The man inside the room

AFTER MANY YEARS IN THE EUROPEAN COMMISSION, MARCO BUTI IS NOW HEAD OF CABINET OF EUROPEAN COMMISSIONER FOR THE ECONOMY, PAOLO GENTILONI. IN HIS LATEST VOLUME HE DEBUNKS VARIOUS PREJUDICES ABOUT THE INSTITUTION AND SHOWS WHAT THE MANAGEMENT OF THE CURRENT CRISIS CAN LEARN FROM PAST ONES, SUCH AS THE 2008 DEBT CRISIS

With a hands-on role during Europe’s two biggest events in recent years – the debt crisis and the Covid-19 pandemic – economist Marco Buti is uniquely placed to shed light on the behind-the-scenes decision making at the European Commission in “The Man Inside: A Journey Through Two European Crises” (EGEA, 2021). Moreover, he presents an unvarnished view of what the EU got right and what it did not. Anyone interested in the inner workings of the Commission should read this book. Buti joined the European Commission in the 1980s and is currently Head of Cabinet of European Commissioner for the Economy, Paolo Gentiloni.

What did you hope to achieve in writing this book?
A period of my professional life ended in 2019 when I moved from being Director General of Directorate General for Economic and Financial Affairs (DG ECFIN) and more recently as Chief of Staff of the Commissioner for the Economy, Paolo Gentiloni. And then the pandemic hit. I realized that our experience in dealing with financial crisis could provide lessons on how to cope with the impact of Covid. So that was one goal. The second was, I tried to shed light on why certain choices were made, with the knowledge of the time, not with “convenient” ex post rationalization. We were aware that we were definitely not in the first-best world and maybe not even in the second-best. We had to accept being in the third-best. The element of survival had to prevail over the fine tuning of optimal choices.

You describe “an existential threat to the euro” during the debt crisis. Do you have any anecdotes about what it was like to be “the man inside the room”?  
The cover of the book sums up what we were feeling at the time: the fragile little boat of euro balanced precariously on top of a compass. For a while, we were without a compass in dealing with the crisis. Constitutional arrangements are valued in terms of centuries or at least decades. Not just a few years, like the euro. We really felt that. At the end of 2011, when Mario Monti succeeded Silvio Berlusconi in a dramatic turnaround in Italy, or July 2015, when the issue of Grexit came on the table, we felt we were hanging from a thread. And I remember at the time watching CNN’s live coverage of the euro crisis. It was similar to seeing a hostage situation or reporting on a tornado. A number of observers were predicting that the euro would not survive until the following week.
Ex post, I think one can say that staring into the abyss eventually prompts courageous decisions.

What are some of the most common misconceptions about the European Commission?
The amount of political capital invested in the common project was underestimated by people and by financial markets. When we came to the crunch, even the leaders with different opinions -- sometimes radically different opinions -- had to acknowledge that the costs of a breakup are considerably higher, even domestically, than the gains.
Then, a capacity to learn. From an economic policy viewpoint, we have dealt with the present crisis much more effectively -- even though we are still in it – compared to the previous one. The idea that EU institutions and the whole EU architecture is an unmovable Moloch, unable to change or learn, is another misconception.

You say in your introduction that the “last 12 years have been deeply transformative.” What has changed, in a nutshell?
I think there is an increasing awareness, in theory and not always in practice, that each country is far too small to make a difference on the world stage, and the acknowledgement that Europe provides a model on social issues and environment that is more palatable to the outside world than the capitalism of the US and the autocratic model of China.
And the other transformation has been in the interaction between Europe and member states. Europe’s goals were traditionally to foster the single market, trade policy, and competition policy. And sustainability, so stable public finances.  Another set of goals around fairness, redistribution, and a how to respond to shocks, to the economic cycle, were seen as a national responsibility. So allocation and sustainability at the European level, and stabilization and redistribution at the national level.
Over the past 12 years, particularly as a response to the two crises, these four elements can no longer be seen as separate. Member states and the Union will have to work in cooperation. And this has led to quite a lot of change, with more responsibilities for the Union.

What are your lessons from the financial crisis?
The EU was the only region in the world that had a double dip recession in 2011 and 2012. So we declared victory far too soon over the crisis. Secondly it was clear there was not sufficient response at European level. And we left the ECB too alone. And you recall the acrimonious discussions at the time of “lazy Greeks versus the stingy Germans”.
I think the response we put forward Next Generation EU with 750 billion euros in common borrowing and several European tools to respond to the crisis to sustain the labor market in this endeavor was right to do at the European level. Since it was a common shock. And importantly, if you look at Euro barometer and at the opinion polls, the support for the action of Next Generation EU-type of policies, even in countries traditionally skeptical – the so-called “frugal” countries such as Denmark, Austria, the Netherlands, Sweden, Finland-- is quite substantial. Obviously, the jury is still out. It depends on how Next Generation EU is implemented.

Was there a “turning point”?  From the outside it looks like the EU suddenly pivoted from austerity to deficit spending.
I think it was a gradual process. But when the pandemic hit in March 2020, we clearly felt it was a huge shock that needed a rapid response. Those gradually-accumulating lessons had to be deployed all of a sudden. In the spring 2020 we launched programs like SURE to help member states for labor market reskills, and Next Generation EU, which is a massive plan of regeneration.  We said, “ok, out of this gradual learning process, what, in practice, what would you do?”
And second element was the agenda-setting of the Ursula Von der Leyen Commission. The green transition was a major objective. What in effect happened was a short-term emergency response was “nested” onto a plan of sustainable growth, and digital and green transition.

The EU is the only bloc that has set 2030 targets. With climate change, how can the EU avoid a repeat of the equivalent of the debtor-creditor split we saw during the financial crisis? For example, Germany is the biggest auto producer, and Poland a large producer and consumer of coal.
In the book I talk about a “veil of ignorance” about winners and losers in reforms. If you know you are on the winning side, you will enact a reform in your benefit. And we saw the results of this during the financial crisis. For climate change, there is no “veil of ignorance.” We are all on the losing side. What we are trying to do here is make sure there is an element of solidarity in achieving the transition. The Just Transition Fund can help Eastern European countries that depend on coal, for example.  

You compared the Commission to a de facto EU Treasury.  What do you think that means going forward?
We have the embryo of an EU Treasury now. With Next Generation EU, we providing money on the spending side, with strings attached, and milestones. On the revenue side, for the first time, we are raising capital on the financial markets in a pretty massive way by issuing common debt. And we have committed to issuing at least 30% of the amount in green bonds. We are going to be the biggest issuers in the world of green bonds, and the market has greeted them enthusiastically with demand exceeding supply by 10 to 15 times.
Going forward, especially if one wants to have a stronger geopolitical standing in the world, we need to continue and deepen this development. One of the differences between the US and Europe is that the US has a deep, large Treasury market. It’s a safe asset. So far, Europe has not. If we want to compete and attract capital from the rest of the world, we need to have this safe asset here. And it is fundamental for the international standing and role of the euro. I think there is increasing awareness on this front.

I am intrigued by your statement that “red lines are there to be crossed.” What red line was crossed in the pandemic response?
I think we crossed several red lines! Former German Chancellor Angela Merkel famously said “we will not see Eurobonds in my lifetime.” Under Next Generation EU, we are issuing common bonds. You can call them “Eurobonds” or not: terminology is not important. And that is a red line that was crossed.
There are two ways to cross red lines. One is when you stare into the abyss and all of a sudden find huge courage. And this is what happened in part during the financial crisis, and more thoroughly in response to the pandemic. It is the logic of “ultima ratio”, as was called at the time.
And the other way is the more virtuous. If you adopt a longer time horizon, you can see that red lines are often motivated by domestic worries, and they become considerably paler. The Commission is trying to push politicians to lengthen their time horizon.
In the book, I analyze what we call “Juncker’s curse”: “We know what to do but we don’t know how to be reelected once we’ve done it.” I show that, under certain conditions, governments can do bold reforms and be reelected. First, an effective social safety net can compensate the losers in any reform. And secondly, properly functioning financial markets shift capital and labor from dying sectors to promising ones. In the case of global warming, financial markets are helping this shift. If done it properly, I demonstrate you can cross the red lines and not be punished by the electorate.


“To go from point A to point B in Europe is rarely a straight line. Actually, trying to take a straight line is often the best way not to get to your destination.” This is one of the lessons drawn by Marco Buti. “The man inside” (BUP, 2021, pp. 512, €55) explains the analytical and empirical foundations of European policy choices that involved a delicate balance between economic, institutional and political considerations. What emerges is a new compass that helps to understand the policy strategy the EU has adopted to fight the economic fallout of the pandemic.

by Jennifer Clark