European Economic Governance and Constitutional Uncertainty

If we exclude some theories of polycentric governance, economists usually discuss the optimal policy mix within a given constitutional framework, characterized by stable institutions and rules. This is not the case with the European Union, at least since the birth of the euro: an architecture characterized by a supranational monetary institution but country specific interest rates and decentralized fiscal institutions whose intertwined relationships and governing structure evolve in time. Far from providing a higher degree of stability, as suggested by Hayek-inspired supporters, such technocratically biased framework is causing widespread governance uncertainties and macroeconomic instability, that have repeatedly resulted in Europe lagging behind other major global actors in facing crises. This paper reviews the problems raised by the need to steer the economy through endogenous and exogenous crises in an unstable, deeply evolving, not yet fully defined nor multi-layered economic policy infrastructure in the EU.