The ‘Janus Trap’ - Governing Fiscal Policy Risk in the EU Fiscal Network

This research investigates the use of public law in the area of EU and Italian fiscal policies as an instrument to organise institutional complexity, mitigate institutional risk, and promote institutional conducts encouraging risk-taking for greater public investments in a multilevel system. Two normative concepts are therefore developed to interpret and assess such scenario: ‘EU Fiscal Network’ and ‘Fiscal Policy Risk’. The ‘EU Fiscal Network’ provides a macro representation of the EU fiscal policy intertwined interactions and coordination mechanisms, via hard and soft law, occurring both in the ‘European sub-system’, pertaining to the EU institutions, and in the ‘Domestic sub-system’, pertaining to the domestic institutions of Eurozone Member States. For the scope of the present research, Italy was chosen among Member States. The ‘Fiscal Policy Risk’ represents the institutional risk for a Member State’s central government – that remains the ‘final responsible entity’ towards the Union – of not being able to comply with the fiscal obligations due to the subnational governments’ financial misconducts. Further, risk constitutes an organising principle of the EU Fiscal Network. In so doing, this research argues that, alongside with conventional and unconventional monetary and fiscal instruments, policy makers may consider public law within the policy mix for macroeconomic stability thanks to its risk mitigation and risk-taking capacity in relation to the unsolved institutional fragility of the Economic and Monetary Union (EMU) after the 1992 Maastricht Settlement. Indeed, the EMU still presents an asymmetric model, whereby a ‘forward-looking’ governance of centralised monetary policy at EU level coexists with a ‘backward-looking’ governance of decentralised fiscal policy at national level with soft coordination obligations towards the Union. As a metaphor, we have then named this asymmetric setup as the ‘Janus Trap’, as it recalls the ancient Roman myth having ‘two faces’ that was worshipped to presiding over transitions and changes. In order to complement this set of arguments, this research provides a detailed overview of the development of the EU legal framework on fiscal policy (European sub-system), as well as the diverse set of measures that Italy has put in place, by means of public law, to ensure stability by enhancing fiscal coordination and governing the Fiscal Policy Risk arising from its intergovernmental fiscal relations (Domestic sub-system). On the latter, Italy appears to have embraced a trend of de facto greater institutional centralisation to address the Fiscal Policy Risk as to avoid the triggering of systemic events at subnational level affecting the domestic stability or even that of the EU Fiscal Network. Finally, this research considers the ‘promotional capacity’ of public law to equally sustain an expansionary legal policy encouraging and enabling risk for countercyclical sustainable investments within the EU Fiscal Network – as exemplified by the ‘Next Generation EU’ programme, combining an innovative mix of capital injections, performance-based monitoring, and conditionality over domestic structural and policy reforms in line with the common EU strategic objectives. This innovative and temporary EU instrument is based on solidarity as it selectively addresses the Member States most affected by the COVID-19 economic recession while benefitting from the advantages of aggregate funding costs in providing support via additional sources of finance borrowed through an historical bond issuance by the Union on the markets. Such policy device calls into question the ongoing debate over the current EU fiscal rules and economic governance of the Union that is likewise considered in this research with a strong preference for a constitutional shift beyond the ‘Janus Trap’ with a centralised 'Fiscal Union' for greater growth and stability.