EMEL PUBBLICATIONS Jean Monnet Module on European Monetary and Economic Law (in Open Access Version) 2016-2019 JEAN MONNET ACTION European Monetary and Economic Law (EMEL) Table of Contents Contributions to Collected Volumes 1- “The Constitutionalization of the Washington consensus in the European Union: like giving up the Social Market Economy, in E. Sciso (ed. by)Transparency and Democracy in the Bretton Woods Institutions”, Springer, Giappichelli, Torino, 2017, pp. 91-106. 2- “The European Central Bank and the European Democracy: a Technocratic Institution To Rule All European States?” in L. Daniele (ed. by) “The Democratic Principle and The Economic Monetary Union”, Springer, Giappichelli, Torino, 2017, pp. 249-264. 3- “Economic and Monetary Union and Switzerland: two models compared in the light of the economic crisis”, in V. Salvatore (ed. by) The free movement between Switzerland and the European Union, Giappichelli, Torino, 2016, pp. 35-53. 4- “Il difficile equilibrio tra austerità e solidarietà nell’Unione economica e monetaria” in M. Mascia, F. Velo (a cura di) L’Unione economica europea : aspetti economici, sociali e istituzionali, Cacucci Editore, Bari, 2016, pp. 73-81. Articles: 1 The Italian’s Succession System after the EU Regulation n. 650/2012” in Contratto e Impresa/Europa, 2018, pp. 476-499. 2 - “The regulation of patrimony within civil law systems: from a unitary to a divisional approach in the management of patrimonial assets and its effects on private international law rules”, in Journal of Private International Law, 2018, pp. 368-382. 3- “The Financial and Economic Crisis: A Missed Opportunity to Rethink the Institutional Architecture of the European Union”, in (La) Cittadinanza europea, 2017, pp. 69-87. The Constitutionalization of the Washington Consensus in the European Union - giving up the social market economy. Giulio Peroni* The expression Washington Consensus, coined in 1989 by the English economist John Williamson, is usually indicated by a set of 10 economic policy prescriptions that constitute the "standard" reform package promoted by the International Monetary Fund (IMF), World Bank, and the US Treasury Department, all based in Washington D.C., for solving the economic crisis of developing countries. The paper, after describing the main characteristics of the Washignton Consensus economy model in the perspective of the international economic law, intends to underline the deep influence of this economic ‘recipe’ on the Maastricht Treaty and on the construction of the European Monetary Union (EMU). In spite of the failure of this model, as showed by the current economic and financial crisis started in 2008, the European Institutions and the EU Member states still do not seem ready to change the primary rules of the EU treaties devoted to the economic and monetary policy, with the real risk of increasing the disaffection of European citizens towards the European Union. 1 The Washington Consensus and its influence on Bretton Woods Institutions The expression Washington Consensus was used for the first time by John Williamson1 at the end of the 1980s during a conference convened by the Institute for International Economic on the Latin American debt crisis.2 On that occasion, a group of economists and * Associate Professor in International Law at the School of Law of the University of Milan. Email: [email protected]. This is an Open access version thanks to the fundamental contribution of Jean Monnet Eacea Module European Monetary and Economic Law (EMEL). Please visit https://gperoniemel.ariel.ctu.unimi.it. This study has been published in the in E. Sciso (ed. by) Transparency and Democracy in the Bretton Woods Institutions, Springer, Giappichelli Torino, 2017, pp. 91-106. 1 British economist (born June 7, 1937, Hereford) Senior Fellow at the Peterson Institute from 1981 to 2012. He was project director for the UN High-Level Panel on Financing for Development in 2001 and advisor to the International Monetary Fund (1972–74) and economic consultant to the UK Treasury (1968–70). 2 The Conference in question took place in Barcelona (Spain), in 1989 and Willamson entitled it ‘from the Washington consensus to Global governance’. 1 policy makers investigated the economic reforms in that area of the World and were in agreement with a common set of economic remedies. This favoured structural adjustments with the goal of substituting their traditional state economic system with a market based economic model. Ten reforms were agreed on as a summary of what most economists in Washington thought Latin America ought to be undertaking: 1) Fiscal Discipline; 2) Reordering Public Expenditure Priorities; 3) Tax Reform; 4) Liberalizing Interest Rates; 5) A Competitive Exchange Rate; 6) Trade Liberalization; 7) Liberalization of Private Foreign Direct Investment; 8 ) Privatization; 9) Deregulation; 10 ) Protection of Property Rights. In particular, for Williamson, the mentioned policies could be summed up “as prudent macroeconomic policies outward orientation and free market capitalism”.3 In other terms, a group of economic measures able to react to the ‘development theories’ that, for the ‘founding fathers’ of the Washington Consensus, were at the basis of the failed state economic State policies.4 The Washington Consensus became rapidly the core of the Reagan and Thatcher political and economic Agenda, the conservative leaders of two of the most important economies in the World (USA and United Kingdom), influencing strongly their ultra-liberalist macroeconomic policies. In the same period, the Washington Consensus became an expression for the political, administrative and technocratic action of the International Monetary Fund (IMF), World Bank (WB), US Treasury Department, the Federal Reserve Board (FED) and the Inter America Development Bank (IADB).5 The described heterogeneous panorama of technocratic and political actors, geographically all based in the capital of the most world important country, underlines how the Washington Consensus was not only a species of ideological and academic ‘product’ (inspired especially by Milton Friedman and Von Hajek, the ‘founders’ of modern monetarism6 and neo-libelarism7 respectively), but essentially a ‘policy paradigm’. More precisely, this became “a powerful and enduring framework of related ideas and standards 3 See Williamson (2003), pp. 1-3. 4 See Williamson (2009), pp. 7-26. 5 The reference to ‘consensus’ wants in fact to mean that the 10 points, mentioned in the text, were shared by power circles in Washington, including the US Congress and Administration, on the one hand, and international institutions such based in Washington International Monetary Fund and the World Bank, on the other, supported by a range of think tanks and influential economists. 6 In particular, Friedman argued that poor monetary policy by the Federal Reserve (FED) represented the main cause of the Great Depression in the 1930s. In his view, markets naturally move towards a stable center, an incorrectly set money supply can cause market’s failure; in this way, the FED’s failure to offset forces that were putting downward pressure on the money supply and for reducing the stock of money. These were the opposite of what should have been done. His position was criticized by ‘Keynesians’ for which the demand for goods and services is the key to economic output. Because the economy is subject to periodic instability and deep swings, it is dangerous to make the FED obliged to a preordained money target, they argued the FED should have some margin or ‘discretion’ in carry out monetary policy. 7 An ideology and policy model that exalts the value of the free market competition and the minimal state presence in economic and social affairs. Since the 1970s, owing to the economic stagnation and increasing public debt some economists proposed a return to classical liberalism, which in its revived form became neoliberalism. In particular way, Von Hayek argued that government measures aimed at the redistribution of wealth lead inevitably to totalitarims. His point of view was enthusiastically embraced by the conservative political parties in Britain and the United States, which achieved power with the administrations of British Prime Minister Margaret Thatcher (1979–90) and U.S. President Ronald Reagan (1981–89). 2 about policy – a model that specifies both the instruments that should be used in a policy area and the goals that the policy should be addressing”.8 In other words, the main aim of the Washington Consensus paradigm was to remove government intervention in socialist and developing countries and to set up a well functioning market system.9 The undoubted economic success achieved by Thatcherism and Reaganomics (between ’80’s and ‘90’s), was connected to the rapid economic growth registered in many regions of East Asia (the well known Asian Tigers)10 It was also accompanied by the increase of trade and investments (favored by the introduction of the World Trade Organization -WTO in 1994) and gave a decisive impulse to the Washington Consensus’s expansion in world trade and economy. Another decisive factor that determined the large recourse to Washington Consensus paradigm was the IMF’s and WB’s choice to base their macroeconomic conditionality mechanism on the ‘Williamson List’. In particular, the Washington Consensus was implemented by the Bretton Woods Institutions through contract-like documents called Letter of Intents (in the case of IMF) or Letter of Development policy (in the case of the World Bank). In the above documents the total amount of the loan granted to State in economic and financial difficulty with their balance of payments were usually defined together with the repayment schedule and above all a series of economic policy commitments. To avoid borrowers infringe in their commitments, the cited Letters establish payment tranches, along with scheduled reviews of the borrower’s policies. In fact, in the case in which the beneficiary of the loan is found to be out of compliance, the IMF or the WB have the right to suspend their financial assistance.