eurobonds. Germany’s economic press (Wirtschaftswoche, Handelsblatt) reported the Eurobond critique of “economists,” referring to CEP staff. By representing neoliberal perspectives as economic perspectives, the economic debate is represented in rather narrow ways. In any case, CEP staff play a major role in the collection and preparation of evidence and arguments feeding neoliberal perspectives in European policymaking. Authors are invited to discussions organized by political parties and to many other venues of the think tank circuit. While not representing specific interests directly, CEP is clearly involved in “deep lobbying,” the expanded effort to influence internal and public discussions in policymaking. The think tank has four EP cardholders, as mentioned before, and travel to Brussels (or nearby Strasbourg) is frequent (personal communication of CEP official, February 12, 2015). The question of opening an office in Brussels (and Berlin) is on the agenda time and again. So far, funding appears to fall short of expanding operations. Still, if Bruegel and a few other mainstream European policy think tanks can be thought of as a centre of closer union advocacy, CEP is clearly at the centre of neoliberal counter-perspectives in favour of restrictions on integration. CEP has close ties to like-minded think tanks across Europe, such as Balcerowicz’s FOR think tank in Poland, or the British Open Europe organization with offices in London, Brussels, and Berlin, for example. As part of the Stockholm network, CEP is a part of the major right-wing liberal networks that seek influence across the whole political spectrum, even if there are close ties to the conservative and liberal mainstream, as well as the new European right-wing faction of the Alliance of European Conservatives and Reformers (compare Plehwe and Schlögl 2014).
Bruegel contra CEP: How Relevant Are the Think Tanks in the Eurobond Battle?
Given the apparent strength of the pro-Eurobond coalition, the sudden defeat in Germany should come as a surprise. Again it is necessary to more fully review the battles that were fought to achieve success in Germany and elsewhere. Even the most powerful think tank has to back off if key constituencies are unhappy.8 Germany’s ministries (economics and finance) threatened to cancel the financing of Bruegel in 2011 after its promotion of the blue bond proposal and the popularity of the Eurobond solution (private communication with Bruegel official, 13.2.2014). What normally would be the greatest success for a think tank in this case backfired for Bruegel. One major constituency became increasingly upset about the dynamics of a proposal. Unlike proposals of a few years earlier on the future orientation of the welfare state (promoting “flexicurity”), the Eurobond proposal became synony-mous for a “wrong” European development (shared debt community threatening to undermine the stability of the euro). This needed to be avoided at all costs (quite literally: consider the higher expenses for the European stability mechanism and the extremely high social cost in the peripheral countries). While it is not clear if and how CEP played a role in the conflict with Bruegel, the expertise and perspective supplied by CEP was strongly opposed to the pragmatic austerity and integration line followed by the Eurobond coalition. The mobilization of CEP in favour of national debt-brake solutions by the Initiative Neue Soziale Marktwirtschaft likely mobilized government officials in German finance and economic ministries opposed to the Bruegel propositions. While CEP is not financed and supported by the German government, as Bruegel is, the conservative liberal coalition was forced to move closer to the INSM-CEP-led anti-Eurobond discourse coalition in order to defend its own pragmatic austerity line. However, the goverrnment’s autonomy from the business wing of Christian Democrats and the anti-Euro wing of the Free Democrats needed to be defended as well. The majority of Social Democrat/Green governments in the German Bundesrat (the upper house), and the requirement of a two-thirds majority to pass the laws needed for the European Stability Mechanism and the domestic fiscal consolidation pact, forced the centre-right coalition to compromise with the centre-left parties. At this point, Social Democrats and Greens withdrew their demand for Eurobonds and received a commitment for a multi-billion investment program from the Conservative-Liberal coalition government. Because the opposition agreed with the government that this investment should not be financed by higher debt, a second compromise was reached on the financial transaction tax. This tax also met popular demand to make the financial sector pay for the crisis and lower the appetite for short-term speculation. A key aspect of the solution found in Germany is the focus on the domestic level. While the demand for Eurobonds would have addressed the needs of highly indebted states and social classes abroad, the Tobin tax (still not realized in 2017) and the investment program mostly benefit Germans. Social Democrats and Greens involved in crafting this compromise were thus clearly selling whatever internationalist inclinations they had as part of the Eurobond coalition out for national objectives. Since there are no plans for a generally pragmatic European austerity regime, the national consensus appears to favour pragmatic austerity at home and rigid austerity abroad, which is hardly a winning formula for European integration.
Peace was eventually made also between Bruegel and the conservative-liberal coalition in Germany. Angela Merkel’s key economic advisor, Lars-Hendrik Röller, became a member of Bruegel’s board in 2011, taking the place of the previous German board member Caio Koch-Weser, who served as state secretary in the finance ministry under Chancellor Gerhard Schröder. Evidently, think tank expertise can be independent from key constituencies only to a point. Even powerfully positioned think tanks (or rather the individuals therein) are only as strong as the discourse coalitions of which they are a part. The Freiburg-based CEP in this case was on the winning side, even if it was a much less prominent organization compared to Bruegel in this battle.
Conclusions
The battle over Eurobonds was clearly won by the opponents. This is the message Angela Merkel expressed in unusually draconian terms (“Only over my dead body”). This message that has been confirmed with the steadfast refusal of new debt policy options advanced by the Greek government in 2015. Although the Merkel coalition government was under strong pressure in 2013, Christian Democrats thrived in the federal elections, though the even stronger pro-austerity liberal coalition partner did not. Matthijs and McNamara (2015, 243) claim that “the thorny issue of the introduction of a common debt instrument has remained off the table in Germany, and Europe, since then. The whole debate over Eurobonds … demonstrated the strength of the German economics profession and the dominant view of the euro as an economic problem with mainly national economic solutions.” So why did the staunchly anti-Eurobond Free Democratic Party lose? Why did the anti-Eurobond and anti-Euro party Alternative für Deutschland gain almost 5 per cent in federal elections and enter the European Parliament? Substantively, the European Stability Mechanism and quantitative easing by the ECB have yielded some of the Eurobond objectives. Speculation against national bonds has been curtailed and bond spreads across the Eurozone are limited. Radical austerity voices continue to attack the departure from strictly national economic solutions to the euro problem exactly because Angela Merkel has been the architect of a more rigid, but still quite pragmatic austerity project. The winning formula found to appease the opposition both in Germany and abroad was an investment program and a subscription to the financial transaction tax – not exactly instruments loved by rigid austerity supporters, although the German government of Christian and Social Democrats has yet to deliver on the promise of the financial transaction tax, together with the other nine Eurozone members who officially endorsed the measure (European Council 2016). Since the Eurobond proposals themselves were not as radical a departure from the austerity agenda as sometimes thought, the defeat can hardly be explained by the strength of the German economics profession, although the mobilization of radical neoliberal austerity forces was quite important within and beyond the German debate. The German-based Glienicker group is suggested to offer additional evidence for the absence of the Eurobond idea in Germany, but the group includes Mr blue bond proposal Jacob von Weizsäcker, and the group’s statement is adamant about “controlled transfer elements” as a part of a deeper euro-union, pace Matthijs and McNamara (2015, 242). It is crucial to not mistake exceedingly strong neoliberal forces among economists (and non-economists) as pars pro toto for the whole of the German profession. We rather need to still learn much more about the domestic and transnational networks that advance more or less pragmatic austerity perspectives, and we still need more symmetry indeed by searching for anti-austerity perspectives, which can also include Eurobonds. Think tank networks advancing and opposing austerity across Europe can be considered a promising source of information to identify transnational expert, consulting and lobby, or advocacy networks involved in the European economic and social policy struggles. Databases have been compiled and await collaborative research linked to the study of professions and economic ideas (Think Tank Network Research 2016).
Both pragmatic and restrictive austerity perspectives help to explain major dynamics of the contemporary transformation of neoliberal hegemonic constellations. A willingness to step up cross-national transfers, at least temporarily, to secure social stability (moderate fiscal federalism with or without Eurobonds) is confronted with an advocated need to maintain the present European treaty configuration of competitive federalism, which stipulates fiscal nationalism and national responsibility for social integration (Streeck 2013). German Social Democrats and Greens, nominally opposed to rigid austerity, have been won over by the Merkel doctrine of pragmatic austerity at home and rigid austerity abroad. As long as the forces who are nominally opposed to supply side economics are willing to sacrifice their anti-austerity soul on the altar of national unionism, there is little hope for a European public finance regime beyond permanent and intensified austerity.
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Footnotes
1 Social Democrats and Greens could have blocked legislation required in Germany in 2012 to establish the European Stability Mechanism due to their majority in the Bundesrat (representing the German states).
2 The chronological monitoring of events and “the German position” by Swiss consultant George Dorgan (penname) (2012) is certainly not objective, but a good indicator of the hegemonic public interpretation.
3 OECD data show the decline in public spending and the increase in property and personal income taxes, for example (OECD 2017). The data do not reveal by themselves if the tax income distribution has become more progressive since taxes on goods and services (VAT) have also increased. Since VAT taxes are hitting people with low disposable income most, increasing VAT tax income has to be considered regressive.
4 Under such pressure, the financial umbrella was quickly increased. The nearly unlimited power of the European Central Bank was fully expressed by Draghi (2012).
5 Earlier proposals exist, dating back to Boonstra (2005), for example. Compare Eijffinger (2011); Favero and Missale (2010). Eijffinger wrote a briefing note for the EP. Affiliations stated are Tilburg University and CEPR, a European “think net” of economists centred in London, and related to the progressive economic think tank based in Washington, DC. The European CEPR is financed by corporations, mostly banks. Eijffinger is also a board member of Tilburg’s European Banking Center.
6 Springford is also mentioned in an Economist piece (2011) on support by Peer Steinbrück (Germany’s former finance minister and later candidate for chancellor) for Eurobonds. Matthijs and McNamara credit Springford for launching the whole debate, but do not mention the CEPS publication by De Grauwe and Moesen (2009). It is quite likely that the debate was launched from different sides independently of each other.
7 The term was coined by Andre Sapir, a Belgian economist who wrote an influential Bruegel report on the topic of welfare reforms at the request of the European Commission in 2003. Sapir basically claims that a combination of liberal and Social Democratic welfare regimes can achieve a better balance of flexibility and social protection, a claim that has been strongly disputed in the meantime (Keune and Serrano 2014).
8 A recent example in the United States is telling. The Cato Institute had to change course when the Koch brothers did not feel they got enough bang for their bucks (Mayer 2012).