The Politics of Governing European Fiscal Relations

through Uncertainty
Bartholomew Paudyn
Department oI Political Science
Carleton University, 1125 Colonel By Drive
Ottawa, Ontario, Canada K1S 5B6
Email: bpaudynconnect.carleton.ca

Paper presented at the Annual Convention oI the International Studies Association
February 15 Feb 18, 2009, New York City, NY
Work in Progress - please do not cite without permission

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The SGP crisis and the subsequent 2005 reIorms draw attention to a shiIt in the management oI EMU;
namely Irom governing through risk to that oI uncertainty. Understood as modalities oI government, risk
and uncertainty make the production oI this monetary space intelligible as a recognized Iorm oI
knowledge Ior the purposes oI management. EMU is rendered real as a governable space through the
invention oI speciIic discursive practices oI inscription and calculation. These are designed to minimize
the negative externalities associated with the conduct and coordination oI Iiscal and monetary policy. But
whereas the SGP was devised as the anchor Ior the euro it has come symbolize its weakness. The result is
an antagonistic relationship between the programmatic and operational dimensions oI monetary
governance. I argue that the 2005 reIorms signal a revival oI a politicized 'Growth dimension to
governing Iiscal relations, which places a greater emphasis on Ireedom and creative entrepreneurialism.
Doing so I ascertain how uncertainty-centred discursive practices have obtained the power to deIine the
parameters and subjects oI EMU under the revised Pact. This allows Ior a more comprehensive
understanding oI monetary governance than posited by either mainstream economic utility models or
liberal intergovernmental approaches.
Keywords: Economic and Monetary Union; risk and uncertainty; European Union; governmentality;
Stability and Growth Pact; Iiscal governance
Introduction
Europe lacks a comprehensive and harmonized Iiscal management and internal control system to
adequately guarantee macroeconomic stability. Rather the Iiscal landscape oI Europe is a
Iragmented collection oI national policies interlaced via the Stability and Growth Pact (SGP). In
direct contrast to the centralized monetary domain, there is no equivalent supranational economic
authority that oversees Iiscal conduct. Uncertainty is heightened as coordination becomes
problematic since deIections result in Pareto-inIerior equilibria, which are not overcome by the
threat oI sanctions (Hechter, 1990). The November 2003 Economic and Financial AIIairs
Council (EcoIin) crisis is indicative oI this conundrum. Doomed to Iail because oI its overly
rigid structure, the SGP was perceived as artiIicially uniIorm. Punitive measures were never
seriously entertained, especially since most countries Iailed to meet the convergence criteria
upon adopting the euro (Arestis and Sawyer, 2006: 57). All these Iactors ampliIied the politics oI
risk and uncertainty associated with Iiscal management. To amend the negative externalities
produced by the EcoIin crisis, the architects oI EMU introduced a more Ilexible and
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discretionary regulatory Iramework in 2005. This was a transition to uncertainty-centred modes
oI governance that contrasted to a pre-2003 regime based predominantly on risk.
Risk and uncertainty have become primary constructs that inIorm economic governance
in the Iinal stage oI the European Monetary Union (EMU). They are not to be treated as either
analytically real or unreal.
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Rather they help Irame governmental problems and thus orientate the
architects oI EMU by rendering realities manageable according to particular constructs. Through
the deployment oI calculations and discursive practices, risk and uncertainty are translated into a
regulatory capacity charged with mitigating dangers Iacing EMU. Whereas risk is deIined as an
aggregable and probabilistically quantiIiable Irequency oI an undesirable event, uncertainty may
be understood as a singular, subjective estimation, as the Iluid art oI the possible` (O`Malley,
2004: 5). Uncertainty implies that possible outcomes may be identiIied but cannot be assigned a
probability distribution denoting the success oI such decisions given their unique circumstance.
Greater reliance is placed on non-quantitative techniques, such as seasoned judgment and rules
oI thumb, to calculate available prospects. Both are governmental categories which inIorm how
the present is imagined and rendered real in terms oI an indeterminate Iuture.
This paper analyzes how risk and uncertainty help deIine EMU as a problem oI
governance. It diagrams how the EcoIin crisis and the reIorms it engendered have reorganized
Iiscal management Irom a system governed predominantly through risk to one regulated through
uncertainty. In diagramming this transition, I highlight how both the preventative arm,` (e.g.
country-speciIic, medium-term budgetary objectives (MTOs)), and the corrective arm` (e.g.
exceptional Iactors`) reIlect this discursive shiIt. This study oI truth techniques, rather than
ideologies, will reveal the revival oI a (re)politicized approach to Iiscal governance, Iocusing on
growth and employment as principal objectives oI EMU, in European policymaking.
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EMU is haunted by a consistent stream oI Iailures that challenge its organizational
capacity to mitigate potential hazards through techniques oI risk management. A diIIerent, more
responsive approach to contingency was deemed necessary aIter 2003. The crisis undermined
EMU`s monetarist ideological Ioundation as deIicit-Iinancing was embraced by even the
staunchest supporters oI Iiscal prudence (i.e. Germany) transIorming them into Iiscal sinners.`
Simultaneously, major institutional inconsistencies were revealed in how member states are
regarded under the Iramework, as is exempliIied by their diIIerential treatment culminating in
the 2003 EcoIin crisis. A group oI states (e.g. Portugal, Ireland) was subject to the statutes
whereas France and Germany were deemed exempt. Coupled with the conceptual conundrum
expecting states to punish themselves to their own detriment and that oI their constituencies,
uncertainty has become more pronounced as a template Ior Iiscal relations. My intention is to
problematize European Iiscal governance in light oI this crisis and the eventual reIorms oI March
2005. Challenges to the integrity oI European Iiscal governance, posed by these inconsistencies,
have produced new ways oI regulating this space. Investigations oI deep social transIormations
and their divergent properties Iail to reveal how this transition is occurring. Thus, alternative
approaches that link contemporary thought with politics are necessary. For this task two central
questions are investigated.
First, how does the diIIerentiated assessment oI SGP statutes problematize European
monetary management? I submit that the politics` oI Iiscal governance have been ampliIied by
the conceptual, ideological, and institutional inconsistencies culminating in the SGP crisis. This
(re)politicization oI Iiscal relations has been reIlected in and magniIied by the transition Irom a
risk dominant system oI management to uncertainty government in EMU. Appreciating risk and
uncertainty as leverages underpinning the constitution oI EMU, regulators deploy a battery oI
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rationalities (e.g. new monetarism) and technologies (e.g. Stability and Convergence
Programmes (SCP), Excessive DeIicit Procedure (EDP)) to render this space real Ior the
purposes oI minimizing Iiscal proIligacy and yielding politico-economic gains. As a material
artiIact, EMU incorporates these discursive practices in its construction oI new geographies oI
power and legitimacy.
Second, what is the regulatory capacity through which risk and uncertainty, as modes oI
governance, are delivered? How do the architects oI EMU address the changing problems
associated with Iiscal proIligacy? In answering this second question, I map the various
discourses and techniques that contribute to the government oI uncertainty in the post-2003
environment. Such a genealogical approach allows us to ascertain how reasonable` practices are
constituted and how the notion oI surveillance as regulation embedded within the political
economy oI EMU changed in 2005. Explaining what caused the SGP crisis is not the objective.
Rather my intention is reveal how the revised Pact signals a diIIerent way oI Iraming the
problem oI governing Iiscal relation in EMU and acting on the capacity oI governments as Iree
actors. Practices oI liberty help induce the internalization oI selI-regulation thereby Iostering
greater compliance.
The Iollowing argument is developed in Iour stages. First, I revisit and develop the Iiscal
surveillance problematic. Here the history and evolution oI the SGP and the politics surrounding
the 2003 debacle will be addressed. Next, the conceptual territory oI risk and uncertainty as
modes oI governance is discussed. In this section, I entertain alternative explanations oI the
problematic and its key concepts. Third, I proceed to examine how risk acts as a buIIered Iorm oI
rule or leverage in the constitution oI EMU. The Iollowing section explains how the EcoIin crisis
triggered the transition to a reliance on uncertainty based Iorms oI regulation or the second
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leverage. By problematizing the categories that conventional theories take Ior granted, this paper
sheds light on how the EMU space is conditioned into existence through particular discursive
practices deployed to manage uncertainty.
Fiscal Surveillance Problematic
German, or Bundesbank, intentions to export and codiIy a model oI strict Iiscal austerity to the
rest oI Europe met with opposition at the 1996 Dublin Summit. Originally launched as the The
Stability Pact` (Stabilitatspakt), German Iinance minister Waigel stressed the necessity oI
buttressing the Maastricht convergence criteria by including automatic penalties targeting
members who joined the eurozone but breached its Iiscal rules. Such draconian measures were
also designed to keep the highly inIlationary Club Med` (i.e. Italy, Greece) countries out.
Otherwise, it was believed that their Iiscal proIligacy would jeopardize the credibility oI the
common monetary policy. Sustained opposition Irom France and all but the Netherlands
convinced Germany to relent and recognize the employment and growth` dimensions oI Iiscal
sovereignty. This meant respecting national discretion and placing the power to sanction in the
hands oI EcoIin.
As a risk-based system the objective was to Ioresee and mitigate threats to the integrity oI
the SGP by devising targets against which probabilities could be assigned. The original SGP was
comprised oI two component or arms.` First, the preventative arm` advised that the MTOs and
budgets oI member states should be close to balance or in surplus` over the course oI the
business cycle. This would help gauge and hedge against possible violations. Next, the
corrective arm` stipulated the exact rules Ior Iiscal misconduct. Considered hard law,` it warns
against breaching deIicits oI 3 to GDP and debt levels oI 60 to GDP. Accordingly, the EDP
determines the acceptable Irequency oI incidence Ior deviations and grants EcoIin the authority
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to sanction. Adhering to this rules-based system, countries are denied the traditional tools that
help stabilize their economies in the event oI an economic downturn. Consecutively, Article 104
oI the Maastricht Treaty Iorbids both the European Central Bank (ECB) and National Central
Banks (NCB) Irom lending directly to any state or purchasing securities Irom them so as to avoid
the monetization oI debt.
Heralded as a standardized and objective` system, the SGP is in Iact a contract`
amongst countries that retain sovereignty over Iiscal policy. Unlike a conventional contract,
however, its politicized nature thwarts its enIorcement by legal means. Thus, the essence oI the
pact is not a mechanism oI quasi-automatic sanctions` but the institutionalization oI a political
pledge to aim Ior low deIicits` (Heipertz and Verdun, 2004: 770). First and Ioremost, the SGP is
a political protocol and Iiscal indiscipline is a political Iailure. This Iundamental principle is the
impediment that has severely compounded EMU governance anchored predominantly in risk. As
such, uncertainty has been mobilized to justiIy alternative Iorms oI managing Iiscal conduct
linked to new strategies oI calculation and issues oI responsibility.
One looming threat to EMU is that governments are prone to deIicit spending. The appeal
oI such action grows when governments are Iaced with recessionary pressures, as in the wake oI
the 2001 economic downturn. Nevertheless, Europe`s Iiscal Iramework hinders their capacity to
use automatic stabilizers during market corrections. This lack oI Iiscal Ilexibility has been
critiqued as acting as a straitjacket,` damaging the economic position oI member states at a time
when expansionary measures are justiIied (Jespersen, 2004). Being what Romano Prodi reIerred
to in Le Monae (October 17, 2002) as a stupid` procyclical policy, it was not in the interest oI
governments to abide by the original SGP. Begg and Schelkle (2004: 92) concur and attribute
this crisis in European macroeconomic stabilization to an erroneous preventative arm that
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subjects national governments to misguided demands. A procyclical policy compounded by an
excessive emphasis placed on deIicits rather than targeting aggregate budgetary positions,
compromises a government`s capacity to adequately manage market corrections.
Little did the architects oI EMU suspect that the proIligacy problem was only going to be
exacerbated by the very champion oI Iiscal prudence itselI, namely Germany. Up to November
2003, the SGP had progressively come under attack Irom six states as they breached the rules
(Eurostat, 2004). Amongst these sinners` was Portugal who was the Iirst to breach the deIicit
ceiling in 2001 with 4.2. It was joined by Germany whose lax budgetary position deteriorated
to produce a deIicit oI 4.0 in 2003. France surpassed German Iiscal misconduct that same year
with a 4.1 deIicit oI its own (Eurostat, 2004).
Although an early warning mechanism` (Article 99(4)) was issued by the Commission, it
Iailed to be activated by the EcoIin Council and ultimately proved ineIIective in stymieing the
excessive deIicits. Acknowledging that they were in violation, EcoIin nevertheless rejected
deIlationary Commission recommendations to sanction France and Germany. Together with Italy
and Portugal, they orchestrated a blocking coalition, by virtue oI the qualiIied majority voting
system, to suspend the EDP against them in Iavour oI soIt targets and time limits, essentially
sounding the death knell Ior the unloved Stability and Growth Pact` (Begg and Schelkle, 2004:
86). In eIIect, this sgnaed the amputaton of the dssuasve arm of the Pact,
whch had been preceded by a progressve oss of credbty of the
preventve arm (But and Pench, 2004: 1026). Europes fsca framework was
n |eopardy and on the brnk of coapse.
Initially the SGP was recognized as IulIilling the interests oI the stronger economies, like
Germany, but as a procyclical policy came to be critiqued as economically unnecessary, Iiscally
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counterproductive, and simply politically ineIIective` (Savage and Verdun, 2007: 843). Sparking
an institutional crisis, the EcoIin debacle exposed the necessity to revamp a risk-centred regime
oI governance through aggregate Iutures as it proved unable to account Ior the heterogeneity
underpinning the behaviour oI member states.
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Furthermore, the belieI that member states would
willingly punish themselves at the expense oI their domestic interests is simply conceptually
unsound. National politics contributed to aborting the issuance oI an early warning` to Germany
and Portugal in 2001 and again to Germany in early 2002. With an election looming (October
2002), Schroder was aIraid oI the disruptive potential that a blue paper` Irom Brussels would
have on his campaign. A deIicit bias remains that is ultimately unsustainable and a behaviour
that the SGP has apparently Iailed to eradicate. The Commission itselI acknowledges that
tensons have accumuated n the appcaton of the SGP, eadng to a oss of
credbty and ownershp and nsttutona uncertanty (Commsson, 2004:
3). Thus, whereas the SGP was devised as the anchor Ior the euro it has come to symbolize its
weakness. The result is an antagonistic relationship between the programmatic and operational
dimensions oI monetary governance, which only heightens the danger oI disruption or
potentially Iailure.
Greater Room for Compliance
Fiscal proIligacy threatens to increase inIlationary pressures and undermine the ECB`s monetary
policy. Risk techniques ascended in conjunction with such a monetarist rationality. But now the
myths oI control embedded in EMU, which the SGP reinIorced, no longer diminish the
perception oI hazard as originally intended. In spite oI the Iact that the new monetarist ideology
may have been inIluential, it proved to be unsuccessIul in maintaining compliance. Hence, to
understand the actual political economy oI the SGP, the study oI techniques oI truth production
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is more relevant than Iocusing solely on ideational Iactors. In this way, we can determine the
discursive constitution oI EMU subjectivities as well as the space called EMU.
Since modes oI managing, intervening and administrating become modes oI power to
the extent that they are generalized and linked to a centre,` understanding how government
through uncertainty stabilizes EMU is signiIicant to understanding its political economy (Miller
and Rose, 2008: 21). In light oI the amended SGP, a genealogy provides the comparative
normality that allows Ior a better assessment in the shiIt in regulation. As the link between
thought and government is problematized such an approach reveals how the revised Pact signals
the changes entailed in Iraming the problem oI Iiscal governance in terms oI uncertainty in the
wake oI the SGP crisis. Here the repoliticization oI Iiscal relations is visible because, as a
governmental template, uncertainty targets the variability and diversity oI political activity upon
which EMU is predicated.
The response to this new, uncertain environment came late March 2005 in the Iorm oI a
European Council agreement entitled Improving the Operation oI the Stability and Growth
Pact.` The success oI Iiscal governance would depend on the strength and convergence oI clear
rules that Iavour discipline-oriented budgets (DG Ior Economic and Financial AIIairs (EcFin),
2006). The basic rules delineating the reIerence values would be retained. However, the uniIorm
requirement oI close-to-balance or in surplus` was replaced with new methodologically clariIied
MTOs. Fresh provisions stipulated a 0.5 benchmark as the adjustment path to reach the MTO,
which would be more sensitive to market conditions. All oI these would be measured in
cyclically adjusted terms. From the Mid-Term Budgetary Review (MTBR), where the Eurogroup
will provide a hori:ontal assessment of national buagetary aevelopments ana their implications
for the euro area as a whole (original italics),` to enhanced SCPs that encompass MTOs Ior the
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very Iirst time to a comprehensive account oI other relevant Iactors` in the decision to invoke
the EDP, the mechanistic and probabilistically aggregating methods akin to risk located in the
original Pact are less visible (Council oI the EU, 2005). UnIortunately, these MTOs have
transIormed into moving targets rather than deIinitive points oI reIerence, in the process
undermining Iiscal surveillance.
With a renewed emphasis on the preventative arm,` revisions that Iocus on long-run
sustainability may strengthen the surveillance capacity oI the Pact iI properly implemented.
Trumpeting diIIerential treatment` the corrective arm` is more accommodating oI exceptional
and temporary` circumstances (Council oI the EU, 2005). In extending deadlines to correct
excessive deIicits, the new SGP grants more power to the discretion oI experts and oIIicials.
Their judgment becomes more paramount in appraising Iiscal conduct and in the execution oI the
new Pact. Whether these reIorms are respected and help ensure compliance remains to be seen.
Their most Iormidable test will be another economic downturn since the current crisis is highly
exceptional.
As a crude Iiscal coordination mechanism,` the SGP leaves substantial room Ior political
manipulation (Crowley, 2002: 166). A primary deIiciency associated with the original SGP
remains. Compliance does not depend solely on a new Iiscal Iramework. As Buti notes:
iI the problem is primarily one oI adherence to the rules, the priority should be to
ensure rigorous implementation oI the existing rules rather than to change them.
At the same time, it is widely recognized that simply attempting to apply the existing
rules aIter the watershed oI November 2003 is not a viable option. Reestablishing
a sense oI ownership oI the Iiscal rules by all parties would be the precondition Ior
their eIIective enIorcement (Buti, 2006: 6).
Indeed, a successIul SGP cannot neglect that national Iiscal ownership rests on the
internalization oI selI-regulation. Convergence between national interests and EU objectives
demands Iorecasts, analyses and recommendations that are speciIically tailored to each
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individual member state and their unique interests rather than vague and generic ones. In
addition, rules and numbers need to be interpreted by humans. No quantitative apparatus can
actually initiate the EDP. That Iunction belongs to the discretion oI the EcoIin Council in
collaboration with the Commission. Given that these relationships are highly politicized the
internalization oI selI-regulation is Iostered by the convergence oI actors` preIerences as the
option oI deIection becomes less attractive. Flexibility is crucial to accommodating state interests
and keeping EMU intact.
Acknowledging that Iiscal sovereignty is a sacred cow` oI the state, this emphasis on
the steering oI internal control` or the conduct oI conduct` may prove to be an attractive
alternative approach to a problem that conventional means cannot manage (Rose, 1999).
As a new analytical instrumentality, governmentality` directs our attention to the diverse set oI
discourses and practices that help constitute this neglected element oI Iiscal governance. The
idea oI a government oI economy introduces a selI-regulating element to the organization oI
EMU. Through the internalization oI selI-regulation, members are envisioned as enterprising
subjects entrusted with the responsibility oI prudently managing their Iiscal books. Freedom` is
central to this conceptualization oI the government as it is constituted oI practices oI liberty.`
The SGP crisis reminds us that:
the more stringent and rigorous the panoptic regime, the more it generates active
resistance, whereas the more soIt and subtle the panoptic strategies, the more it
produces the desired docile bodies (Lyon, 2006: 4).
Strategies promoting Iiscal discipline must accommodate Ireely choosing states Ior the
Iramework to be eIIective. Risk does not. Simultaneously, the Pact enabes and opens up
new possbtes for ts sub|ects, and restrans these sub|ects as they are
made sub|ects of a certan cacuatve and dscpnary regme (Haarh, 2004:
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209). As a mode of governance, uncertanty ncorporates freedom and
creatve entrepreneurasm as t heps refocus responsbty n fsca
reatons.
Risk and Uncertainty Deficits
The problem oI uncertainty has entered the discourse oI many disciplines and has been
appropriated in diverse ways. In economic theory it is typically associated with marginal utility
and modeling optimal allocation equilibria (Arrow and Debreu, 1954; Malinvaud, 1969). Knight
distinguished between risk and uncertainty in his analysis oI proIit in market economies. He took
exception to the practical omniscience` oI every actor in the market purported by economic
orthodoxy (Knight, 1921: 197). Uncertainty is the inescapable reality oI entrepreneurialism.
Unique business decisions are subject to imperIect inIormation about the Iuture. This hinders
one`s decision-making capacity as expected utility-maximization is inapplicable in various
stages oI economic liIe where uncertainty prevails. DeIinite numerical probabilities cannot be
assigned to outcomes because agents lack a clear notion oI the possible consequences oI their
actions. Not knowing what causal relations maximize utility jeopardizes rational actor modelling
oI a predictive Pareto-eIIicient equilibrium. Nevertheless, the:
degree` oI certainty or oI conIidence Ielt in the conclusion aIter it is reached
cannot be ignored, Ior it is oI the greatest practical signiIicance. The action which
Iollows upon an opinion depends as much upon the amount oI conIidence in that
opinion as it does upon the Iavourableness oI the opinion itselI (Knight, 1921: 227).
Calculations do occur but in the Iorm oI judgments emphasizing the success oI the estimate more
so than the actual outcome itselI. OIten these are reinIorced by the shared mental models` that
actors subscribe to, which are cognitive practices used to interpret uncertain environments and
discern interests (Denzau and North, 1994: 3-5).
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Sympathetic to Knight`s approach, Keynes (1921) believed that uncertainty eliminates
the numerical measure oI incidence preventing the Iorecasting oI such things as prices, war or
Iuture interest rates. He also echoed the sentiment that irrespective oI the absence oI calculable
probability:
the necessity Ior action and decision compels as...to overlook the awkward Iact
and behave exactly as we should iI we had behind us a good Benthamite calculation
oI a series oI prospective advantages and disadvantages, each multiplied by its
appropriate probability, waiting to the summed (Keynes, 1937: 214).

This is in contrast to the conceptualization oI uncertainty as an unknown risk where interests are
discernable but the path to their actualization is not. With more inIormation or better
computational systems, uncertainty is subsequently transIormed into risk, which makes it
tractable to rational choice modelling. However, lacking the comparative normality Irom which
to assign a superior outcome, rational choice models are incapable oI telling us what to do. This
undermines conventional economic orthodoxy as it questions the integrity oI its decision-making
capacity (Beckert, 2002: 42).
Aside Irom economists, deIining uncertainty as the incalculable risk is Iavoured by
Ulrich Beck and most risk society` theorists (Beck, 1999; Giddens, 2000; Lash; 1999).
Uncertainty is a by-product oI modernity which produces impending catastrophes that occur at
Irequencies too low to statistically predict. Yet, what Beck and other social pessimists oI his
persuasion neglect is the political Iactor and how it thwarts the Iunctionality oI maintaining
control. Beck is critiqued by thinkers, such as Bruno Latour (1993), Ior divorcing
technoscientiIic epistemology Irom its disorderly and uncertain socio-political context. In the
aItermath oI the SGP crisis, one can appreciate how the task oI identiIying and deIining threats
to EMU demands an approach which is not ambivalent about political uncertainty. The
conceptual, ideological and institutional inconsistencies in governing Iiscal relations necessitate
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recognizing the logic oI uncertainty, its Iormulation in rendering realities manageable and its
status as a model oI good governance.
As modes oI regulation, risk and uncertainty help deIine EMU activity by producing and
legitimating knowledge as a susceptibility to vulnerable Iiscal conduct and as a register oI
responsibility. They are governmental constructs that Irame problems in terms calculative
estimation oI some indeterminate Iuture (Ericson & Doyle, 2004). Risk and uncertainty should
be regarded as neither analytically real nor unreal. This would simply precipitate a metaphysical
debate about the ultimate oI state(s) oI variance. Arguably, much oI the risk society literature
attempts just this (Beck, Giddens & Lash 1994; Beck 1999). Risk is perceived as the unavoidable
symptom oI globalization that can be unearthed through probabilistic techniques. Statistically
reIined by economists, risk is the measure oI variance around an expected value` and is
considered a tangible phenomenon/Iorce (ChoraIas, 2007: 24). Once this degree oI probability is
determined it is then transIormed, as objective knowledge,` into a capacity to mitigate
abnormalities.
General equilibrium theory oIten inIorms liberal intergovernmental (IG) studies oI EMU
in the Iorm oI abstract game-theoretic modelling where the intention is to identiIy the optimal
strategy oI action (Tabellini, 1986; Putnam, 1988; Moravcsik, 1998). Presented as scientiIic
knowledge,` risk is said to provide an accurate range oI reIerentiality according to which Iiscal
conduct may be empirically measured (March and Shapira, 1987; De Grauwe, 2007). Win-sets`
represent the negotiating margin oI manoeuvre available to state actors during the SGP crisis.
For intergovernmentalists, holding the EDP in abeyance against Germany and France simply
reaIIirms the progressive loss oI credibility the Pact endured as larger states shunned its rules at
their own discretion (Buti and Pench, 2004: 1026).
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Yet, this desire to replicate the prescriptive and predictive success oI the hard sciences
and a belieI in the inIallibility oI rationalist-empirical epistemology` proves inadequate in
situations oI uncertainty, which, according to Denzau and North (1994), prevent selection oI
outcomes in accordance with the dictates oI expected utility modelling (Jarvis and GriIIiths,
2007: 17). Should uncertainty only be a risk disguised by cognitive limitations then:
how ideas inIorm agency in moments oI uncertainty would be irrelevant...All
ideas would be correspondence theories with zero ambiguity, and courses oI
action, interests, and choices, would be clear. In sum, politics would be
unnecessary; which given its ubiquity suggests that there may be limits to
viewing uncertainty as a problem oI complexity (Blyth, 2007: 78).
Interests are ideationally-bound rather than pre-given immutable Iacts. Denzau and North
address this point but their contribution is mainly limited to the realm oI ideas. Aside Irom some
marginal comments about institutions, they Iail to adequately explicate how these mental
constructions are actually translated into practice. By neglecting the materiality oI discourse
while privileging ideas in the construction oI social structures rather than explaining how they
are produced and renegotiated, Denzau and North are prone to idealism. Calculative practices
articulate governmental programmes and shape the economic and social relations that comprise
the EMU regulatory space. How these socially constructed truths Iorm in the context oI the SGP
through speciIic institutional and historical practices is what this paper helps understand.
How we come to understand EMU subjectivity, categories and processes is oIten taken as
selI-evident or given in IR/IPE and seldom problematized. Conventional theories, such as
economic equilibrium models or IG, do not dissect how interrelations deIine and condition an
event; namely the link between thought and governance. They treat risk as a selI-evident,
monolithic technology and in the process reinIorce a Iictitious subject/object dichotomy. Given
that the Iield oI IR exhibits an ontological bias or Ietish` this advocated Iacticity is not
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surprising. The implications, however, are quite grave as these epistemological deIicits detract
Irom the explanatory value oI mainstream accounts oI EMU. To divorce the SGP Irom political
reason by resigning ourselves to a totalizing vision oI risk or uncertainty hampers our capacity to
understand the changing nature oI EMU governance.
Both orthodox economics and liberal IG Iail to problematize how such a process can
occur in the Iirst instance. How do the architects oI EMU come to understand Iiscal relations in
terms oI risk and uncertainty? Knight and Keynes both assert that uncertainty is a constant Iacet
oI economic activity. Their predictions rest on numerous assumptions that are seldom
problematized but readily transposed Irom one context to another. Empoyng ads, such
as the ceteris paribus cause, economsts cng most tghty to the promsed
certantes of atempora structurasms and postvst methods (Waker,
1993: 105). Incorporated with the very state-centric IG ontology, politics, not to mention
society, become excluded and subservient to liberal economic theory. Even more distressing is
the absence oI a genuine interest theory as preIerences are exogenous to liberal
intergovernmentalist models. Without any serious discussion about interest or identity Iormation,
the IG approach must rely on predetermined categories and Ialse dichotomies. Positivistic
readings neglect the epistemological implications oI their own endeavours in Iavour oI
methodological rigour and ontological inventions. But how problems are Iramed, especially
where contingency and speculation are Iactors, requires that those involved in doing so be
sensitive to the conditionality, reactivity, and interactivity oI risk and uncertainty (Garland, 2003:
53).
3
Conventional approaches to EMU are not.
Simply attempting precise technocratic control oI something as multiIarious and Iluid as
socio-political conduct is virtually impossible. One cannot aggregate and probabilistically pre-
18
empt all the available combinations that Iactor into the decision-making process. Predictability is
challenged by an imprecisely Ioreseeable Iuture`, which is not repeating itselI in any statistically
measurable way (O`Malley, 2003: 235). Rather than deIining this lack oI secure knowledge as a
type oI incalculable risk, another analytical, as well as governmental, category is necessary. Here
is where the value-added oI uncertainty is most apparent in the problematization oI European
Iiscal management.
Uncertainty as a Mode of Governance
Risk has typically been calculated in terms oI probabilistic estimations. Statistics act a modality
Ior the production oI knowledge necessary to govern, rendering the territory to be governed into
thought as a domain with its own density and vitality` (Rose, 1991: 676). For the purposes oI
government this calculative rationality oIIers the security aIIorded Irom living in a determinate
world. But the SGP crisis undermined the conceptual, ideological and institutional Ioundations
oI EMU that preserved such myths oI control. Risk management systems geared to monetizing
time and space by rendering Iiscal relations quantiIiable and thereby calculable were conIronted
with the antagonistic, albeit constitutive, relationship between the programmatic and operational
components oI politico-economic activity. This revealed the need Ior new techniques sensitive to
the revived politicization oI Iiscal relations in EMU.
Uncertainty remains an underdeveloped concept in political economy. This is unIortunate
given its capacity to help grasp the conditions that make the organization and management oI
EMU possible. To govern through uncertainty is to do so:
in non-quantitative ways, by reIerence to experienced judgment, shred guesswork,
rules oI thumb, analogies and so Iorth. By implication, uncertainty thereIore is
a way oI governing Iutures that are imagined as singular, inIrequently recurring
or unique (O`Malley, 2004: 13).
19
Unique situations are not readily susceptible to the aggregation oI risk management. A better
method anchors their governance within a speciIic historical epoch. Attune to and underscoring
contingency, mapping risk and uncertainty demonstrates the temporality oI EMU. For all its
supposed statistical intelligibility and congruence this space is an artiIact derived Irom diverse
inIluences. Uncertainty does not simply replace risk as their relationship is not one oI rigid
binary opposition. A preIerred understanding regards them as related along multiple axes, with
the eIIect that no single continuum (such as one running Irom statistical probability to vague
hunches) will adequately represent their relationship` (O`Malley, 2004: 21). Nevertheless, it
diIIers Irom risk as it depends more on creative Ioresight instead oI probabilistic modelling.
As a modality oI rule uncertainty harnesses this enterprising potential as a pragmatic
response to an indeterminate Iuture. Freedom Iorms the basis oI this approach to governing as
EMU subjects exercise discretion in their decision-making capacity. Expertise is being redeIined
to cope with this selI-regulatory dimension oI Iiscal relations. EcoIin and the Commission need
to recognize Ireedom as a relational practice involved in conditioning individual governments to
respect the Iiscal rules by enacting the responsibilities that compose their liberties` (Rose, 1999:
72). Gains derived Irom active membership in EMU depend on compliance with its rules. The
2005 reIorms represent a shiIt which aIIords governments a greater room to manoeuvre in their
obligation, under Article 99 (1) oI the EC Treaty, to regard their economic policies as a matter
oI common concern.` Responsibility is intimately related to Iiscal ownership, which needs to be
bolstered iI uncertainty is to be mitigated.
Such a reading parallels the distinction made by Knight and Beckert but it rejects the
primacy oI their ontological claims. Whether or not Europe is substantively a more uncertain
world` aIter 2003, an analytics oI government reveals how risk and uncertainty are being
20
reconIigured as proper ways oI governing Iiscal relations given the trinity oI inconsistencies
identiIied above.
4
Embedded within these practices is a history oI governmental reason that is
contingent on time and place rather than a priori and selI-evident. Increasingly, these mentalities
rely on creative entrepreneurialism as a model oI good Iiscal government. My genealogy
diagnoses these assemblages` as solutions and strategies Ior maintaining Iiscal discipline while
avoiding a totalizing vision oI risk.
Migration of Risk
Abstract models, that neglect conditionality, cannot account Ior the contextual but random
character oI uncertainty as an organizing principle that helps deIine the parameters oI EMU as a
governable space. This demands that regulators exercise creative Ioresight by appreciating the
contingency and political character underpinning Iiscal relations. Furthermore, it calls into
question what is legitimate and highlights the dual nature oI the leverage implicit in establishing
claims oI responsibility underlying EMU politics in Europe. Risk metrics remain a popular tool
in prudential supervision and the Iinancial stability oI EMU. Buti and Giudice (2002) even
derive a Iiscal reaction Iunction Irom the projected output gap and inIlation stabilization. All
things considered, these quantiIiable estimations are most visible in securing the primary
objective oI EMU, namely price stability. InIlationary concerns about the deIicit bias are just as
prominent with the 2005 reIorms. But their monopoly at the expense oI employment and
economic growth has been disturbed. With the original Pact, optimal Iiscal rules were devised in
a similar vein to monetary policy. The initial SGP attempted to transpose a monetarist rationality
and its associated techniques onto a politically charged Iiscal landscape that did not lend itselI to
such measures. SpeciIically, importing this strategy neglected that Knightian uncertainty, in
21
particular uncertainty about the goals oI monetary policy, is by and large ignored` by central
bankers (Schuberth, 2004: 262).
To understand how risk and uncertainty shape the conduct oI conduct` and introduce
parsimony into the management oI European Iiscal aIIairs requires an excavation oI this very
technocratic landscape. What is revealed is not a uniIorm and a priori entity labelled risk` or
uncertainty` but a historical emergence oI speciIic discursive practices aimed at stymieing
proIligacy. Through the processes oI inscription and signiIication, these produce the meanings
that are attributed to various EMU categories and subjectivities (Gordon, 1991). Contestable in
nature these methods regulate which articulation oI subjectivity is validated.
A genealogical approach reveals the lineages where such inscription takes place.
Genealogies help ascertain how truth claims are constituted by dissecting the very discourses,
institutions and technologies employed in their actualization. In place oI grand theories oI
monetary integration, the governmentality approach renders visible a singularity at places where
there is a temptation to invoke a historical constant...or an obviousness which imposes itselI
uniIormly on all` (original italics) (Foucault, 1991: 76). By deciphering how risk and uncertainty
are deployed in the context oI EMU, we can retrace the problematizations oI Iiscal management
to which they were presented as solutions. In a better position to grasp the very conditions that
render EMU a governable space, we Iirst require an understanding oI how this regulatory
capacity changed in the wake oI the SGP crisis. For this, the shiIt in risk-centred discursive
practices is diagnosed.
Against the backdrop oI the extremely volatile Iinancial markets oI the 1980s and the
Iears triggered by the collapses oI, among others, Barings, MatellgesellschaIt, and Long-Term
Capital Management the Iollowing decade, risk began to dominate the agenda oI policy-makers
22
(ShirreII, 2004). With a calculus oI probabilities at their disposal, oIIicials came to understand
EMU as a problem rooted in the language, ideas and methods oI commercial risk management.
So much so that risk began to displace other Iorms oI understanding EMU governance, such as
through the lens oI national economic security or in terms oI socio-economic classes or, as in the
early days oI the Schroder government, neo-Keynesian demand management (Walters & Haahr,
2005). In order to promote sustainable budgetary balances and coordination, a rules-based SGP
depreciated the role oI economic judgement and policy discretion. Surveillance rested on both
the preventative` and corrective` arms being transparent, consistent and equally administered.
An arsenal oI probabilistically predictive mechanisms was deployed to achieve these objectives.
Neither unique to EMU nor politics Ior that matter, the migration oI risk Irom the corporate
sector and the study oI how it has inIormed the design oI the Pact remains underdeveloped in
IPE. Instead, risk, together with uncertainty, has been accepted as a natural Iixture oI EMU
governance. To dispel this misconception, European public sector management may be evaluated
according to three primary organizational elements oI risk (Power, 2004).
The Iirst concerns the emergence oI risk-based internal control` in redeIining
organizational governance. Initially oI principal interest to the Iield oI Iinancial auditing, internal
control systems have been expropriated as a governance mechanism not only to the entire
corporation but to the broader public space,` thus equating them as co-extensive with risk
management` (Power, 2007: 35). Early warning systems, such as those employed by EcoIin,
externalize institutional control arrangements as they monitor Ior budgetary positions that are
not consistent with the broad guidelines or risk jeopardizing the proper Iunctioning oI EMU`
(Article 99(4) oI the TEU). To buttress its relative position in the Stage III surveillance process,
DG EcFin underscored the signiIicance oI cyclical economics and econometric budgetary
23
Iorecasting in the early warning alerts issued by EcoIin on the Commission`s recommendation
(Savage, 2005: 148). Simultaneously embodying and constituting the objects oI governance,
internal controls translate primary risks into systems risks,` thereby allowing organizations to
standardize their approach to potential dangers (Power, 2004: 24). CodiIied in Council
Regulation 1466/97 as part oI the preventative arm,` this procedure connects various regulatory
bodies which would otherwise be Iragmented (DG EcFin, 2006). Order is established across
multiple sites within EMU through the coordination oI resources in the identiIication and
monitoring oI risks. This standardization oI the EMU inIrastructure is thought to predict
excessive deIicits and debt beIore they happen. Again, this logic proved Iallacious in 2003.
Next is operational risk`, whose variable Iorm makes providing a precise and
uncontestable deIinition problematic; something which is characteristic oI risk in general. But
perhaps a broad deIinition oIIered by the Basel Committee includes the risk oI direct or indirect
loss resulting Irom inadequate or Iailed internal processes, people and systems or Irom external
events` (Basel, 2001). What is striking about this component oI risk is that it is actually devoted
to regulating through uncertainty more so than risk. Just as there exists no sound measure
indicating when the next Jerome Kerviel (Socit Gnrale, 2008) will surIace to exploit a
system, there is no probabilistic method to predict the kind oI budgetary policy Ilip-Ilopping
perIormed by the Schroder government.
Initially stressing micro-economic supply-side reIorms, thereby distancing himselI Irom
LaIountaine`s neo-Keynesian agenda, Schroder abandoned the Ordo-liberal orthodoxy, much to
opposition Irom the Bundesbank, in Iavour oI employment and growth strategies (Dyson, 2008:
150-152). An inIormal agreement in 2002 prevented the issuance oI an oIIicial early warning`
beIore the election. Soon the Alliance Ior Jobs` was quickly scrapped and replaced by Agenda
24
2010` (March 2003), targeting labour-market and welIare-state reIorms. Thus, politicians, as
rogue traders, do not lend themselves to being readily managed as a numerical probability.
Herein lays the tension between the programmatic and operational dimensions oI Iiscal
governance. Since operational risk is in Iact a Iorm oI uncertainty, it is imprudent to
problematize its management in terms oI risk. As a misguided approach, the original Pact was an
inadequate system that only aggravated the operational dangers Iacing itselI.
Finally, the category oI reputational risk` connects the question oI legitimacy and power
with organizational identity (Power, 2007). Simultaneously, the logic oI consequences`
anchored in rational expectations conIronts and overlaps a logic oI appropriateness,` which
articulates norms oI proper behaviour. Together they produce the growing leverage oI
reputational capital` and the devolution oI legitimate Iorms oI power (MacLeod, 2007: 246).
Automatic sanctions, argued Waigel, would help Ioster compliance as member states knew that
penalties were virtually a deIinite consequence oI Iiscally proIligacy. Such conditions would
protect the integrity oI the rules-based SGP Irom Irivolous decisions, thereby enhancing its
legitimacy. France advocated maximum discretion. But the compromise Iavoured German
demands. However, it was Germany who eventually reneged on its promises as it lobbied with
France to hold the SGP in abeyance. Every threat oI or actual violation damaged the reputation
oI the Pact (Collignon, 2007: 166).
High deIicit members can also borrow the credibility aIIorded to them by adopting the
stability-oriented Bundesbank model. Government bond yields are a good indicator oI the
market`s assessment oI such initiatives. By Stage III, long-term national bond yields converged
to that oI Germany with the average budget deIicit Ior the previous eight years being 3.9. With
the euro, in the next eight year that Iigure Iell to 0.60. Given integrated Iinancial markets, this
25
may be attributed to the harmonization oI Iiscal and monetary policies rather than just the
introduction oI the common currency itselI (Cote and Graham, 2004). Interesting enough, yield
spreads did not react in any signiIicant direction to the November 2003 crisis. Virtually identical,
10-year government bond rates were 3.72 in France, 3.71 in Germany, and 3.88 in Italy.
Conversely, Spain`s maintenance oI a low deIicit (1.1) went unrewarded (Feldstein, 2005:
424). ConIidence in the long-run sustainability oI debt obligations appears to have mitigated the
risk oI higher premiums. That kind oI assurance, however, is socially constructed and oIten
volatile, which makes reputation potentially unmanageable through strict risk calculations.
First Leverage of Organizational Discipline: Risk
In his analysis oI the episteme oI modern thought, Foucault observed a rupture oI thinking in
terms oI classiIication` towards one oI causation` (Foucault, 1970). Especially pronounced in
the economics discipline, the discursive and technological risk apparatus donated to pre-empting
the cause and eIIect relationship nevertheless proved insuIIicient in either predicting the
unravelling oI the SGP or explaining the event in its own language. Although the migration oI
risk accelerated with monetary integration in the 1990s, Iaith in the utility oI qualculation` as a
governmental category began to be questioned with the SGP crisis. Qualculation` is a term
Nigel ThriIt (2004: 584) employs to denote the activity arising out oI the construction oI new
generative microworlds which allow many millions oI calculations continually to be made in the
background oI any encounter.` Being especially ubiquitous these vast computing systems are
oIten present in highly specialized domains like monetary economics. Their reach virtually
transIorms their activity into qualitative` judgments, Iurther depoliticizing governance.
Nevertheless, governmental conIigurations are political inventions that ultimately succumb to the
26
very idiosyncrasies that made them. The EcoIin crisis and the reIorms it engendered represent
reaIIirm the power oI politics.
As an organizational leverage, qualculation is implicit in the preventative arm oI the
original Pact. Routine micro-practices monitor narrow economic conditions contributing to the
national Iiscal position in the eIIort to determine budgetary liability. Judged against pre-
established reIerence values, though initially biased towards deIicits rather than debts, that omit
criteria like the stock oI public debt or population demographics, power is exercised through
constant surveillance. It targets those who deviate Irom the one-size-Iits-all` statistical norm by
connecting decision-making with risk management. The SGP crisis reinIorced the perceived
artiIiciality oI the Pact as its punitive measures Iailed to deter deIicits. Without credible threats,
juridical or market oriented, and the political will to execute them, the original SGP proved
ineIIective in producing obedience and the revised version has yet to be seriously tested as it has
been temporarily suspended during the current credit crisis.
Certainly, calculative Iorms oI power associated with risk management lack the more
juridical-political` character oI sovereign` power. Yet, even the EU-juridical structures proved
inadequate. The Commission launched an action in the European Court oI Justice (ECJ)
questioning the legal basis oI EcoIin`s decision. In July 2004, the ECJ sided with the
Commission and annulled the November ruling. Nevertheless, the annulment did not indicate
whether penalties should be imposed nor did it resolve the outstanding question oI what to do
next. Uncertainty still persisted.
Qualculation` is not a benign occurrence because it undermines legitimacy rooted in
democratic processes (stakeholders), public debates and even broader market activity
(shareholders). According to Marieke de Goede (2004: 213), the increasingly mathematical and
27
depoliticized nature oI risk models displaces responsibility Ior Iinancial decision-making.` She
draws on Niklas Luhmann (1993: 13) who argues that understanding misIortune in the Iorm oI
risk.immunizes decision-making against Iailure` as it is justiIied by a battery oI instrumentally
rational and supposedly objective` criteria. Subsequently, this immunity magniIies the power oI
risk as it provides a buIIered Iorm oI rule not subject to traditional channels oI legitimacy. This
is the Iirst Iorm oI leverage.
Deeply variable in both content and Iorm the Irequency and intensity oI probable perils
Iacing Europe have only increased with the degree oI integration. However, the problem is that
when everyone is responsible Ior delivering on a particular coordinating challenge, in practice no
one is` (Jordan & Schout, 2006: xi). So although government through risk is by no means
uniIorm across problems, it works to stymie the tendency towards regulatory stagnation by
displacing valuable - but vulnerable proIessional judgment in Iavour oI a deIendable process`
thereby substituting risk management Ior political argument` (Power, 2004: 11). This Iirst
leverage relieves some political unknowns as well as the pressure to either deIer or decide and
thus shoulder a greater burden oI responsibility Ior a multiIaceted project that is as highly
specialized as EMU. It maintains the Iunctional need to preserve myths oI control by granting
authority to mathematical and technical modeling as opposed to individualized approaches. In
the process, this rationality and its modalities oI institutional practice skew how expertise is
deIined in EMU as they remove Ireedom Irom the relationship and replace it with a predeIined
and deIendable process. UnIortunately, this imposes an artiIicial uniIormity on EMU which
neglects the conceptual, ideological and institutional inconsistencies oI Iiscal relations.
In a spatially vast entity such as EMU, qualculation` allows European economic and
monetary governance to be taken Ior granted and distinct Irom discursive practices oI
28
representation. It Iails to address the contingency inherent in the political character oI the project;
namely how men govern by the production oI truth` (Foucault, 1991: 79). Instead, what is
oIIered is a pre-packaged notion oI how organizational liIe is to aevelop. To remedy this is to
recognize uncertainty and deploy alternative, largely non-quantitative Iorms oI knowledge that
make demands on entities to exercise their Ioresight in enterprising ways` (Ericson, 2005: 660).
Not only is this more consistent with the actual operational dimension oI EMU but it also
explores how truth claims are conditioned by changing articulations and Iorms oI power; thus
accounting Ior their contingency. This mode oI governance is connected to the second leverage
or governing through uncertainty.
Transitioning to the Second Leverage of Organizational Discipline:
Uncertainty
The Iirst leverage Iails to problematize the legitimacy oI mathematical modelling as the basis
EMU regulation. Political discretion is minimized, iI not outright eliminated, by an assemblage
oI qualculative` techniques codiIied in the eIIort to secure Iiscal discipline. Crude` and
ineIIective, the Pact demanded revision. Intent on avoiding mistakes oI the past, the challenge
ahead is to ensure an eIIective Iunctioning oI the preventative arm oI the Stability and Growth
Pact` (DG EcFin, 2006: 3). First, as stated in the March 2005 Council report, domestic
governance arrangements should complement the EU Iramework` (Council oI the EU, 2005).
Coordination oI national Iiscal policies in the eurozone must be enhanced through techniques
that promote the internalization oI selI-regulation. Country-speciIic MTOs, I suggest, notably
those pertaining to the sustainability oI government Iinances, are a primary hallmark oI the 2005
reIorms and the transition to uncertainty-centred governance. Favourable cyclical conditions
(neglected in Iavour oI total` deIicits in the original SGP) must also be exploited to bolster
sustainable Iiscal positions (Crowley & Lee, 2008). The consensus is that member states should
29
take active steps to reach the MTO and make larger structural eIIorts in good times` (DG EcFin,
2006: 91). A troubling corollary is that negative output gaps are more visible in economic
Iorecasts, announcing more bad` times than good.`
Analyzing the public Iinances oI the eurozone Iollowing the 2005 reIorms a signiIicant
improvement is noticeable. Down Irom 2.5 oI GDP in 2005, the headline deIicit Iell to 1.5
in 2006 (3.1 in 2003) and then to 0.9 the Iollowing year (Eurostat, 2008).
5
Debt ratios
witnessed a minimal drop Irom 69.1 to 68.6 reinIorcing the Iocus on these variables as
preIerred indicators oI long-term sustainability. Fast growing economies may experience
excessive deIicits without necessarily jeopardizing their long-term position. DG EcFin attributes
some oI these gains to the new Iiscal surveillance apparatus. Among these is the change in
economic rationale that replaced the uniIorm requirement oI close-to-balance or in surplus` with
new methodologically clariIied MTOs. For the Iirst time these diIIerentiated MTOs must be
included in the Stability and Convergence Programmes. MTOs are diIIerentiated on the basis oI
debt ratios and potential growth rather than a one-size-Iits-all` policy. This is geared to
enhancing the role SCPs play in the national budgetary process by Iostering coordination among
the various departments and agencies involved in drawing up budgets together with their
respective national legislatures. Promoting national Iiscal ownership is the objective and requires
individually tailored policies that are sensitive to the political landscape oI that country
(EijIIinger, 2005; Savage & Verdun, 2007).
Aside Irom the 3 deIicit ceiling saIety margin and a path towards sustainability, the
revised SGP states that MTOs should also permit room Ior budgetary manoeuvre, especially in
regards to the needs Ior public investment (DG EcFin, 2006: 65). ShiIting the emphasis on debt
levels rather than deIicits may Iacilitate this objective (EijIIinger, 2005). With the impending
30
expenditure increase resulting Irom an ageing population (i.e. pension reIorms), heterogeneous
governments need to incorporate qualitative elements on top oI quantitative ones in order to
conIront their unique demographic challenges. Incomes Irom input Iactors vary as do saving
rates because oI demographic, institutional, and socio-economic diIIerences between nations.
Macrobudgetary policy design must cope with these structural eIIects. Such broader implicit
liabilities represent numerous potential uncertainties rather uniIorm risks. As does implementing
the Lisbon agenda since creating the most competitive and dynamic knowledge based economy
in the world` begins with developing and capitalizing on the speciIic skill sets oI each nation.
Accordingly, expenditure on innovation and R&D justiIies breaching the deIicit rule.
Expanding national budgetary discretion also addresses the charge that SCPs were purely
passive by subjecting them to democratic debate and a measure oI accountability. Obviously, the
consequence oI such a move is that it may induce Iurther conIlict over the budget. Together with
the corrective arm,` the modiIications mentioned above are clauses indicating that:
due consideration will be given to any other Iactors, which in the opinion oI the
nation state concerned are relevant in order to comprehensively assess in qualitative
terms the excess over the reIerence value (Council oI the EU, 2005: 15).
From this it is Ioreseeable that the process may be held hostage by certain elements within a
national political landscape. Expenses associated with Germany`s reuniIication come to mind.
Yet, whoever said that democratic government was easy and without challenges? DiIIicult and
daunting at times, the task oI Iorging ahead lies with national leaders and representatives rather
than abstract modelling. EMU regulators are beginning to problematize Iiscal relations in terms
oI these uncertain dynamics and accommodate the idiosyncrasies and the discretionary
temperament oI politicians and oIIicials.
31
Arguably, it is the SCPs that inIluence budgets and not vice versa. They speciIy how the
Iiscal policies will achieve balanced budgets. For the purpose oI draIting an annual budget in a
sustainable policy plan, which is embedded within a broader EMU Iramework, the Mid-Term
Budgetary Review is perIormed beIore the summer. In its revamped Iorm the MTBR
corresponds more to national Iiscal calendars and invites member states to Iorward their policy
intentions Ior the Iorthcoming year in order to Ioster a dialogue about budgetary projections.
Such an initiative demands that governments exercise their creative entrepreneurial skills in
negotiating the diIIerent challenges that Iace them. Greece predicted a deIicit oI only 2.2 in its
2006 stability programme but experienced a loss oI 3.5 in 2007. Its budgetary target Ior 2009
was an even more optimistic -2. But that projection assumed no-policy-change` similar to
most risk models. Credit crisis corrections, which are in part the result oI reckless risk metrics,
have sabotaged those plans. Now the Commission estimates the actual Iigure will balloon to
4.2 oI GDP by 2010 (DG EcFin, 2009).
A discrepancy also surIaced between Finland`s 2006 stability programme projections and
its actual 2007 budgetary position. In contrast to Greece, however, its surplus more than doubled
to 5.3. Debt ratios Ior Greece and Finland were also Iar apart (94.8 and 35.1 respectively)
(ECB, 2009). Identical prescriptions are inadequate in such diverse situations. In order to
Iormulate proper Iiscal policy and reduce the uncertainty surrounding the coordination oI such
divergent national positions, a Ilexible system is necessary. It allows the Commission a better
opportunity to structure the ensuing MTBR discussion. The objective is a more in depth strategic
policy discussion that Iocuses on areas in need oI improvement. To help establish budgetary
priorities and curb spending, Savage and Verdun advocate instituting programmatic spending
caps` as a percentage oI GDP (Savage & Verdun, 2007: 863). Fixed targets are thought to
32
provide an inIrastructure oI reIerentiality,` which helps mitigate uncertainties oI Iiscal conduct
within this emerging monetary space (Power, 2007: 197).
In addition to the cyclical adjustment oI budget deIicits, the corrective arm` was also
reIormed. One-oII` and temporary measures` introduce more Ilexibility as they catalogue
potential conditions that depart Irom the rationality oI strict compliance with simple rules. More
sophisticated, the new SGP expands room Ior judgment in setting deadlines and in considering
what Iactors may inIluence the launch oI the EDP. A minimum Iiscal adjustment oI 0.5 oI
GDP per annum is required but this may be massaged iI attempts are Irustrated by adverse
circumstances. Public expenditure is oIten intertemporal (i.e. education, pensions), which was
not recognized under the original SGP`s annual accounting scheme. Now these Iactors are
identiIied in determining culpability. Thus, the revised Pact is Iull oI discretionary clauses,
inviting ad hoc, arbitrary, and discretionary interpretations` (CaIruny & Ryner, 2007: 34).
Legitimization and power in the amended SGP are increasingly in the province oI more
qualitative practices. The concept oI exceptional and temporary` excess over the reIerence
value,` but close to it, has expanded to encompass essentially any negative growth rate, including
a protracted slow down compared with the trend or to potential growth (Council oI the EU,
2005). Exceptional circumstances lend themselves to being managed through uncertainty rather
than risk since probabilistic methods cannot account Ior their unique character. Now the
Commission and Council have a greater degree oI latitude in their interpretation oI whether such
a condition exists. The reIorms are deliberately Iormulated to address the contingency and
contextual character oI Iiscal relations. Economic judgement is better suited than the application
oI uniIorm rules Ior such a task. Yes, creative Ioresight is supplemented with statistical
correlations rather than Iuzzy dice; the new methodology Ior computing minimum benchmarks`
33
is one such example. However, what is crucial to grasp is the expanded role that subjective
Ioresight plays in the corrective dimension oI budgetary surveillance. Greater Ireedom to identiIy
and correct Iiscal proIligacy entails that actors utilize their creative entrepreneurial skills to
balance the goals oI Iiscal austerity with broader growth and employment strategies. Rather than
submitting to monetarist prescription Iavouring price stability, discretionary conduct appears to
have repoliticized Iiscal governance. The reconciliation oI these objectives is Iraught with
uncertainty. As such, attempts to resolve the conceptual, ideological and institutional
inconsistencies this produces must accommodate the very political dynamics at the heart oI the
process. Risk management alone cannot.
Conclusion
The above preventative and corrective measures oI the SGP are all calculable practices that have
a programmatic ambition. Even uncertainty-centred techniques, which are not uniIorm and
statistically probabilistic, are ways oI calculating the Iuture (O`Malley, 2004). They are devises
that act upon agents in the attempt to constitute them as economic subjects/objects oI
government susceptible to the antagonistic relationship between the programmatic dimension oI
EMU governance and its politics. The original Pact Iramed and mitigated potential externalities
resulting Irom this tension through the modality oI risk. Assigning a probability distribution to an
outcome was said to produce the optimal allocation which yields the highest utility. Measuring
variance through risk calculations could transIorm the management oI an indeterminate Iuture
into quantiIiable exercise. Without leaving much to chance these machineries oI knowing`
minimize the margin oI error to such a perceived extent that risk is understood as an objective
entity (Knorr Cetina, 1999: 5). UnIortunately, risk is backward looking and relies on the past
reproducing itselI at regular interval. However, persistent variability and unique situations,
34
characteristic oI EMU, are better explained and operationalized through the rationality oI
uncertainty. The 2005 reIorms codiIy this approach.
Risk is itselI a method oI Iraming that discriminates amongst various Iactor inputs in the
production oI politico-economic spaces. It is a boundary object` that has emerged Irom the
corporate sector and Iunctions to unite dispersed sites across the spatial-temporal terrain oI
EMU. Whereas the programmatic dimension complements the logic oI enterprise embedded
within risk, it may conIlict with the operational side oI Iiscal aIIairs. Social idiosyncrasies and
political compulsions do not readily lend themselves to statistical-probabilistic calculations.
Agents oIten act on impulse and no risk management Iramework can entirely capture all possible
contingencies. Hence, what is witnessed is a dialectic between the two competing logics oI
enterprise and accountability or the programmatic and operational elements oI organizational
liIe. The SGP crisis reIlects this tension. In order to preserve a semblance oI control new modes
oI governance are required that are sensitive to the uncertainty implicit in economic aIIairs
within the European space as well as beyond. Freedom underpins the response to such variability
and the diversity oI member states.
This paper appeals to one arrangement that is becoming more visible in the aItermath oI
2003. Governing the present through uncertainty is the attempt to reorder the regulatory capacity
oI EMU to anticipate and respond to Iiscal proIligacy. Country-speciIic MTOs in SCPs and
MTBRs exempliIy how the preventative arm` oI the Pact reIlects a shiIt to governing singular
Iutures through creative Ioresight. In conjunction with a more discretionary corrective arm,`
uncertainty, as a governmental rationality, inIorms many oI the 2005 reIorms. As this
conIiguration oI discursive practices disrupts the artiIicial uniIormity oI risk management, it
35
grants authority to non-quantitative methods anchored in judgment, thereby redeIining expertise
within EMU. This allows Ior a more comprehensive understanding oI monetary governance.
Notes
1
Determining the tangibility oI a speciIic threat is not the intention. Whether or not objective knowledge is acquired as a
capacity Ior Iuture behaviour is oI little concern because risk and uncertainty are neither analytically real nor unreal. Given
their permanent state oI virtuality, ontological questions are rendered peripheral. Instead, attention is devoted to
understanding how the governmental rationalities underpinning EMU are Iramed and articulated in these terms.
2
The 2005 ReIorms move Irom emphasizing a single indicator to a broader analysis oI budgetary positions, including
cyclical adjustments, a new methodology Ior establishing country-speciIic medium-term objectives (MTOs), and
exceptions to the preventative measures.
3
These are the social dimensions oI risk and uncertainty that do not readily lend themselves to statistical aggregation and
Iorecasts. EIIorts at explaining correlations between politico-economic phenomena need to consider these Iactors when
reIerring to risk and uncertainty.
4
Ian Hacking`s discussion oI looping eIIects` addresses some oI these questions between classiIication and constitution.
5
However, annual inIlation in July 2008 was 4.1, up Irom 2.4 in February. Acceleration in oil, commodity and Iood
prices constitutes the main elements behind the current record-high level oI headline inIlation.
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