Veto player theory and the governance of the Recovery and Resilience Facility
With its €672.5 billion, the Recovery and Resilience Facility (RRF) represents the biggest component of the Next Generation EU package (€750 billion). The RRF combines grants and loans with the aim to mitigate the social and economic impact of Covid-19 and create resilient and future-proof economies.
An effective implementation of the RRF via credible and ambitious national Recovery and Resilience Programmes (hereafter, RRPs) is a major challenge. Figure 1 attempts to capture such political challenge via what we call the ‘RRF impossible trinity’.1 Only solution a) is consistent with the game-changing nature of the RRF, which implies the need to lengthen the time horizon of governments by carrying out investment projects and reforms which are consistent with the ‘two Rs’ of the RRF. To respond to the need of structural change and enjoy citizens’ support, the programmes should help the economies bouncing back after the Covid-19 lockdowns and strengthen their fundamentals by making it more resilient to future shocks.
Figure 1 RRF impossible trinity
For solution a) to emerge, an effective governance of the RRPs is needed. The importance of governance was stressed by Sapir (2020), who demonstrated that it is one of the factors explaining the different intensity of the economic effects of the pandemic in EU countries. Therefore, he underlines that attention should be given to improving governance models. Along these lines, two documents provide concrete guidance to the member states: the recent compromise on the RRF between the European Parliament and the Council and the Commission’s guidelines published in September 2020 and updated in January 2021.
The structure of the RRF plans is provided by Art. 15 of the RRF regulation. The RRF plans “may be submitted in a single integrated document together with the National Reform Programme and shall be officially submitted as a rule by 30 April” 2021 (Art. 15.2). Those who wish may also submit a draft outline starting from October 2020.
On the drafting of the plans, these must include detailed explanations on how they aim at achieving and intend to contribute to the six pillars2 of the regulation, the EU Semester (notably the Country Specific Recommendations for 2019 and 2020) and the green and digital transitions. Thus, they must be coherent with the EU governance, regulatory framework and other EU programmes. They must also include a “detailed explanation of how the plan strengthens the growth potential” and other objectives (Art. 15.3).
On the monitoring/reporting side, the plans must envisage milestones (qualitative results), targets (quantitative results) and timetables for the implementation of the reforms and investment projects, the related periods, and costs (Art.15.3). In addition to reporting on these specific phases of their RRPs, member states should report on common indicators, which are used “for the purpose of monitoring and evaluation of the Facility towards the achievement of the general and specific objectives” (Art. 23, 23a), namely, the RRF pillars or EU priorities and the specificities of milestones and targets.
The Regulation recognises the importance of stakeholders in the implementation and monitoring of the plans, asking that the RRPs include a “summary of the consultation process of local and regional authorities, social partners and other relevant stakeholders” for the preparation/implementation of the plans and how their inputs are reflected in them (Art. 15.3). Finally, “Member States shall report on a biannual basis within the EU Semester on the progress made in the achievement of the plans, including the operational arrangements and on common indicators” (Art.20). To achieve this, member states’ biannual reports will be reflected in the National Reform Programmes, which are used for reporting on progress of the plans (Art. 20; 20a).
On audit/control, RRPs must explain member States’ “system to prevent, detect and correct corruption, fraud and conflicts of interest, when using the funds provided under the Facility, including arrangements aimed at avoiding double funding” from other EU programmes. Additionally, these explanations of management/control systems and who is responsible should demonstrate how milestones/targets will be achieved to ensure data on these indicators is reliable, including control mechanism, and that sound financial management will be upheld (Art 15.3; 16.3; 19). Lastly, countries must collect data on final beneficiaries of funds necessary to achieve the milestones/targets and avoid fraud.
European Commission guidelines
First, the guidelines explain that reforms and investments, with the expected impact, milestones, targets, timelines and costs, should be grouped into homogeneous sets (components). The components should interact with each other and be linked to the green/digital EU flagships3 of the 2021 Annual Growth Strategy, the European Semester or other priorities. Clarifying the RRF regulation, for each component’s projects, member states should “provide clear evidence and analysis to underpin, explain and motivate the investment and reform” and their interaction. The guidelines also indicate that authorities should propose a methodology for tracking the contribution of their plans and the various indicators and results.
Second, the guidelines underline that an effective implementation of the RRPs needs clear responsibilities. Member states should describe the plan’s institutional nature, the role of national/regional parliaments, regional/local authorities and advisory bodies as well as the decision-making process leading up to the adoption/submission of the RRPs, the list of social partners consulted and the type of contacts. Public administrations are key in the plan’s implementation and necessitate an effective use of resources and flexibility to ensure that the reforms/investments proceed. Thus, member states should ensure adequate administrative capacities for the effective implementation of the plan. This also means that, for a timely absorption of funds, RRPs should describe “if a mature project pipeline is in place or which steps would be necessary to create such a pipeline and support the maturing of projects”, for the entire plan and for the components. Related, states can “also request technical support under the Technical Support Instrument, which can take the form of Commission led support or external expertise, to help successfully implement specific reforms and investments” and to achieve milestones and targets.
Finally, a lead authority should have the overall responsibility for the RRF plans and be “the single point of contact for the Commission (‘coordinator’)”. This would be responsible “for the implementation of the recovery and resilience plans, for ensuring coordination with other relevant authorities in the country (including ensuring coherence regarding the use of other EU funds), for monitoring progress on milestones and targets, for overseeing and assuring implementation of control and audit measures, and for providing all necessary reporting, and requests for payment and the accompanying management declaration”. Furthermore, the RRPs should make sure that the coordinator has the administrative capacity, institutional experience, expertise, and the mandate/authority to exercise all relevant tasks. Lastly, the coordination structure and the reporting responsibilities to the coordinator should be clearly described.
How are member states going about fulfilling such requirements? Although national plans are still in the making, a number of governance models are emerging. Institutional responsibilities are being attributed in a variable geometry to the prime minister (PM), the finance minister (FM) or other ministers. In the rest of this column, we will try to understand how and why member states chose different forms of RRF governance, particularly concerning who ‘the coordinator’ is. We do so by using a veto player theory, which, by looking at the influence of decision-making actors in political systems, can help explain why governance systems differ across various forms of government.
The veto player theory: Single and multiple veto players
The theory of veto players looks at the impact of single/multiple veto players – namely, an individual or collective actor whose agreement is required for a policy decision – within the decision making of a political system (Tsebelis 1995, 2002, 2011). It therefore allows assessing the capacity of political systems to introduce significant policy change/reforms (i.e RRPs). Briefly, veto players are considered to be political parties, parliamentary chambers, and other bodies so long as they can veto a decision. This theory predicts that the policy stability/inertia of a political system increases when the number of veto players increases, when their congruence decreases (dissimilarity of policy positions among veto players), and when their internal cohesion increases (similarity of policy positions among the constituent units of a veto player). On the contrary, a political system is more susceptible to change when the number of veto players decreases, their congruence increases, and internal cohesion decreases.
Thus, not only the number but also the similarity of positions and the internal cohesion of veto players influence the capacity for change. Congruence defines the similarity of position between parties, whereas cohesion measures the size of the differences on a policy or the variety of positions present within a party for facilitating cross-party agreements. Congruence is directly related to policy change (the higher the congruence, the higher the possibilities of change), whereas internal cohesion is inversely related to it (the higher the parties’ internal cohesion, the lower the chances of change) (Schmidt 2002).
According to this theory, in parliamentary systems following the Westminster model such as the British one (e.g. Greece or Malta) – with a majoritarian electoral system, single governing parties and a de facto unicameral parliament – there is only one veto player. Consequently, decisions will be taken swiftly and the political system is more inclined to produce change. A similar situation is present in semi-presidential systems with one dominant party, such as in France. The French system has elements of both presidential systems (president as part of the executive) and a dominant, single party parliamentary system, with a parliament-responsible PM. Moreover, the parliament is de facto unicameral and the president has a limited suspension veto. Yet, this also means that when the PM is of the same party as the president (unified majority), there is a stronger single veto player (governing party). This may change with ‘cohabitation’ – i.e. when the PM and president are from diverse forces, with the potential for frictions.
In contrast, parliamentary systems with different forms of proportional electoral systems typically show coalition governments and therefore a multitude of veto players, especially if there is a bicameral system with both chambers having veto powers. In these cases, in addition to the number of veto players, the congruence and cohesion of such players are relevant. In other words, the closer ideologically the parties in a coalition are, the less problematic will be the number of veto players in a coalition. Similarly, the more cohesive the parties are, the less chances there will be to find cross-party support for a given policy. Here, policy change would be slower than in political systems with only one veto player, as more players would need to agree. Therefore, the veto player theory sees a relationship between policy inertia and government instability. Briefly, when change is impossible, a government’s instability may result in its chance to break the deadlock, through a change of ministerial portfolios or parliamentary majority, which often relates to coalition governments in parliamentary systems.
Veto players and the governance of the RRF: Theory
In light of the considerations above, it may be possible to infer why certain countries chose to adopt a specific form of governance for the RRF. Given the urgency and importance of such matters, swift and coherent decisions would need to be taken to provide a comprehensive and orderly RRP in spring. Following the logic of the veto player theory, one would expect that countries with heterogeneous coalition governments would tend to give a primary role to the PM, whereas those with semi-presidential systems with a dominant party, parliamentary systems with coalitions with broad/congruent majorities and majoritarian systems (single party governments) would tend to delegate responsibilities to a minister (typically the finance minister).
Given the time constraints and the importance of such decisions, in a broad and heterogeneous coalition, thus with more veto players, important decisions see a more direct involvement of the PM to ensure greater speed and consistency. Additionally, given the political importance of the RRF, divergences can create instability in the coalition and therefore, contrary to delegating this responsibility to a minister of a party at the expenses of another, entrusting the PM can also ensure the stability of the coalition. The veto player theory would indeed predict that policy inertia, due to strong divergences, may lead to government instability and its replacement to break the deadlock. Thus, as the PM is the keeper of the coalition and the variety of interests, it may prevent such instances of crisis on important issues. Conversely, for the same reasons, when there are fewer veto players or even just one, decisions can be more safely delegated to a minister. As such, also to ensure effectiveness, the competent minister (finance/cohesion minister) will be responsible for the RRF (exclusive jurisdiction model). Indeed, because of ideological congruence and low possibilities of divergences, especially in the case of just one veto player, instability is rare. These considerations are summarised in table 1.
Table 1 Theoretical considerations, veto players theory predictions for RRF governance
The next section tries to check to what extent these theoretical predictions are matched by the emerging RRF governance in EU countries.
Veto players and the governance of the RRF: Practice
Heterogeneous coalition governments
Political science theories suggest that ministers exercise major influence over individual policy areas that pertains to their portfolio of activities. This would suggest that finance ministers or cohesion ministers (for countries that receive large transfers via EU structural funds) should have the prime responsibility in the design and implementation of the RRF. Yet, following a veto player theory, unlike under exclusive jurisdictions, when we consider coalition governments this power is subject to the constraints imposed by the allies of the coalition (Tsebelis 1995, 2002). Moreover, in coalitions, exclusive jurisdiction may have counterproductive outcomes for the internal coherence RRPs.
For example, in a country subject to temporary political instability potentially leading to a change in portfolios, the exclusive jurisdiction model, where ministers do what it is included in their competences, would predict constant policy shifts. However, if we accept that crucial issues are decided collectively by the entire coalition, while less important ones are delegated to individual ministers, different outcomes can be projected. In this case, coherence and potentially slow change at the aggregate level could go hand in hand with continuous change of minor issues (those in the exclusive jurisdiction of the minister) (Tsebelis 1995).
When it comes to the RRF, its systemic importance and time constraints could explain why heterogeneous coalition governments (i.e. Spain, Ireland, Portugal, Slovenia) tend to entrust the PM with the responsibility for the implementation of the RRP (see Table 2). In Bulgaria (slim majority, parliament fragmented), the deputy PM and the finance minister co-lead, with the former having the upper hand however with a key strategic role. In addition to this, the PM may also vet projects, as in the case of Latvia. Importantly, the PM is the keeper of the coalition and can thus represent the variety of interests in the coalition or its ‘median voter’. Regarding the speed of the adoption of such plan, while it is true that an important issue needs to be agreed by the whole coalition including multiple veto players and can thus require more time, entrusting the PM may facilitate such process given his/her power of mediation. This could also be the case in federal systems, where in addition to the governing parties, regional/state authorities may have a veto in the process (also through representation in the second parliamentary chamber), thus increasing the number of veto players (Germany, Belgium). In Belgium, while the state secretary for recovery and strategic investment coordinates, this reports to a policy support committee composed of members of the federal government and the regions. Importantly, a concertation committee chaired by the PM and including the minister-presidents adopts the working framework, the various steps and the final plan. In Germany, the chancellor and the finance minister co-lead.
Single-party governments and congruent coalitions
In countries with congruent majorities and/or a single veto player, it is easier to delegate responsibilities to a minister and it is probably more effective given its portfolio (i.e finance or cohesion ministers) (see Table 2). For semi-presidential systems like France’s (also Cyprus, presidential), where today the president and PM controls a parliamentary majority in a unified government situation, but also in Romania, Poland, Lithuania, where there are congruent majorities or one prominent party, it is easier to delegate RRF responsibility to the finance minister, given the ideological congruence and thus low risks of divergence. These factors also increase the efficiency of delegating RRF responsibilities to a minister of finance/cohesion due to the relationship between the nature of their portfolios, competences and what the RRF plan entails.
Similarly, in single-party governments in parliamentary systems as in Malta, Greece and Hungary, decisions can be delegated to a minister/s as having only one veto player will not lead to problems of disagreement. A similar argument could be made for coalition governments in parliamentary systems with just a few parties and which are also close ideologically or not very internally cohesive. In the first case, ideological congruence reduces the differences, whereas less cohesion within a party may enable to find supporters for a policy across parties. Examples of congruent majorities delegating RRF responsibilities to a minister are found in Estonia, Luxembourg, Slovakia, Finland and Austria. Here, while the minister is the prominent figure, it could also be the case that the PM provides only general political guidance or also outreach to stakeholders (Austria, Finland), rather than giving substantial political lead or vetting projects as shown in the previous section, or that the final decisions/enforcement are taken by the whole government (Estonia), thus also being consistent with coalitions giving some form of role to the PM. Overall, in addition to the delegation to a minister, it could be expected that they will be quicker in adopting such plan. France, for example, already had a preliminary version of its France Relance this summer.
Lastly, the case of minority governments, such as in Denmark and Sweden, is instructive too. In particular, minority governments are commonly single-party governments, whose dynamics in this instance is not fundamentally different from single-party majority governments. Laver and Schofield (1992) argued that there is a difference between a governmental and a legislative majority, and that the party establishing the minority government is usually located centrally. Therefore, it can fluctuate towards one or another ally to have its policies approved by parliament. Consequently, from a policymaking point of view, a single-party minority government, as long as it remains in power, resembles a single-party majority government and thus has only one veto player (Tsebelis 2013). For these reasons, RRF responsibilities are more easily delegated to a minister, as it is the case in Sweden and Denmark. Lastly, in all these instances, whether with one veto player or congruent majorities in a coalition government, and in contrast to the cases in the previous, the exclusive jurisdiction model more easily applies. Indeed, the RRF responsibilities are predicted to go to the competent minister, usually the FM or in some cases the cohesion minister.
Table 2 From theory to practice, RRF governance in EU member states
Notes: *Italy: decisions still under discussion; Netherlands: likely decisions after March 2021 elections
In this column, we argue that the veto player theory can provide an interpretative framework to explain why certain governments tend to assign the responsibility to or close to the PM, while others delegate this to a minister. Overall, the theory predicts that countries with large and diversified coalition governments tended to give responsibility to the PM, as per the predictions of the veto player theory. Some coalition governments – namely, those with more heterogeneous and thus with a bigger variety of possible interests – see the PM as having the most and final responsibility and the RRF portfolio is usually based in their office. The finance minister has still a role, but the main decision maker is the PM who has clear prominence. In others, both the PM and the finance minister are responsible and on the same level.
Countries with semi-presidential systems with a dominant party/congruent coalition, parliamentary systems with just a few parties in congruent coalitions, single-party governments, and minority governments tend to delegate responsibilities to the FM or, in some cases, the cohesion minister. Here, it could be the case that the PM provides general guidance, but the finance minister is prominent.
Overall, our analysis shows that when there is only one party, or just a few similar parties, in government and therefore a low risk of divergence and risks to the stability of the government, important issues can more easily be delegated to a minister. Consequently, countries with a low number of congruent veto players are more likely to follow the exclusive jurisdiction model, for which a minister will do what is required by its portfolio and hence the RRP falls indeed mainly in the portfolio of the FM. Instead, when there are multiple veto players final and important decisions tend to be retained by the PM, possibly co-leading with the FM or other ministers. While this may slow down the speed of decisions due to the need of compromises, it may facilitate the latter, avoid deep disagreements among allies and ensure coherence among different interests.
On a final note, a few caveats on the limits of this theory should be flagged. While basic in its assumptions, it may present problems of preference measurement. In fact, in addition to the number of veto players, what they stand for needs to be established. The congruence of parties was theoretically deduced looking at the composition of the governments on a left-to-right ideological scale and as such, there may be the risk that different conclusions may be drawn for different governments. Clearly, in addition to ideology a more precise measurement of party congruence could comprise other parameters including, for example, party organisation and leadership. Here, the general tendency of the personalisation of leadership and the centrality of the leaders/PMs may also influence the RRF governance, especially where majorities are narrow, where administrative and political procedures are less defined, or where leadership has been defined through complex processes after the elections.
Similarly, given the novelty of the RRF and that we are at preliminary stages, this makes the determination of specific party preferences for the RRF, for internal and cross-party comparison, difficult and at best approximate. For example, while party manifesto are useful in that regard, RRF preferences cannot be deduced from those. Similarly, understanding the effectiveness and degree of party discipline may also enable to measure the flexibility of veto players to move away from the direction of their party and thus enabling cross-party agreement. Overall, therefore, we limited the governments’ classification to a theoretical understanding based on an ideological spectrum and internal analysis.
In this column, we have used the veto player theory to explain the different choices of member states concerning the governance of RRPs. We put particular emphasis on the issue of congruence of governments in determining the decisions on where to ‘anchor’ the responsibilities for the implementation of the national plans. Clearly, this is only one factor and as such, it does not allow to fully capture the complexities of national institutional arrangements. Even within the realm of the theory of veto players, other factors are likely to play a role. Amongst these, a particular relevance would be played by the amount of RRF resources (hence its systemic importance), the distance to next elections (hence the role of the PM as guarantor of the whole coalition), and whether, in coalition governments, the PM and the FM belong to the same party (in which case, delegation is easier). A consequence of veto players and these other factors could also be that RRF governance may in some cases be executed through a clear division of roles and responsibilities and in some other in more flexible and unwritten ways.
Lastly, it will be fruitful to analyse the final RRPs to see the impact of veto players on the coherence, specificity and requirements of such plans. Here, the impact of veto player on the final RRPs may be only one factor. For example, the fact that the veto player theory takes policies as fixed does not take into account that policymakers may have other interests at heart and may not be only policy-seekers. They may also seek outcome objectives and may be willing to take credit for the implementation of the RRF given its importance for a country’s recovery. Obtaining “positional gains from getting things done” may lead to the acceptance of policy losses (Ganghof 2003). This may be especially true for coalition countries, some of them also being those most hit by the pandemic, and as such, the coalition may actually not be a problem in introducing significant policy changes, as the theory would predict. Similarly, as Ganghof (2003) argues, it may be the case that big exogenous shocks (i.e. a pandemic) change actors’ “policy preferences by changing their beliefs about the mapping of policies onto outcomes”, thus again rendering difficult the measurement of preferences. This also calls for a further differentiation of various actors with veto power according to whether their veto is effective.
These are some of the questions that this theory may raise and, if answered with care, could help further discussions on the impact of veto players on the RRF responsibilities, but also the impact on the final RRPs and make useful cross-country comparisons.
Authors’ note: The views expressed in this column belong to the authors and should not be attributed to the European Commission. All usual caveats apply. We would like to thank Marco Piantini and Sergio Fabbrini for their comments.
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1 Impossible or inconsistent trinities abound in economics. For a review of those most relevant to European integration and EMU, see Buti (2014) and Buti and Lacoue-Labarthe (2016).
2 (a) Green transition; (b) Digital transformation; (c) Smart, sustainable and inclusive growth, including economic cohesion, jobs, productivity, competitiveness, research, development and innovation, and a well-functioning single market with strong SMEs; (d) Social and territorial cohesion; (e) Health, and economic, social and institutional resilience, including with a view of increasing crisis reaction capacity and crisis preparedness; and (f) Policies for the next generation, children and youth, including education and skills.
3 Power up, Renovate, Recharge and Refuel, Connect, Modernize, Scale-up.