NEW INSTITUTIONALISM

New institutionalism refers to a body of literature that concentrates on the role of institutions, and criticizes traditional institutionalism for its excessive focus on formalized institutions and for missing out on those crucial interactions between groups that are at the core of political processes (Rosamond, 2016). By contrast, new institutionalism approaches propose a broader definition of institution, one that includes all those continuous social interactions that form the “compliance procedures and standard operating practices” within politics (Hall and Taylor, 1996). Within new institutionalism, Hall and Taylor (1996) distinguish three types of institutionalism: rational choice institutionalism, sociological institutionalism, and historical institutionalism.

2.1 Rational choice institutionalism

Rational choice institutionalism holds that individuals behave rationally and strategically. Within this framework, institutions are considered an important element in understanding political dynamics, as they act as intervening (mediating) variables. Institutions are expected to seek policy outcomes that are consistent with their goals (preferences). Rational choice institutionalism makes use of principal-agent theory, and is particularly fitting in EU studies to explain why Member States empower institutions such as the Commission and the European Court of Justice (see Pollack, 2002). Rational choice institutionalism has been criticized for focusing mainly on formalized institutions and ignoring informal processes, which are fundamental in explaining policy outcomes. Furthermore, rational choice institutionalism tends to take preferences as given, rather than considering how external pressures can modify interests and preference formation (Rosamond, 2016).

RATIONAL CHOICE INSTITUTIONALISM’S EXPECTATIONS ON ACTORS BEHAVIOR In its assumptions of rational state behavior, rational choice institutionalism is rather close to LI (Rosamond, 2016). As a result, rational choice institutionalism shares LI’s assumptions that Member States delegate tasks to European institutions as long as it is strategically fruitful, on the basis of rational calculation, and with the purpose to maximize gains. In addition to that, rational choice institutionalism understands the dynamics between actors in the European arena under the lens of principal-agent theory, where Member States (the principal) empower European institutions (the agents) to carry out tasks.

In conclusion, rational choice institutionalism is based on the same assumptions as LI, which it applies specifically to the study of institutions. Therefore, rational choice institutionalism can therefore be coupled with LI in developing classic LI expectations.

2.2 Historical Institutionalism

Historical institutionalism, on the other hand, distances itself from LI, and aims to provides a historical perspective on the European integration process. In fact, Historical institutionalism (HI) understands political processes as historical phenomena, and therefore stresses the importance of temporality and previous events on given political events and institutions. In addition to that, HI pays particular attention to institutions, and to how political processes are embedded in them (Pierson, 1998). As a result, historical institutionalism focuses on the long-term effect of institutional choices (Rosamond, 2016).

Due to the importance it gives to historical processes and phenomena, historical institutionalism is tightly related to the theory on path dependence and increasing returns. As already defined in the section about neo-functionalism, path dependence concerns the difficulty to change direction once certain institutional choices are made, whereas increasing returns represent the advantages of continuing on the same path, which arise from a set of institutional adaptation to the selected direction. As a result, it becomes increasingly costly for institutions to undertake choices that were available at the beginning (Pierson, 2000)

Path dependence affects institutions in two ways. Firstly, institutions are designed in a specific time and set of circumstances, and for specific purposes. In order to comply with the given purposes, institutions develop agendas and preferences. Institutions might need to

interact with other agencies, potentially giving way to a path dependent dynamic. Secondly, institutions may outlive their creators. In time, institutions may take on tasks they were not originally intended to face, but when they do so they have available the limited set of tools the original institutional design offers them. As a consequence, path dependence constrains and limits policy choice (Rosamond, 2016).

HISTORICAL INSTITUTIONALIST EXPECTATIONS ON ACTORS BEHAVIOR

Historical institutionalism expects Member States’ decision-making to be heavily affected and limited by previous choices. In fact, despite Member States’ initial motivation to create institutions with the purpose of maximizing their power (as assumed by LI), path dependence and increasing returns eventually influence the integration process and governmental actions, to the point where the costs of “non-Europe” are so high that they are not easily considered viable (Pierson, 1996). As a result, Member States are considered locked into a process that they initiated, but have no longer control of.

Supranational institutions, on the other hand, are created by Member States to fulfill preset purposes. However, institutional goals might change over time, due to the institution’s will to survive, or due to agendas that institutions develop along the way. As a result, institutions develop their own goals, which might differ from the original ones they were created for (Rosamond, 2016). Therefore, supranational institutions have their own goals, and a certain degree of autonomy to pursue them. All in all, historical institutionalist expectations are closer to neo-functionalism that to LI, although it distances itself from the notions of ever- closer union that are pervasive in neo-functionalism (Pierson, 1996).

HISTORICAL INSTITUTIONALISM AND BANKING UNION

Although it focuses on other post-crisis events rather than the establishment of Banking Union, Verdun (2015) is an example of how historical institutionalism can be applied to post-crisis changes within the Euro-area financial domain. The author concludes by confirming the historical institutionalist assumption that past institutional choices affect present choices. In this case, they affect the way new institutions are established: in fact, new institutions tend to mimic already existing ones. An example of this can also be found within Banking Union. In fact, the choice to establish a two-layered SSM arguably influenced the final design of SRM.

Since its formulation, historical institutionalism set out to address and “challenge” the lack of historical understanding of the integration process within LI (Pierson, 1996). However, the point has been made, even among authors embracing an LI perspective, that historical institutionalism and LI can in fact complement each other in providing a thorough account of post-crisis European integration (Schimmelfennig, 2015a). Historical institutionalism and LI certainly disagree both on the amount of freedom of choice Member States retain, and on the role and autonomy of supranational institutions; nevertheless, LI notions of two-level games and institutional delegation could be combined with historical institutionalism ability to collocate them within the historical context of integration, and urge scholars to consider the effect of path dependence and increasing returns. For the scope of this thesis, LI and historical institutionalism are still considered opposing theories. Efforts to reconcile these two theories are however welcome in future research.

2.3 Sociological institutionalism

The third and last type of institutionalism is sociological institutionalism. Sociological institutionalism is based on a constructivist understanding of society. This means that sociological institutionalism understands interests as the result of social interactions between actors. Therefore, sociological institutionalist scholars focus on the role of persuasion and communication within institutions, and on the study of institutional culture (Rosamond, 2016).

The first branch of studies, concerning the role of persuasion and communication within institutions, includes empirical studies over so called ‘norm entrepreneurs’. Norm entrepreneurs are individuals who are able to mold their personal believes into shared understandings (Checkel, 2001: 31).

The second branch of studies, on the other hand, focuses on institutional culture and it is concerned with the emergence of frames of reference, norms, and ‘cognitive filters’ within particular institutions. To this respect, sociological institutionalism holds that institutions heavily influence individuals, and go as far as to shape their most basic preferences and their very identity (Hall and Taylor, 1996: 948), and, in so doing, shape individual’s understanding of who they are, what their preferences are, and what the preferences of other actors might be (Rosamond, 2016).

LEN AND INSTITUTIONAL CULTURE

Within sociological institutionalism, the study of institutional culture offers a theoretical basis to understand LEN. Although LEN manifests itself through decision-making and policies, it is primarily a set of ideas. In fact, LEN is one of the possible attributes of national economic cultures, and, just like economic nationalism, it part of a nation’s ideology (Pickel, 2003).

Due to the fact that LEN is a set of ideas, and therefore one of the possible frames of references through which actors understand reality and shape their preferences (Rosamond, 2016), LEN could be found to be part of an institution’s culture. As seen above, institutions develop cultures, which are widely pervasive and influence its members, and shape their preferences.

As already discussed in Chapter III, the Italian government has a record of using state- aid to support both its struggling firms and banks (Germano, 2012; Ansa Italy, 2017; Bodellini, 2017) and the point has been made that LEN is part of Italian institutional culture (Deeg, 2012). Therefore, based on the sociological institutionalist assumption that institutional culture is pervasive, influences institutional member’s preferences, it is possible to conclude that LEN is part of the Italian government’s institutional culture.

LINKING LI AND SOCIOLOGICAL INSTITUTIONALISM

Liberal intergovernmentalism and sociological institutionalism are not traditionally associated. In fact, the very premises of these two approaches create a gap between them: LI is based on the same rational-choice perspective that sociological institutionalism, with its constructivist approach, criticizes. However, scholars have called for an integration of sociological insights into integration theory (Saurugger, and Mérand, 2010); while others have argued in favor of moving beyond rational choice and towards a more constructivist approach (Risse-Kappen, 1996).

As argued insofar, LI is a suitable and rather complete approach to post-crisis European integration, since it is able to explain the bulk of the events, negotiations, and the

establishment of Banking Union institutions and organizations. Nevertheless, LI lacks the tools for understanding phenomena such as LEN and institutional culture.

Several authors have theorized the existence of LEN within EU Member States (Deeg, 2012; Donnelly, 2018; Clift and Woll, 2012), but none of these authors has theorized a connection between LEN and LI. Therefore, the present thesis sets out to fill in this theoretical gap. In order to do that, the present thesis claims that, when aggregating interest groups preferences concerning decision-making, governments are not necessarily neutral, but can have their own preferences, which are determined by institutional culture. Institutional culture entails a set of believes that shape the government’s perspective on what outcomes are most desirable for the sake of the state. In the case at hand, the Italian government institutional culture is expected to entail LEN.

In so doing, sociological institutionalism does not contradict LI’s assumption that Member States aggregate preferences domestically and negotiate them internationally with strategic purposes, but it adds a layer underpinning these assumptions. Such further layer argues that governments decisions are influenced by institutional culture.

Proposition 5: Institutions develop institutional culture, which shape the world view of