1
Building a new (constructivist) institutionalist conception of Multi-Level Governance
within European monetary policy
Abstract
This paper proposes to build on existing new institutionalist work by developing a
conception of Multi-Level Governance (MLG) theory that takes account of
institutional dynamics. In order to do this, I first analyse the potential ontological and
epistemological compatibility between theories of institutionalism (building on
Aalberts’ (2004) conclusion that only constructivist readings are compatible with the
logic of MLG), before exploring the implications for an analysis of the European
arena. The outcome is the development of a new and distinctive typology of MLG,
which delineates three distinct types of theory within the existing literature – of
structure, of agency and of metatheory. Existing literature posits a conception of
governance that is implicitly institutionalist: Marks and Hooghe (2001), for example,
suggest that the ‘Europeanised’ institutional culture fostered within the Commission
is instrumental in conditioning policy outcomes. I extend this analysis to take account
of a case study that is exceedingly underdeveloped in the MLG literature: that of the
‘Eurosystem’, the institutions responsible for governing monetary policy within the
Eurozone. Building on the work of Loedel (2002) I develop a multi-level analysis that
emphasizes the idiosyncratic role of historical and cultural development on the
constitutive institutions, in generating governance processes. The outcome provides
insights into the theoretical model and the empirical case.
Introduction: an institutional hole?
Multi-Level Governance has gained sufficient traction in a relatively short space of
time to now be considered amongst the mainstream of integration theories.
Furthermore, as Aalberts (2004, p.27) comments, the focus of MLG has steadily
shifted to accommodate the complexity of the European Union as an established and
evolving institution: ‘it has changed position from explanandum to explanans’.
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However, MLG as a well-recognised theory does suffer some weaknesses of under
theorisation. In some respects, this can be viewed as a sign of strength. Multiple levels
of authority are now present in so many spheres of European decision-making that
MLG can be seen in practice as almost axiomatic, and not requiring of greater
theoretical specificity. But for the sake of explanatory clarity, it is helpful to consider
precisely what we mean by ‘multi-level governance’ – and this is by no means always
obvious. The two aspects specifically of concern in this paper are as follows. Firstly,
the ontological purchase of MLG is unclear, and at times downright ambiguous. Does
it refer to constructed reality, or a set of external rules and procedures that can be
observed without prejudice? Secondly, and relatedly, there is a lacuna in MLG
concerning how institutions are independently accounted for within a networked
governance relationship. MLG is an institutionalist theory without a thorough
conception of what influence and character institutions have.
This paper, therefore, explores the insights institutionalism can lend to a multi-level
analysis of the European Union. The argument proceeds in three parts. Firstly, I
discuss Multi-Level Governance theory and identify the reasons why it may be
productive to think that there is an under theorisation of institutions; secondly the
varying forms of existing institutionalist theory and introduced, and their relative
compatibility with a MLG model evaluated; finally, this conception is applied to the
empirical example of monetary policy creation in the Eurozone. The most important
of the institutions in this case are the European Central Bank (ECB) and National
Central Banks (NCBs). These institutions are collectively known as the European
System of Central banks (which incorporates all NCBs in the EU), or Eurosystem
(only those NCBs that are a member of the Eurozone). Using these institutions allows
analysis of the proposition that MLG contains an implicit idea of institutionalism,
without an adequate conception of how institutional distinctiveness conditions
behaviour and policy-making practices.
The empirical conclusions drawn are necessarily initial. The idea of there being an
institutional hole within the multi-level governance literature is itself quite unusual.
One of the only prior works on the subject is by Awesti (2007), who posits in a highly
novel paper the existence of several types of multi-level governance theory, in
accordance with their different institutional conceptions, presenting ‘three types of
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MLG emerging from different institutional processes’ (p.19). I take up this argument
although suggest something subtly different. Rather than there being types of multilevel governance which accord with the strains of new institutionalist literature, I
suggest that 1) there is an implicit sense of institutionalism within all meanings of
MLG, 2) that this is inadequately expressed and dealt with within the confines of
MLG, and 3) that this institutional hole is in some sense necessarily constructivist in
character to accord with the extant ontology of MLG theory.
This final point is not dissimilar to Aalberts’ (2004) argument that in the context of
sovereignty, it is only possible to accept a MLG interpretation if one accepts the
essentially constructed nation of statehood. In a similar way, a MLG approach is only
compatible with institutionalism if we take those institutional norms to be essentially
constructed, rather than positivist evidence of the ‘facts’ of institutional character.
What matters is what institutions, norms and relationships are perceived to be. Indeed,
this constructivist institutionalist approach is relevant to MLG regardless of how
strictly one wishes to use it. It is possible to conceive of the ‘institutional hole’ as
ontologically distinctive and therefore congruent only with a constructivist
institutionalism, or more broadly epistemologically interpretivist and therefore
analytically apprehendable from several strains of the institutionalist literature. This is
an important difference from Awesti’s argument insofar as I do not conceive of there
being multiple ‘types’ of (institutionalist) MLG – only a single problem that is more
or less well accounted for by existing strands of new institutionalism (a point
developed in Section II).
I. An ontological typology of Multi level Governance
In the relatively short timeframe of the last (nearly) two decades, MLG has become
quite ubiquitous as both a descriptive and explanatory term of European integration. It
is thus quite difficult to rehash the MLG literature without resorting to trite
descriptions, but it is necessary to offer some summary of the field, since the
conclusions arise from the theory’s genesis and relative omissions. Of course it is
perhaps disingenuous to speak of MLG in the singular (‘it’): as is the case with almost
any theory given time to propagate and develop through the work of several authors,
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MLG encompasses different perspectives. Nevertheless it is (surprisingly) cohesive,
perhaps a reflection of the limited number of authors who have truly defined the field.
In short, MLG is a theory of spatial and functional governance in the European
Union. Bache and Flinders (2004) in their seminal book explain it thus: ‘‘multi-level’
referred to the increased interdependence of governments operating at different
territorial levels, while ‘governance’ signalled the growing interdependence between
governments and non-governmental actors at various territorial levels’ (p.3). Marks
and Hooghe (2001, p.1) state that MLG ‘describes the dispersion of authoritative
decision making across multiple territorial levels’. They attribute the drivers of this
trend to Europeanization and regionalism, the combination of which pulls apart the
functions of governments from a single locus of control to an enmeshing of different
actors and institutions, all of which are interdependent.
However, speaking of ‘multi level governance’ can be quite unhelpful in so far as it
can mean several things. There is the body of theory explaining Multi-Level
Governance (‘meaning three’ in my typology). But this is a function of an assumed
state of multi-level governance, which the theory seeks to gain purchase on. Finally,
this state can also be considered the product of the behaviour of agents involved in the
constituent institutions. These can be considered ontologically distinct, in so far as
‘structural’ explanations are usually taken to be consistent with a positivist approach
(and associated foundationalist ontology). Indeed, this ambiguity has a bearing on the
third dimension (theory), as it renders MLG theory ontologically ambiguous. These
three usages of the term are unacknowledged in the literature, possibly because much
of it is very successfully practice oriented. And given that the theory does seem to
offer good empirical purchase, it is often viewed as unnecessary overkill in political
science to probe the ontological assumptions too deeply.
As Hay suggests, there is value in doing so ‘as a way of achieving a degree of
reflexivity about the categories we deploy as analysts’ (2009, p.893). I argue that as
MLG has moved towards the mainstream, reflexivity about the parameters of the
theory has, as yet, been lacking. Whilst ambiguity does exist, it requires clarification
purely for the sake of rendering explanations clearer. More fundamentally, a lack of
ontological explication is a contributory factor in the ‘institutional hole’: as
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institutionalist theory has grappled with competing notions of institutional form and
change, it has had to confront its own ontological divergences (Hay 2006b). Dealing
with the representation of institutions within a (multi-level) network, therefore, also
requires clarifying what institutions, and multi-level governance, are. The table below
therefore expands on the typology of meanings alluded to above, as a starting-point in
developing an ontological typology.
Three meanings of MLG
Type
Ontology
Epistemology
One
Agency-focussed, centred on the
constructivist
interpretivist
(state)
perceptions and relationships of
actors
Two
Structural and constitutional,
(state)
concerning the type of, and
foundationalist Positivist or
interpretivist
interactions between, institutions
Three
Metatheory, describing the
(theory)
development of a European polity
N/A
N/A
First, there is a strand of MLG that can be viewed as state of agency, or action and
interaction, whereby relationships and partnerships take on multi-level characteristics,
which are exhibited through the understandings and behaviour of the relevant actors.
MLG as a body of work arose initially from the studies of authors such as Gary Marks
and Liesbet Hooghe on policy processes. Within these studies, the idea of ‘agency /
policy process’ MLG has arguably been the dominant form of analysis – particularly
where ‘Europeanization’ is concerned. This strand of analysis persists still (see, for
example, Bache 2004), and is concerned with the degree to which policy management
(increasingly) involves adjudication between actors within a spatial governance
network. This therefore raises an essentially analytical question – ‘has national
government control over EU decision making been compromised by European
integration?’ (Hooghe and Marks 2001, p.4) and by the ‘system of continuous
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negotiation among nested governments at several territorial tiers’ (Marks 1993,
p.392).
Secondly, MLG can be used as a descriptive empirical term referencing the structure
of government within the EU (cf. George 2004), which defined the European Union
as a multi-level polity, connecting trends of decentralisation and supranationalism. As
Awesti summarises, in recent times there has been a shift whereby ‘rather than
theorising the EU as a process of integration, [it] came to be viewed as an existing
[multi level] political system in its own right’ (2007, p.2), and worthy of
interpretation as such. This conception is independent of, and logically precedes,
MLG as a theoretical position. It is a purely descriptive term, which can be used
simply to detail an institutional (structural) framework, without necessitating any
inferences about the relative power dynamics of the actors within them. Without this
understanding of the practical constraints such an empirical condition creates, it is
perhaps of limited usefulness – and as such ‘descriptive MLG’ rarely appears in the
literature without explicit theoretical overtones.
As such, there is a requirement for a third classification of MLG, as a state theory,
which serves to analyse these twin factual propositions. My conception of this third
condition is not dissimilar to the idea Jessop posits as ‘multi-level metagovernance’
(2004), which describes and theorises on the ‘state’ (albeit a Europeanised state which
does not reflect traditional conceptions of territory) (Aalberts 2004). Jessop’s
argument is quite distinctive – that the history of theorising in European integration
has hitherto been distinguished by ‘state- and governance- centric approaches’ (2004,
p.49) (of which MLG is an example of the latter) and that this is less relevant than
metagovernance, which synthesises the two. I do not claim to replicate his argument
in full, in that I contend that MLG can be increasingly seen as a form of state theory
rather than one of pure governance – although accept his contention that this division
can be transcended through the idea of ‘metagovernance’ as an appealing one.
Nevertheless, classifying MLG as a ‘governance’ approach in opposition to ‘state
theory’ arguably understates the degree to which MLG makes structural statements
about the nature of the polity.
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These three classifications are certainly not unrelated and indeed, often appear
simultaneously. But it is important to draw this distinction partly because MLG (with
its twin analytical strands) has arisen relatively recently, arguably significantly later
than the point at which the empirical or descriptive phenomena of MLG (or at least
aspects of it) might be taken to have originated. Indeed it is almost certainly the case
that some form of multi-tiered governance existed before MLG theory was
conceptualised (in 1992, by Gary Marks, in response to the impact of the 1988
structural fund reforms) given the number of policies that retrospectively can be seen
as having substantial impacts on the nature of the Euro-polity – for example, the
Single Market programme. Furthermore, as with any theory developed through
inductive reasoning, MLG as a state or condition must logically and factually precede
MLG as a state theory, and be independent of it1.
These three notions of MLG contain different ontological and epistemological
conceptions. The second, ‘structural’ proposition is almost analogous to classical
pluralism and certainly accords with the behaviouralist epistemology most usually
associated with that state (see Dahl 1957, 1961, Smith 2006). This states that
‘observable behaviour, whether it is at the level of the individual or the social
aggregate, should be the focus of analysis; and any explanation of that behaviour
should be susceptible to empirical testing’ (Sanders 2002, p.45). This is problematic
in exploring a concept such as Europeanization, which may be at least in part the
product of unobservable mechanisms or the constructions of actors (ontological
realism or constructivism). In ontological terms, the ‘structural’ theory accords most
closely with foundationalism, which ‘is an ontological position…it is the contention
that there are aspects of the world that are independent of our knowledge of them’
(Bates and Jenkins 2007, p.59)2. The propositions made by this conception of MLG
ought to be visible and measurable – although the degree to which the measured
results may be considered substantively valid depends on whether one subscribes to
the acceptability of the first face of power as a substantive measure (on which see the
criticisms of Bachrach and Baratz (1962) and Lukes (1974)).
At least in the thesis stage – whether the theory subsequently has a dialectical impact on the nature of
the target it analyses is another argument altogether.
2 Although the term ‘foundationalism’ as a description of this position is very much contested, as Bates
and Jenkins show.
1
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Conversely, what I term the first meaning of MLG (agential), builds from a
conception of reality created by the understandings of its actors. This would accord
with what Fay terms (1996, p.30-34) ‘ontological atomism’ (in which the social world
is comprised of separate individuals who self-constitute without reference to
structural forces – contrasting with ‘ontological structuralists’, which argues the
opposite). It is, resultantly, epistemologically constructivist in that it ‘argues that there
are no extra-discursive forms of knowledge’. (McAnulla 2005, p.32). As a result,
analysis of this first meaning would require investigation through less positivist
means than suggested under the second meaning. It thus takes implicit account of the
influence of the second and third faces of power, which may only be accessible (in so
far as it is accessible at all) as a function of the understandings of actors. This
indicates the kind of qualitative research conducted by, for example, Hooghe and
Marks in their study of socialization in the Commission (2001, chapter 9) – which is
itself a piece of thoroughly institutionalist research, although not explicitly framed as
such.
It perhaps requires emphasising that this three-fold classification is distinct from the
typologies employed to date in the literature, and is not to be confused with the more
usual ‘Type I/ Type II’ classification developed by Hooghe and Marks (2001). This,
conversely, is a territorialized distinction (rather than one of structure / agency)
distinguishing
between
Type
I
(which
is,
broadly,
federalism
or
intergovernmentalism) and Type II, which conceives of many fragmented and
overlapping jurisdictions. This is without doubt an enormously useful classification to
policy analysis but is less useful in developing MLG as a reflexive body of theory.
Indeed, that is not the purpose. My classification also self-evidently differs from
Awesti (2007) in that it is not conceived of as an application of different branches of
institutionalisms, but rather as a means of carving out space in which an
institutionalist understanding might be more fully developed.
II. Bringing institutionalism in
The approach to the gradations of MLG put forward above is perhaps slightly
unorthodox, but arguably a more explicitly institutional approach to network
governance is long overdue. This claim is not in itself new. Aside from Awesti’s
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argument (2007), it is one similar to that made by Peters and Pierre in 2004 in their
contribution to Bache and Flinders’ book. They write specifically on democratic
involvement within a multi level framework, arguing that institutional idiosyncrasies
do not disappear because institutions are compelled to work together. Peters and
Pierre do not adopt institutionalist theory as an explicit means of analysing and
resolving this issue, making the use of institutionalism to develop MLG’s purchase on
the topic a department from the existing literature. Peters and Pierre do however
identify the problem of institutional neglect in MLG in a similar manner:
The institutional ‘grip’ on political processes within the state and between domestic
and supranational actors, although recently relaxed, remains strong and can be
further strengthened by the state if and when considered necessary….Institutions,
not processes, are the vehicles of democratic and accountable government, hence we
should only expect institutions not to surrender their leverage to contextually
defined and ad hoc models of governing. (Peters and Pierre 2004, p.75-6).
Further, I aim to show that this institutionally informed MLG aids analysis of my
empirical case: monetary policy. Given the critical (and often, where public minutes
are produced, determinable) influence of each institution over policy outcomes, an
undifferentiated MLG analysis runs the risk of under-theorising the idiosyncrasies and
preferences of particular institutions (or people within an institutional context).
Nevertheless, some form of multi-level analysis is undoubtedly useful in addressing
the Eurosystem institutions’ relationships to one another. Given my dissociation of
the three types of MLG, there is a need to be explicit about how these might be used
to locate and resolve the institutional hole I lay claim to.
In applying the typology to a case, it is empirically necessary to treat the third
meaning (‘metagovernance’ or state theory) separately. As this facet is basically an
expression of the existing theory of MLG, it is mostly a type of analysis, rather than
observation. Jessop (2004), for example, explains the concept of ‘multi-level
metagovernance’ as an expression of his Strategic Relational Approach, which is a
meta-scale theory of social relations (and therefore a prism of sociological analysis,
rather than a methodological tool or empirical descriptor). Whilst theory is necessary
to analyse reality, it is a separate consideration from the ontological and
epistemological claims one makes in initially grappling with a case. We therefore
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return to the meaning one / meaning two dualism that remains, which can be most
easily conceived of as a distinction between structure and agency.
Both are frequently seen within the MLG literature, and often simultaneously.
Perhaps the more obvious of the two to pick, to stake a claim to implicit
institutionalism, would be the first (structural) perspective. The argument in this case
would be that the individual institutions, their differences and idiosyncrasies, are not
adequately accounted for on an empirical level within the multi-level framework. This
is probably a relatively straightforward claim to make and indeed it is similar to the
argument put forward by Awesti, who attempts to tease out historical, rational choice
and sociological institutionalist insights from an MLG framework. He states that:
‘new institutionalism’s view of political actors as being constrained by the
institutional framework within which they operate, immediately correlates with an
understanding of MLG as essentially a challenge to the notion of EU policy making
as being a process controlled by the member states (2007 p.9)’.
Awesti therefore presents a nice conception of MLG as a process of re-envisioning or
remoulding the (institutional) structure and form of the state. However, to this process
one must add the behaviour of actors within these institutional arenas, as Awesti also
intimates. It is thus useful to draw on both meaning one and meaning two, in
examining the insights that can be drawn from the potential behaviour of actors within
institutions, and the institutional cultures that foster these choices. In order to do this,
however, one needs first consider the range of possible institutional perspectives that
might be used within an MLG framework.
II. Compatible institutionalisms
Institutionalism is a tricky theory to grapple with, in no small part because it is not a
single theory. Aspinwall and Schneider (2000) date the emergence of ‘an
institutionalist turn in political science’ (the title of their article) to March and Olsen’s
(1984) and Scharpf’s (1985) papers concerning the importance of the institutional
rules regulating decision-making procedures on political outcomes. In the case of
Scharpf’s influential piece, this argument is applied to European integration, to argue
that the grand theories take insufficient account of these institutional contexts in
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determining the velocity and direction of the integration process 3. March and Olsen
speak more generally of the ‘new institutionalism’ and its significance for political
science. More recently authors such as Bulmer (1997) and Pierson (1996) have
applied a new (historical) institutionalist perspective to the process of European
integration, in a manner not dissimilar to Marks and Hooghe’s work (2001) tracing
this same phenomenon from a multi-level perspective. There is, therefore, some
compatibility between the two approaches, at least in their mode of application.
From the initial proposition of a singular ‘new institutionalist’ viewpoint, several
competing institutionalist models have rapidly emerged. Indeed, the diversity of this
theoretical parting is so significant that institutionalist theorists cannot even agree on
the number of different institutionalisms that exist. Aspinwall and Schneider (2000)
posit three forms, in common with Hall and Taylor (1996), while Peters (1998)
suggests there are at least seven: thus, identifying the means by which an
‘institutionalist’ perspective may be of use can be difficult. Whilst I cannot claim to
do justice to this literature in the space I have available, it is important to outline the
different strands of institutionalism that may have the most relevance to the empirical
case.
The above authors all agree on the existence of distinct strands of rational choice and
historical institutionalist literature, and tend to identify sociological institutionalism as
the third significant strand. I do not follow this typology exactly; in preference to
sociological institutionalism I explore the relevance of constructivist institutionalism
due to the latter’s more explicit statement of its ontological perspective (Hay 2006a,
b). There are undoubtedly vast chasms that separate these different strands (whether
one views them as epistemological, as Aspinwall and Schneider claim, or ontological,
as Hay (2006c) argues). This makes it all the more necessary to discuss their potential
analytical compatibility with existing theories of multi level governance as a means of
developing the treatment of institutions within the literature.
Perhaps the most used perspective on economic policy-making is Rational Choice
Theory and the associated Rational Choice Institutionalism. Pollack (2006) in his
3
Interestingly, MLG is also a response to the oversights of the Grand Theories, another point of
intersection.
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article on Rational Choice and EU politics, states that RCT ‘contains three essential
elements: (1) methodological individualism, (2) goal-seeking or utility-maximization
and (3) the existence of various institutional or strategic constraints on individual
choice (p.32). As Pollack shows, the assumptions of RCT create a highly restrictive
notion of human choice, which results in an almost determinist set of preference
options. The criticisms of RCT’s general and behavioural assumptions have been
extensively articulated by many authors, but particularly relevant is Hay’s 2004 paper
which critiques the ontological underpinnings of RCT and its use and abuse in public
administration. Hay concludes that RCT is only defendable as a predictive science in
so far as one is willing to accept the inherent structuralism that results in rendering
actors capable only of rational decisions: ‘if the ‘choice’ is rational it is not a choice at
all’ (p.40).
This makes RCT difficult to reconcile with multi-level governance theory (or, indeed,
any network approach) due to an emphasis on contingency, conditional interests, and
complex relationships occurring within a socialised context (see Hooghe and Marks
2001, ch. 9). Aside from these ontological difficulties an RCI analysis poses, it simply
makes little empirical sense to examine an institution such as the ECB (which
embodies so many differing constitutional logics, and so many conflicting political
expectations and interests) through the lens of rationalism. It would be highly
restrictive to only afford the actors of the ECB’s governing board one mode of
decision-making – and not to mention rather perverse, given the politicisation of the
institution, to regard the ECB’s deliberations as the sole product of rational or optimal
preferences.
Finally I turn to historical and constructivist institutionalisms4. Referring to them
concurrently is intentional – although it is indubitably problematic to speak of them in
the same breath, not least due to their differing ontological basis (Hay 2006c).
However, as with the evident similarities between rational choice and economic
institutionalism, historical and constructivist institutionalism share a similar approach
and a common genesis. The latter has arisen very much as a supportive critique of the
former, based upon the ontological position stated in early historical institutionalist
4
I am not covering sociological institutionalism (on which see Awesti) or discursive institutionalism,
which may be regarded as mostly analogous to constructivist institutionalism.
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work such as Thelen and Steinmo (1992). To take Hay’s critique, historical
institutionalism has proved limiting in that it a) provides a better account of
institutional formation than post-creation change; and b) increasingly relies on
material and social circumstance to explicate preference formation (2006c).
Constructivist institutionalism attempts to overcome these deficiencies by restating
the role of actors’ understandings of their institutional context in determining
institutional flux.
Secondly I think there is a natural fit with constructivist institutionalism – and a cause
for greater consideration of historical institutionalism – as a means of realising greater
institutional understanding within MLG. Arguably the first attempt to state a cohesive
theory of MLG is that of Hooghe and Marks in 2001(as Aalberts puts it, they ‘present
an overview of and elaborate the essential features of the approach by bringing
together several strands of writing’ (2004, p.27). Their conclusions about the impact
of ideational constructions, and the role of norms in socialising agents into European
institutions, prefigure much of the work being currently conducted within
constructivist institutionalism (see in particular Blyth 2003). In this respect, there is a
very strong implicit understanding of a constructivist institutional perspective
embedded within MLG. They state, for example:
One must look beyond the commission itself to find the institutional contexts in
which Commission officials operate. The Commission is just one element of a
multifaceted institutional environment; it is enmeshed in a system of multi-level
governance that softens the shells of institutions and induces those in diverse
institutional settings to connect with one another. There are several ways in which
institutional settings may influence the preferences of Commission officials. (2001,
p.149)
As argued above, MLG theory is often equated to the form described as ‘meaning
one’ within my typology, in which agents’ perceptions and relationships are critical in
maintaining a functioning governance network across jurisdictions. This agentcentred institutionalism would seem therefore to be a very good fit. Nevertheless, the
founding logics of the ECSB were so critical in determining its functioning (heavily
bounded, as it is, by constitutional rules determined through protracted politicking)
that taking an historical perspective is very much called for. This is particularly the
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case given the relative newness of the supranational institutions governing Eurozone
strategy. Given the similar (constructivist) epistemology shared by both historical and
constructivist institutionalism, it is productive to bear both in mind when considering
the genesis of Eurozone monetary policy management.
III. Monetary Policy in the Eurozone
Monetary policy organisation in the European Union is at once institutionally simple
and complex. The Euro area’s monetary system is organised around a hierarchical
structure of interdependent institutions. This consists of the European Central Bank
(ECB) and National Central Banks (NCBs), which together form the European
System of Central Banks (ESCBs). The ECB and NCBs of Eurozone countries are
referred to instead as the ‘Eurosystem’, to distinguish between the two. The Maastrict
treaty (Treaty of the European Union) envisaged that all states would join the Euro
and there would be, in effect, no non-Euro area. The Eurosystem arose as a rather ad
hoc response to the monetary division of the EU, and the two now hold seperate
committee meetings with 'Most of the tasks conferred upon the ESCB by the
TEU...handled by the Eurosystem' (Trichet, 2009).
Outside the Eurozone, NCBs have monopoly over interest rates and control of the
money supply – as required by Article 108 of the Maastricht Treaty, which states that
NCBs cannot ‘ask for or accept instructions from any other body…member state
governments must respect this principle and must not seek to influence the ECB or
the national central banks’. Eurozone monetary policy is in the hands of the governing
council of the (supranational) ECB, abetted by NCBs. The 17 governors of the
Eurozone’s NCBs, in turn, sit on the ECB’s governing council with the ECB’s
Executive Board, which consists of the ECB’s President and Vice-President and the
four other (technically qualified) members. These members are appointed by
Qualified Majority Voting within the European Council.
Monetary Policy in the EU
15
There is therefore a clear two-level character to the governing structure of Eurozone
policy, and one which is most strongly expressed through the personnel and
governing relationships formed within this framework. However applying an MLG
perspective to this subject, whether institutionalist or not, ought to require one to
suggest the reasons why the policy framework may be credibly described as multilevel, rather than simply two-level. However, it is perhaps fair to say that the
subnational tier is sometimes less prioritised within MLG theory itself 5, due in part to
the sovereignty argument (as detailed by Aalberts 2004). The policy making role of
subnational governments does involve power brokering with national governments
under a zero-sum conception (see, for example, Bulpitt 1983), but they plainly do not
challenge the Westphalian notion of sovereignty as confined within a state.
Supranational institutions and co-decision making between states, however, do: ‘even
if national governments want to maintain national sovereignty, they are often not able
to do so…national governments do not determine the European agenda because they
are unable to control the supranational institutions they have created’ (Hooghe and
Marks 2001, p.28). Indeed, specifying the role of the subnational level within a multilevel polity is not something that even Marks and Hooghe (2001) consistently
achieve. For example, when defining the concept of MLG, they state:
5
Although for exceptions, see, for example, Bache 2004, 2008.
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First, according to the multi-level governance model, decision-making competencies
are shared by actors at different levels rather than monopolised by national
governments. That is to say, supranational institutions – above all, the European
Parliament, the European Commission, and the European Court – have independent
influence in policy making that cannot be derived from their role as agents of
national executives. (2001, p.3).
While this definition appears to ignore the potential independent role of sub national
actors, it is worthwhile to at least consider the incorporation of sub national actors
within the monetary framework, as recipients of power from supranational actors or
units to be taken account of within the policy making process (whether or not they are
directly involved). On this basis, there does appear to be grounds for further analysis.
Subnational – in particular, regional – governments may not have formal
representation within the ECB, but they appear to be implicitly considered
(particularly where they have a democratic mandate, in which the ECB itself is
lacking (Verdun 1999)).
The subnational level is also considered important within monetary policy theory.
One of the most prominent of these is Optimal Currency Area theory (see, for
example, Mundell 1961), which considers the conditions under which a currency
union is likely to be successful. This suggests that the creation of a single currency
without regard to national borders ought to increase the political and economic
salience of the region as an economic area. Whilst referring to an abstract theory
might seem odd grounds for evidence, OCA was highly influential in the design of
EMU, in particular in generating the Convergence Criteria (Levitt and Lord, 2000,
p.58, Maes 2004, p.17) Indeed, the ECB’s remit to manage the whole currency area,
as per OCA theory, implies a consideration of the risks of (regional) asymmetric
shocks when determining policy, which erodes the nation as a distinctive unit of
economic analysis.
The practical governing requirement to work towards the attainment of price stability
(sub 2% inflation) throughout the Eurozone as a whole (without undue consideration
of the variation in national economic conditions between member states), also lessens
17
the prominence of national governments relative to their sub- and supra- national
colleagues. Further, the centralisation of monetary policy implies the need for a more
activist fiscal policy throughout the Eurozone in order to compensate for suboptimal
local monetary conditions. OCA theory and fiscal federalism imply this is on occasion
best delegated to subnational level (Hallerberg et al. 2009). Indeed, in many Eurozone
members, this is precisely what does happen in practice (for better or for worse, in the
case of certain subnational authorities with large deficits and correspondingly poor
credit ratings, such as the cities of Florence, Madrid and Istanbul). There is therefore a
good case to be made for suggesting that the monetary framework is multi-level, and
the empirical evidence would appear to suggest a form designated meaning two in my
typology. The next step, then, is to develop this as institutionalist conception.
In order to achieve this it is necessary to consider the extent to which an
institutionalist understanding is a) necessary, b) lacking in the existing MLG
conception and c) suggested by the empirical case study. The ECB is a particularly
interesting institution to consider with respect to this question. As Loedel (2002)
suggests, its strong institutional independence might be perceived as a challenge to
multi-level governance, because the ECB’s legal and functional independence may
mitigate against the kind of institutional inter-reliance described by MLG. Loedel,
however, goes on to discredit this argument, concluding that ‘the ECB does seek to
carefully balance supranational, national and even local levels of interest in its policymaking process’ (2002, p.1260. Moreover, the ECB’s independence is constitutional,
rather than a product of the personnel involved. Indeed, the majority of governing
board (17 out of 22) are strongly involved with the nation states through their role as
governors of the NCBs. Lorenzo Bini Smaghi (2007), in a speech concerning the
independence of the ECB, specifies four conditions for personal independence of the
governors: term of office; professional qualifications; political affiliations; and
collegiality. Notably absent from this list is any check on territorial affiliation. It can
therefore be expected that the institutional culture (‘collegiality’) determining
Eurozone monetary practice is critical in holding the institution together. It is likewise
axiomatic that the rules of the institution, and their collective interpretation6, are
Not always the same thing – the Bundesbank for instance was notorious for having a deeply vague
and contingent definition of the price stability target. (Connolly 1995, p.253).
6
18
enormously influential in determining the form of policy (in particular, the target of
sub-2% inflation).
This echoes the conclusions of Marks and Hooghe (2001, ch.9) examining the
socialisation of European Commission members. More importantly in the context of
my argument, it is strongly redolent of the work of authors such as Blyth (2003) and
Hay (2006b) on constructivist institutionalism. In its simplest form, this states:
‘Actors are strategic, seeking to realise certain complex, contingent and constantly
changing goals. They do so in a [institutional] context which favours certain strategies
over others and must rely upon perceptions of that context’ (Hay 2006c, p.6).
Furthermore, constructivist institutionalism is strongly predicated on notions of
disequilibria (again in common with MLG, as Marks and Hooghe (2001) state that
‘multi-level governance may not be a stable equilibrium [as] there is no explicit
constitutional framework’ (p.28)). Hay provides an endogenous account of
institutional development: 'it is not just the institutions, but the very ideas on which
they are predicated and which inform their design and development, that exert
constraints on political autonomy' and influence processes of change (2006a, p.65). It
is difficult to avoid the fact that the idea of the ECB – its mythologisation as a beacon
of independence, an historic first, a long-desired means of uniting Europe – is utterly
central to its institutional culture and to its functioning.
However it should not be forgotten that the ECB’s principles, of which institutional
independence is the centrepiece, were the central result of some (often fraught)
political negotiations between the member states (Connolly 1995). Constructivist
institutionalism provides an excellent account of the ECB’s prominence within a
multi-level structure of Eurozone monetary policy. However, an endogenous account
of change is less of a good fit in analysing why that structure came about. Indeed, the
type of multi-level politics which now condition the institutional codes of practice
within the Eurosystem do not necessarily account for the constitution and institutional
culture of the ECB – which is to say, whether agency was responsible for this
structure coming about in the first place.
To analyse this conundrum, we return to Hay’s critique (2011) of historical
institutionalism as being more apt to explaining the creation of institutions than their
19
subsequent evolution. In this piece, Hay suggests that the core problem with historical
institutionalism is the inability of its analysis to transcend a narrow subset of
empirical conditions (with constructivist institutionalism arising as a means of
offering a broader and more encompassing idea of change). However, if this empirical
case does fall within this subset, historical institutionalism may be entirely
appropriate (if less generalisable in its approach). It is worth considering the genesis
of the ESCB in more detail to determine the utility of examining the prominence pathdependent processes (see Pierson 1996) in the inter-governmental politicking that
contributed to the creation of the Eurozone. These structural logics are potentially as
important as the need to foster and negotiate multi-level cooperation (meaning one
MLG) in determining the behaviour of institutional actors. At the very least, they
deserve greater attention within a multi-level framework that is assumed to be
sufficiently important to condition behaviour within institutions.
To outline some of the conditions (or empirical subsets) under which a historical
institutionalist analysis is relevant to the ESCB, one need only consider the different
processes through which NCBs and the ECB have formed. NCBs were created, and
have developed, within their national contexts and until relatively recently remained
extremely variable and idiosyncratic. Cukierman (2008) dates the emergence of a
homogenised, relatively independent central bank within Europe to the early 1990s
and the imposition of Article 108 TEU in 1992; prior to this there was little
consistency in trends towards independence within the EU 15, with several banks
little more than adjuncts of government. As such, the NCBs can be expected to have
very different nationally located attitudes to their function and position within the
ESCB. To take the two most infamous examples, prior to 1999 the Bundesbank was
notoriously vocal in their disagreements with the German government, and their
political expectations of how the Bundesbank should act in supporting the ERM,
whereas the French government were able to monopolise and dominate the relatively
supine Banque de France (Connolly 1995). For the NCBs one could expect that path
dependencies have shaped their current form (at least in so far as they are free to vary
from the constraints of Article 108) but this has also been the case, albeit in a different
way, for the ECB.
20
The experiences of NCBs prior to 1992 – in particular, the Bundesbank’s
independence – strongly conditioned the proposals for the ECB and shaped
expectations of its form. As Hayo (1998, p.242) has it, ‘the German Bundesbank Law
is often cited as an example for the design of a ECB’. There was an economic
rationale for placing monetary policy into the hands of an independent body: what
Goodman describes as the desirability of banks’ operations not to ‘conform to their
governments’ agendas’ (1991, p.329). Indeed, this literature often features the
performance of the Bundesbank as part of the empirical evidence (on the debate
concerning independent central banks prior to the TEU see, for example, Alesina and
Summers 1993). However, there is also a rationale that can be attributed to ECB
independence based upon political expediency. Hooghe and Marks (2001, ch. 4)
discuss the reasons national leaders diffuse authority, concluding that ‘shifting some
authoritative competence away from the central state may relieve a government leader
from the burden of responsibility for it’ (p.72).
This may explain why the decision was taken, but it is also the case that the design of
the Euro and ECB explicitly placed operational control of the currency as far
distanced from the influence of member states’ governments and citizens as possible
to avoid the national monopolization of policy decisions (Verdun 1999). The political
wisdom of this decision has been extensively questioned (not least in the preceding
article) but it is undoubted that this presupposition, and the experience of the
Bundesbank and other NCBs, decisively influenced the remit and executive functions
of the ECB. Member states argued extensively over the form of EMU, and it seems
that the operational form decided upon best represents an attempt by each member
state to tie the hands of the others, within a negotiating context that was heavily
determined by the historic development of banking institutions and the European
Union itself.
Conclusion
There appears to be a case for the existence of a multi-level framework within
Eurozone monetary policy, and one that is strongly influenced in practice by its
institutional configuration. Furthermore, both the structural and agential components
of this framework interact to produce policy outcomes.
21
This therefore supports the principle aim of this article, which was to develop a
coherent typology of extant meanings of Multi-Level Governance, to suggest that
these meanings support the need for greater explicit (constructivist) institutionalism
within an MLG framework, and to run this logic through the example of Eurozone
monetary policy. I argue that multi-level explanations can (and should) be bolstered
by a consideration of how institutions function within a multi level network, and how
their constitutions and tasks are constructed and understood by those who operate
within them. Of the institutionalisms, I conclude that only the two (historical and
constructivist) with interpretivist epistemologies are appropriate to consider for
further development of MLG. In this respect, the paper’s conclusions are distinct from
forerunners such as Awesti (2007), who identified multiple institutional ‘forms’ of
MLG. By identifying the existing ontology and epistemology present in the MLG
literature through the ‘meanings’ typology above, I contend that this is analytically
inconsistent.
The empirical example suggests that there is still much work to be done to build on
this initial theoretical conception. There are two particular outstanding issues of
judgement that would be especially conducive to further investigation: whether the
creation and functioning of the ESCB best embodies meaning one or meaning two
MLG (in my conception, that is, structure or agency), and whether constructivist or
historical institutionalism are more appropriately accommodated within an MLG
framework. In the case of the latter, this particular empirical subject would suggest
that both are relevant to filling in the gaps of a multi-level analysis, and since both
share a constructivist epistemology, the synergy is not analytically incompatible.
Indeed, for work outside of the Eurozone, this is in effect the important conclusion –
it may be the case that both are alternately appropriate in different circumstances, but
provided the constructivist compatibility is maintained it is not critically important
which is chosen. Nevertheless, if this institutionalist conception of MLG is to be
developed into a more comprehensive general model, it might be worthwhile to
incorporate one or the other for parsimony’s sake.
In the case of Eurozone monetary policy, further primary research is called for to
determine the relative weight of path dependency and socialised constructions to
22
determine which is the more significant influence on the ECB’s policy makers.
However, the theoretical conclusions of this paper show that there is clearly
something to be gained by applying institutionalist logics to European monetary
policy – and also by using the ESCB as a formative and representative case study of
institutional norms and behaviour. MLG depends on a conception of institutions in
order to account for how multi-level practices work, but this has remained
underdeveloped to date. This paper sets an agenda to suggest how that might be
rectified.
23
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