An ode to muddling through


Exactly ten years after we entered office as members of the Barroso II Commission, and were immediately confronted with the Greek debt crisis, my former colleague, the then-European Commissioner for Economic and Monetary Affairs Olli Rehn, comes forward with his memoire under the metaphoric title: Walking the Highwire. The existential crisis of the single currency, which he had to solve during his mandate, was and remains a subject of enormous academic and political interest. And Olli was not only an eyewitness of the process, but one of the drivers. As when he was in office, Olli also as an author takes his critics with serenity. And he quotes many of them: Varoufakis, Fukuyama, Sandbu and others.

In an early chapter of the book, and also on many subsequent pages, we are reminded that the author is a Finnish economist and politician. Highlighting the home country helps embedding the process of high economic governance in the real life of the policy maker, who nevertheless remains primarily responsible for the affairs of the community. This is a significant background factor, since Finland only joined the European Union in 1995, and remains a land of strong EU-sceptic tendencies.

Who governs?

Since this book is an account of the eurozone crisis by one of the most central individuals in the story, perhaps the greatest added value of the volume is the micro perspective of policy making, which in this case simply means continuous crisis management. And because the text is written from a micro perspective, facts are not stylised, but very concrete.

Explaining how things actually happened requires mentioning a lot of names. In Olli’s company, we meet a long list of finance ministers, central bankers, occasionally Prime Ministers and leaders of multilateral organisations. It is more than a gesture to former colleagues that Olli does not forget mentioning his cabinet members and colleagues of the EC’s directorate general for economic and financial affairs (DG ECFIN), starting with Marco Buti but also many others, who otherwise would remain „faceless bureaucrats”: on these pages they receive their appropriate characterisation as masterminds, negotiators and enforcers. Obviously, they do not appear as torturers of Greece and other peripheral countries, but as engineers of European solidarity in exchange of reforms that eventually bring the clients to a brighter future.

What is missing from this tableau is the European Commission as a body, or the College of Commissioners as a decision-making organ. Yours truly is one of the few colleagues of Olli who is mentioned (once) in the book, but the majority is not, and there is very little sign of collective decision making and responsibility. And this is not an omission in the book: this is how many of us felt at the time: DG ECFIN is the empire of its own, and Olli is the lone wolf occasionally briefing the College, after arriving late, and before leaving early. Barroso, of course, is mentioned, and Olli describes him as “competent”, which surely is a qualification that would require more subtlety.

The importance of identifying players as opposed to dealing with issues is exposed by the Name Index and the Subject Index at the end of the book, and the imbalance between the two. While the first is rather detailed, the second is unusually rudimentary. Practically, the Subject Index is limited to some countries and institutions.

Austerity and Structural Reforms

In the wide public debate, and much of the academic literature, this period of eurozone drama and DG ECFIN supremacy is associated with one central concept: austerity. If there is a general, or a kind of wholesale criticism about the handling of the euro area crisis, it is about this. Olli however does not advocate austerity in this memoire either, as in his time as Commissioner the policy makers saw themselves pursuing front-loaded fiscal consolidation (especially in 2010-11), confidence building measures, together with growth and competitiveness enhancing reforms.

The EU crisis response to the euro area crisis, at least in the 2010-12 period, is characterised by the dual strategy of fiscal consolidation and structural reform. While many commentators simply call this an austerity period, Olli works hard to prove that for him it was always structural reform that was more important. This simple formula was sometimes hard to explain to the rest of the world, including the media. The book refers to an episode when The Financial Times  changed the title of an original article by Olli against his will, giving the impression that he was preaching austerity, while the article was, according to Olli, about the importance of structural reform.

However, on this very issue, it was not only a misperception that austerity was the dominant doctrine, and only pushed back after the summer of 2012, which Olli convincingly describes as a watershed. The fact that Olli was not a single minded austerian (contrary to accusations by Krugman etc.) should not hide the fact that in the 2010-12 period the OHIO (own house in order) dogma prevailed.

Downplaying the importance of pro-cyclical fiscal policy is an important feature of the book, so much that even the Troika (an ad hoc format for creditor rule vis a vis insolvent euro area countries with the participation of the European Commission, the European Central Bank and the International Monetary Fund) appears as a tool of solidarity. When it comes to the Irish scene, and a hostile national politician mentions the ultra-low Irish corporate tax, Olli opines that we are not supposed to kick at the friend lying on the ground. One may wonder why the same morality was not applied to Greece.

The centrality of rebalancing

What Olli considers to be the most essential effort of his second mandate as a Commissioner, and perhaps also as the most important message of the book: the EU economy, or more precisely the euro area, had to be rebalanced at the time of the euro area crisis. That is why the word appears in the sub-title of the book. The tool to address imbalances in the EU could have been Olli’s main achievement. It is called Macroeconomic Imbalances Procedure (or MIP for short), it was invented already in 2010, but the problem is that it did not function very well

The weaknesses of the MIP, or at least the narrow focus of its application, is revealed by Olli when he refers to a chart used by Jean-Claud Trichet in 2011 and calls it his favourite. That chart pointed to unit labour cost as a central driver of imbalances and, if adjusted, the source of competitiveness. It is, indeed, a very narrowly focused interpretation of competitiveness, but it helps explaining how we ended up with internal devaluation as a key component of the muddling-through strategy and ignore what macroeconomists call the fallacy of composition.

More important than North-South, the politically most pivotal imbalance is what one might detect between France and Germany. And despite the fact that it is Germany which holds back wages for ten years behind the rise of productivity, and maintains a vast current account surplus, it is still France that is referred to as a source of imbalance, and not Germany. Therefore, the perhaps most ironic episode in the book is Olli’s encounter with French finance minister Pierre Moscovici, who later became his successor. First, when Olli is the Commissioner, Pierre has to ask for leniency, while Olli has to represent rigour. But a few years later, when Olli is a minister, he comes to Brussels to seek leniency, and who sits in his former chair: Pierre.

The mission barely goes beyond survival, constrained by the Treaties, the institutional, geopolitical, and ideological fragmentation of Europe. In the period covered by the book, it is muddling-through that was possible, and we should not expect much more in the future either. This is also why the past should not be seen too negatively, and the future should not be seen too pessimistically. And this is the idea reinforced by the motto of the book: “Muddling-through can prevent you from tumbling down” (a proverb in Eastern Finland).


Having missed out on IMF leadership (as it is well-known, one of our former colleagues, Kristalina Georgieva was elected ), in August 2020, Olli was confirmed as COVID-19 steering committee chairman by FIFA (the world football federation). This should be no surprise to those who have read the book, where football is one of the main background themes and source of metaphors.

The Green rescue package in 2010 was not delivered in the 24th hour, but “in injury time”. This was, by the way, a favourite metaphor for Olli, who also at the end of 2013 insisted that the Commission has to remain focused on its tasks, since Manchester United also scores much of the winning goals in injury time. However, he did not wait until the end of the Barroso II commission, but transferred to the European Parliament at the Spring 2014 elections.

During his time in office and writing the memoire, Olli did not only use the language of football, but also played. It turns out that on a November Sunday, it was in the break of a football match at Park Cinquantenaire in Brussels, when he receives a call from Trichet to discuss details of the Irish intervention of the Troika. Some of these diary-like details might as well be too much for the ordinary reader. One important fact, nevertheless, is missing: the result of the match in May 2011 between the Andor cabinet and the Rehn cabinet.

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