Fair or Foul? Comply and Reform! The New Politics of Soft Economic Conditionality in the EU and its Hard Impacts on Domestic Policymaking: Evidence from the Italian Case

Exogenous pressures have played a major role in the adoption of social policy reforms in Europe, with Italy being the archetype of the importance of “vincolo esterno”. Until the recent economic and fiscal crisis, however, domestic institutions and actors had managed to filter exogenous pressures, shaping reform measures so as to implement them gradually (pensions) or “at the margin” (labour market), in order to avoid vetoes by the unions. Things changed dramatically with the outbreak of the sovereign debt crisis. Public pensions were retrenched, and a wide-ranging labor market reform was passed in July 2012. Pensions measures will be mostly implemented in the short-term; labour market reform reduces EPL for open-ended workers. In both fields recent interventions thus mark a discontinuity with the previous pattern of reform in Italy based on the strong protection of the entitlements of union main constituencies – older workers on “standard” contracts. The Italian labor market and pension reforms make an unparalleled venue to cast light on the policy responses as well as on the politics of reform in times of crisis. The paper focuses in particular on the relationship between domestic policy making and exogenous pressures in order to revisit the “vincolo esterno” thesis. It argues that a new politics of economic conditionality in the EU is now unfolding even in the absence of formal instruments of conditionality such as memoranda of understanding. Exploiting evidence from the Italian case, the paper studies the conditions under which international and supranational actors can exert clout on domestic policy agendas and alternatives, and the reshaping of the policymaking arena that such new politics of conditionality activates.