New Alliances in Post-Brexit Europe: Does the New Hanseatic League Revive Nordic Political Cooperation?

Abstract

As Brexit removes the Nordic countries' most powerful ally from the EU, what does this imply for their approach to European affairs? The literature on small states within the EU suggests that they can counterbalance limited bargaining capacities by entering two types of alliances: strategic partnerships with bigger member states and institutionalised cooperation on a regional basis. Against this backdrop we ask whether, by significantly raising the costs of non-cooperation for Nordic governments, the Brexit referendum has triggered a revival of Nordic political cooperation. We scrutinise this conjecture by analysing Nordic strategies of coalition-building on EU financial and budgetary policy, specifically looking at attempts to reform Europe's Economic and Monetary Union and proposals to strengthen the EU's fiscal powers. We find that Nordic governments have successfully collaborated on these issues in the context of new alliances such as the 'New Hanseatic League' or the 'Frugal Four.' Yet, their coalition-building strategies rely on relatively loose and issue-specific alliances rather than an institutionalisation of Nordic political cooperation, implying that this revival of Nordic political cooperation hardly involves the institutions of 'official' Nordic cooperation. We argue that this reflects lasting differences among the Nordics' approach to the EU as well as electorates' scepticism about supranational institution-building, implying that 'reluctant Europeans' are often also 'reluctant Scandinavians.'

Full text

Politics and Governance (ISSN: 2183–2463)
2020, Volume 8, Issue 4, Pages 409–419
DOI: 10.17645/pag.v8i4.3359
Article
New Alliances in Post-Brexit Europe: Does the New Hanseatic League
Revive Nordic Political Cooperation?
Daniel F. Schulz * and Thomas Henökl
Department of Political Science and Management, University of Agder, 4630 Kristiansand, Norway;
E-Mails: daniel.schulz@uia.no (D.F.S.), thomas.henokl@uia.no (T.H.)
* Corresponding author
Submitted: 15 June 2020 | Accepted: 17 July 2020 | Published: 3 November 2020
Abstract
As Brexit removes the Nordic countries’ most powerful ally from the EU, what does this imply for their approach to
European affairs? The literature on small states within the EU suggests that they can counterbalance limited bargaining
capacities by entering two types of alliances: strategic partnerships with bigger member states and institutionalised coop-
eration on a regional basis. Against this backdrop we ask whether, by significantly raising the costs of non-cooperation
for Nordic governments, the Brexit referendum has triggered a revival of Nordic political cooperation. We scrutinise this
conjecture by analysing Nordic strategies of coalition-building on EU financial and budgetary policy, specifically looking at
attempts to reform Europe’s Economic and Monetary Union and proposals to strengthen the EU’s fiscal powers. We find
that Nordic governments have successfully collaborated on these issues in the context of new alliances such as the ‘New
Hanseatic League’ or the ‘Frugal Four.’ Yet, their coalition-building strategies rely on relatively loose and issue-specific
alliances rather than an institutionalisation of Nordic political cooperation, implying that this revival of Nordic political
cooperation hardly involves the institutions of ‘official’ Nordic cooperation. We argue that this reflects lasting differences
among the Nordics’ approach to the EU as well as electorates’ scepticism about supranational institution-building, imply-
ing that ‘reluctant Europeans’ are often also ‘reluctant Scandinavians.’
Keywords
Brexit; budgetary politics; Economic and Monetary Union; fiscal integration; intergovernmentalism; Nordic cooperation;
small states
Issue
This article is part of the issue “Rediscovering Nordic Cooperation” edited by Anne Elizabeth Stie (University of Agder,
Norway) and Jarle Trondal (University of Agder, Norway/ARENA University of Oslo, Norway).
© 2020 by the authors; licensee Cogitatio (Lisbon, Portugal). This article is licensed under a Creative Commons Attribu-
tion 4.0 International License (CC BY).
1. Introduction
The Brexit referendum of 2016 has led to much soul-
searching about the future of European integration.
While its outcome sent shockwaves across Europe, its
impact was felt more in some places than in others, with
the Nordic countries being among the hardest hit. Not
only did a British exit imply the loss of the Nordics’ most
powerful ally in European negotiations, which often led
a ‘market-making coalition’ focused on market liberal-
isation and free trade (Quaglia, 2010). It also brought
about the prospect of a power shift in Brussels favour-
ing euro area countries, potentially pushing the euro out-
siders among the Nordics further to the side lines (Huhe,
Naurin, & Thomson, 2020). Hence, the events since 2016
have forced Scandinavian governments to rethink their
approach toward European integration.
The literature on ‘small states’ typically assumes that
all Nordic countries confront similar structural disadvan-
tages in EU policymaking due to their relatively limited
bargaining power and constrained financial resources.
However, research in this tradition has also shown that
Politics and Governance, 2020, Volume 8, Issue 4, Pages 409–419 409

small states can and do successfully influence EU pol-
icy and that coalition-building is decisive for success
(Thorhallsson & Wivel, 2006). Similarly, Diana Panke
argues that small states’ limited bargaining power “can
potentially be counterbalanced with two strategies: insti-
tutionalised coordination on a regional basis and strate-
gic partnerships with bigger states” (Panke, 2010, p. 802).
While the latter strategy implies forging strong ties
with one of the EU’s ‘great powers’ in an asymmetric
relationship, the former relies on a pooling of powers
among equals.
This juxtaposition between two complementary
strategies serves as the starting point for our analysis.
We investigate how the Nordic countries seek to com-
pensate for the loss of its most important ‘big power ’ ally
within the EU after 2016. Do they focus on strategic part-
nerships, replacing one big partner with another, or do
they instead try to further institutionalise Nordic cooper-
ation to defend their joint interests in EU negotiations?
Given that the Nordic countries have long been recog-
nised for being particularly effective in turning intra-
Nordic cooperation into extra-Nordic influence (Grøn &
Wivel, 2018), this article asks if Brexit has brought about
a revival of Nordic political cooperation.
Our analysis focuses on the area of EU financial and
budgetary policy with a special emphasis on reforming
Economic and Monetary Union (EMU) and discussions
about strengthening the EU’s fiscal powers. We focus on
these reforms as ‘crucial cases’ for two reasons: First,
recent reform initiatives in this area all seek to further
strengthen the euro through the creation of additional
supranational institutions and are thus emblematic of
integration schemes observed with scepticism by both
the Nordics and its now-lost ally. As these initiatives carry
the potential to irreversibly alter the path of European
integration in a more federalist direction, the stakes for
the Nordics are high and we should expect them to
adopt a public position. At the same time, however, EMU
reform poses a ‘tough test’ for Nordic cooperation since
only one of the five Nordic countries, Finland, is an EMU
member state, which may make coordination among
the Nordics particularly challenging. Hence, EMU reform
may serve as a least likely case for effective Nordic coor-
dination on EU policy. This implies, to invoke Jack Levy’s
‘Sinatra inference,’ that if the Nordics can make it here,
they can make it anywhere (Levy, 2002).
While detailed negotiations are still ongoing, the
empirical record thus far suggests that the Nordics have
indeed increased their collaborations to fight off ambi-
tious reform proposals. They have successfully stunted
ambitions to create a genuine euro area budget with
a stabilisation function or to increase the size of the
long-term EU budget. While they made concessions
on the Covid-19 recovery fund, they received sub-
stantial increases to their budget rebates in return.
Yet, these results were mostly achieved through coop-
eration within loosely defined alliances such as the
‘New Hanseatic League’ or the ‘Frugal Four’ which also
involved other countries such as the Baltic states, Ireland,
Austria, or the Netherlands. These ad-hoc coalition-
building attempts were driven by intergovernmental
cooperation rather than by strengthening the role of
the official institutions of ‘Norden’—that is: the Nordic
Council and the Nordic Council of Ministers—in EU
affairs. Furthermore, actual attempts to further institu-
tionalise official Nordic cooperation on EU policy have
been blunted, as the resistance to creating a common
representation in Brussels shows.
We argue that this mixed record of Nordic polit-
ical coordination after Brexit reflects the very same
mechanisms that have made the Nordic countries ‘awk-
ward partners’ in European integration in the first place.
First, Nordic political elites and electorates share a deep-
seated scepticism towards supranational arrangements
which limit national autonomy (Stegmann McCallion
& Brianson, 2018, p. 6), be they European or Nordic.
Due to this hesitation regarding pooling resources in
a lasting fashion, Nordic countries favour flexible and
issue-specific alliances over a long-term institutionali-
sation of Nordic cooperation in EU affairs, which may
involve strengthening supranational institutions at the
regional level.
Second, despite often being viewed as a relatively
coherent bloc, there is great variation between the five
Nordic states’ and their preferences on EU policy. The
experience of the sovereign debt crisis in the euro area
and the Brexit vote may have brought Finland—the EU’s
former poster child of the North—closer to its more scep-
tical neighbours. Yet, the simple fact that Nordic coop-
eration brings together non-EU members (Norway and
Iceland) and EU members with formal (Denmark) and
de facto (Sweden) opt-outs, already reveals the diffi-
culties associated with making institutionalised Nordic
cooperation a central tool for ensuring national interests,
since these may not always be well-aligned. This matters
because utilising institutionalised cooperation to coun-
terbalance limited bargaining power presupposes homo-
geneous interests within groups (Panke, 2010, p. 803),
which cannot be taken for granted in the case of
Nordic cooperation.
The remainder of this article is structured as fol-
lows: The next section situates Nordic strategies toward
EU policy in the wider literature on ‘small states’ in
European integration, discussing the strategic options
smaller member states have at their disposal to influ-
ence policy in general and how the Nordic countries
make use of them in particular. It also discusses the
relationship between Nordic cooperation and European
integration in this light. The following section illus-
trates these dynamics empirically by analysing Nordic
approaches towards EU financial and budgetary policies
after Brexit, focusing on the coalitional logics the Nordics
have utilised to influence reform outcomes. We conclude
by highlighting the implications of our analysis for the
future of European integration and Nordic cooperation.
Politics and Governance, 2020, Volume 8, Issue 4, Pages 409–419 410

2. Small States in European Integration: What
Strategies for the Nordic Countries?
While all European countries are small by global stan-
dards, what constitutes a small state in the context
of European integration is far from obvious. Hence,
researchers frequently use proxies such as population
size, voting weights, or GDP to distinguish small states
from middle powers and big players. Despite this lack
of a commonly agreed definition, however, there is little
doubt that the EU enlargements of 1995 and 2004 have
drastically changed the balance between smaller and big-
ger member states. If we follow Panke and Gurol (2019)
in identifying countries as ‘small’ if their populations are
smaller than the EU27 average of 16,5 million, then 20
out of 27 member states fit that definition, including all
Nordic countries.
Even if Europe’s small states already displayed a sur-
prising ‘strength of the weak’ when adjusting to the rapid
changes in the global economy throughout the 1970s
and 1980s (Katzenstein, 1985), the prospect of economic
integration offered additional advantages. As members
of a large single market, for instance, small states
could reap benefits associated with large economies
such as economies of scale and increased competition.
However, this came at the cost of potentially playing
only a minor role in collective decision-making processes.
As Thorhallsson and Wivel (2006, p. 658) aptly sum-
marise, such steps in integration make small states “at the
same time more dependent on strong international insti-
tutions and less able to influence their decision-making.’’
2.1. Structural Disadvantages in EU Decision-Making
Small states confront several obstacles in their attempts
to influence decision-making at the EU level, with lim-
ited voting power being only the most obvious imped-
iments. Outside of intergovernmental conferences, the
increasing use of qualified majority voting in EU decision-
making is theorised to weaken small state influence
on EU decision-making further. Given that the informal
norms of decision-making by consensus rather than for-
mal voting remains the primary mode of decision-making
(Heisenberg, 2005), the impact of qualified majority vot-
ing on small-state influence should not be overstated.
Even within a consensus culture, however, small states
face size-related disadvantages. As they tend to have
smaller public budgets, their ministries and embassies
usually manage the same workload with significantly
fewer staff. In the context of EU negotiations, such capac-
ity constraints may result in delayed or vague positions,
decreasing the argumentative power required for nego-
tiation strategies focused on persuasion (Panke, 2010).
The small states literature has identified a list of
counterstrategies that small states may employ to over-
come such disadvantages. First, the ‘rotating Council
Presidency’ offers smaller states a platform to promote
niche national interests or novel policy ideas (Bengtsson,
Elgström, & Tallberg, 2004). Holding the Presidency
offers an important window of opportunity to increase
‘soft’ or normative power for countries lacking hard-
power resources. Second, somewhat paradoxically, the
relative weakness of small states allows them to adopt a
role as ‘honest brokers.’ As they cannot expect to success-
fully push through their national interests in the same
way as countries like France or Germany do, small states
are less likely to meet the same level of suspicion when
tabling a compromise. A reputation as honest brokers
then also allows small states to shape the agenda as
‘norm advocates’ (Björkdahl, 2008) or policy ‘frontrun-
ners and role models’ (Jakobsen, 2009). Third, selective
engagement and prioritisation allows small states to con-
centrate their limited resources on those issues where
they have the most important economic and political
interests at stake. If small states adopt positions only
relatively infrequently, this means that “when they do,
decision-makers in the Council are particularly attentive
to them” (Arregui & Thomson, 2009, p. 660).
While the above counterstrategies apply to small
member states individually, the literature suggests that
for small states to successfully influence EU policy, “coali-
tionbuilding has been decisive” (Thorhallsson & Wivel,
2006, p. 660). Here, Panke (2010) usefully distinguishes
two complementary approaches to coalition-building:
strategic partnerships with bigger states such as France,
Germany, or (formerly) the UK on the one hand, and insti-
tutionalised coordination on a regional basis on the other.
While the former implies an asymmetric partnership, the
latter approach suggests a more balanced power relation-
ship within an alliance that cannot be divided into ‘lead-
ers’ and ‘followers’ as clearly. Typical examples of such
regional-based horizontal alliances include the Benelux,
Nordic cooperation, the Baltic group, or the Visegrad
Four. The analysis below seeks to shed light on the open
question of whether strategic partnerships and horizon-
tal coordination can be substitutes and, more specifi-
cally, whether Brexit increases the utilisation of horizon-
tal cooperation among the UK’s Northern allies.
2.2. The Nordic Approach as a Success Case of Small
State Influence?
While voting procedures and capacity constraints could
lead us to expect that small states hold both less bargain-
ing power and argumentative power than bigger EU mem-
bers, the empirical record remains inconclusive. An empir-
ical analysis of national bargaining success on EU legisla-
tion, for instance, finds France and Germany doing poorly
and small states like Ireland, Luxembourg, or the Nordic
states doing ‘particularly well’ (Golub, 2012, p. 1311).
Similarly, studies of the intergovernmental conferences
(IGCs) at Amsterdam and Nice did not find that large mem-
ber states hold outsize bargaining power (Finke, 2009;
Slapin, 2008). Hence, it is not a foregone conclusion that
small states are powerless, neither in ‘ordinary’ legislative
decision-making nor at extraordinary IGCs.
Politics and Governance, 2020, Volume 8, Issue 4, Pages 409–419 411

Among the heterogeneous group of small mem-
ber states, the Nordics are typically seen as particu-
larly active and effective in enshrining their preferences
in EU legislation (Panke, 2010, 2011). Their success is
somewhat surprising, given that the Nordics are relative
latecomers and often regarded as ‘reluctant Europeans’
(Grøn, Nedergaard, & Wivel, 2015; Miljan, 1977). If we
assume that experience with EU decision-making implies
learning and comes with extensive knowledge and net-
works, these resources should be less pronounced for
relatively new member states like Sweden and Finland,
which only joined in 1995. One might therefore expect
the Nordics to carry less influence in Brussels than more
seasoned groupings such as the Benelux countries (Maes
& Verdun, 2005). However, Daniel Naurin (2007) pro-
vides evidence that the Nordic countries have quickly
developed large amounts of network capital to cooper-
ate at the EU level, with Sweden lagging behind only the
‘big three’ and being far better connected than larger
member states such as Spain or Italy.
Alongside network capital and a strategy of prioriti-
sation and selective engagement, normative power has
been another key source of Nordic influence. Sweden
and Denmark in particular are proud promoters of the
‘Nordic model’ of welfare and labour market policy and
their attempts to export the model has been quite suc-
cessful within the EU (Bengtsson et al., 2004). A striking
example may be seen in the adoption of ‘flexicurity’ as a
core element of the European Commission’s reform rec-
ommendations to many EU member states in the con-
text of the European Semester process (Bekker, 2018;
Haas, D’Erman, Schulz, & Verdun, 2020). Other promi-
nent examples include Finland’s ‘Northern Dimension
Initiative’ (Arter, 2000) and Denmark’s success in coordi-
nating the Eastern enlargement process during its 2002
presidency (Bengtsson et al., 2004).
A pertinent question in the current period of change,
however, is to what extent Brexit will negatively affect
the hitherto effective strategies of the Nordics. Given
that Denmark and Sweden have the closest network ties
to the UK and have traditionally held the most similar pol-
icy positions, they face particularly high hurdles in main-
taining previous levels of influence. Thus, both countries
are among those most “likely to become significantly less
central in Council networks if they do not take compen-
sating measures” (Huhe et al., 2020, p. 154). It remains
an open question whether such compensating measures
focus on building new strategic partnerships (e.g., by
collaborating more closely with Germany) or emphasise
horizontal coordination instead by turning intra-Nordic
cooperation into a platform for extra-Nordic influence to
a greater extent than in the past.
2.3. Nordic Cooperation and European Integration:
A Difficult Relationship
The history of Nordic political cooperation has been char-
acterised as “littered with grand schemes that never
materialized” (Grøn & Wivel, 2018, p. 272). Despite set-
backs, however, the project has continuously moved
on. As one striking example, the creation of the Nordic
Council of Ministers followed failed discussions to estab-
lish a Nordic common market as an alternative to the
European Economic Community. This example already
underlines that Nordic cooperation has always been
influenced by the broader European integration project.
It is thus no coincidence that the future of ‘Norden’ is
back on the agenda at a time when the EU itself appears
to be at a crossroads (Olesen & Strang, 2016).
In the context of EU affairs, it is useful to distinguish
informal formats from ‘official’ cooperation in the con-
text of the Norden institutions, the Nordic Council and
the Nordic Council of Ministers. While informal inter-
action formats such as breakfast meetings of Nordic
ministers prior to EU summits are well established and
serve a useful purpose in pooling information and exper-
tise (Ruse, 2015, pp. 54–56), the role of the Nordic
Council and the Nordic Council of Ministers in coordinat-
ing Nordic EU policy remains significantly less clear, not
least because these institutions include both EU insid-
ers (with varying numbers of opt-outs) and outsiders.
Following the contrasting outcomes of several referen-
dums on EU membership in the fall of 1994, Norway
and Iceland stayed on the outside, while Sweden and
Finland joined Denmark as EU members—with direct
consequences for Nordic cooperation (Gänzle & Henökl,
2018). The Nordic Council responded to this challenge by
radically overhauling its internal structures. Instead of fol-
lowing policy areas as organising principle, three pillars
were adopted including EU relations and cooperation
with neighbouring regions (especially the Baltics) along-
side intra-Nordic matters (Opitz & Etzold, 2018). While
the three-pillar structure proved unworkable and was
hence abandoned after only five years, many attempts
to strengthen the coordination of EU policy within ‘offi-
cial’ Nordic cooperation followed.
The latest reform program, Nyt Norden (The New
North), emphasises the need to make official Nordic
cooperation more political and relevant, especially for
international and European affairs (NORDEN, 2016a).
The aim appears to be to counter the increased marginal-
isation of the Nordic Council and the Nordic Council of
Ministers since the 1990s, when a strengthened role of
the prime ministers translated into governments’ pref-
erences for cooperating ‘informally and outside the old
institutions’ (Olesen & Strang, 2016, p. 35). While the
Nordic Council of Ministers has increasingly focused on
the EU in recent years, it may still be better understood
as a forum for discussions rather than coalition-building
of a Nordic ‘bloc.’ Hence, Grøn and Wivel (2018, p. 276)
describe the role of ‘official’ Nordic cooperation within
EU affairs as an arena for sharing information and infor-
mally testing arguments rather than finding common pol-
icy positions and strategies. Our modest ambition for the
empirical discussion below is to assess to what extent
Brexit may have changed this pattern by also giving the
Politics and Governance, 2020, Volume 8, Issue 4, Pages 409–419 412

institutions of ‘official’ Nordic cooperation a bigger role
in EU policy.
3. Nordic Cooperation on EU Financial and Budgetary
Policies After Brexit
Our analysis focuses on the area of EU financial and bud-
getary policy, which offers a particularly ‘tough test’ for
Nordic influence. This includes initiatives to reform the
EMU and to increase the EU’s budgetary powers. The
Nordic countries’ highly differentiated patchwork of inte-
gration arrangements in this area are likely to make intra-
Nordic coordination on these issues particularly challeng-
ing. However, these developments also constitute cru-
cial cases for the Nordics because recent EMU reforms
involve a significant deepening of European integration
in the area of core state powers and thus threaten to fur-
ther decouple the Nordic countries from ‘core Europe.’
What is more, ambitious proposals to create suprana-
tional institutions are emblematic of centralising ambi-
tions always observed with scepticism by the Nordics.
Attempts to bolster the EU’s and the euro area’s fiscal
powers also go directly against Sweden’s and Denmark’s
traditional strategy to selectively and defensively engage
with European integration in order to preserve crucial
‘bastions of national autonomy’ (Wivel, 2018, p. 14).
3.1. The New Hanseatic League and EMU Reform
On the pertinent issue of EMU reform, the Nordic
countries have responded to the Brexit shock by join-
ing the so-called ‘New Hanseatic League’ as the per-
haps most visible new grouping in EU politics. Bringing
together small states with a strong preference for free
trade and balanced books, the alliance emerged at
the end of 2017 and built on the long-standing prac-
tice of organising informal meetings among the Nordic
and Baltic EU members (NB6) prior to Council meet-
ings in Brussels (Schoeller, 2020). In addition to the
Nordic and Baltic states, Ireland and the Netherlands
joined the new coalition. Notably, this implies that
Denmark and Sweden were the only euro outsiders
within the group, giving them the opportunity to retain
a voice in debates about the future of the euro. The
group’s most tangible output consisted in a series of
position papers published throughout 2018, focused on
Banking Union, Capital Markets Union, and the reform of
the European Stability Mechanism, respectively. Taken
together, these reforms constitute a potentially far-
reaching deepening of European integration without
renegotiating the treaties.
From a Nordic perspective, these initiatives (and the
Banking Union in particular) constitute a critical fork-in-
the-road. While Finland joined the Banking Union by
virtue of its EMU membership, Sweden and Denmark
have set up national taskforces to address the ques-
tion of whether to join on a voluntary basis through an
arrangement called ‘close cooperation.’ Both have ini-
tially decided not to opt in based on concerns about
paying for bank failures in other member states and
a preference of regulatory autonomy (Spendzharova
& Bayram, 2016). However, unlike the UK, both have
not vocally opposed the Banking Union and, after the
publication of reports by government commissions at
the end of 2019 (Danish Ministry of Industry, Business
and Financial Affairs, 2019; Swedish Ministry of Finance,
2019), Denmark and Sweden are currently further explor-
ing the option of joining. Their final position will likely
be of critical importance for their future approach to
European integration. As the Banking Union requires the
funding of a common safety net for dealing with the res-
olution of struggling banks, sceptics see it as a stepping-
stone in the direction of fiscal union. Staying on the out-
side thus threatens to open an even wider gulf between
euro insiders and outsiders—an unfortunate develop-
ment from the perspective of the Nordics (Brianson &
Stegmann McCallion, 2020; Korkman, 2015).
With a future opt-in to the Banking Union still in
the cards for the Nordic euro outsiders, negotiations
about completing the Banking Union were of relevance
for them as well. When the New Hanseatic League first
issued a position in 2018, new institutions for banking
supervision and resolution had already been created,
focussing the Banking Union debate squarely on the miss-
ing third pillar, a European Deposit Insurance Scheme, to
replace existing national or regional schemes (Howarth &
Quaglia, 2018). While the New Hanseatic League did not
generally rule out the creation of a common backstop for
banking crises or a European Deposit Insurance Scheme,
it made any discussions on completing the Banking
Union conditional on prior efforts to reduce legacy debts
at the national level (Hanseatic League, 2008a). This
discussion specifically centred on the amount of non-
performing loans on Southern European banks’ balance
sheets as a legacy of the sovereign debt crisis. The
New Hanseatic League demanded far-reaching national
efforts in risk-reduction as a precondition for any sort of
risk-sharing.
Similar as with their published positions on the
Capital Markets Union (Hanseatic League, 2008b) and
the European Stability Mechanism reform (Hanseatic
League, 2008c), the New Hanseatic League remained
closely aligned with German preferences. The group
has consistently positioned itself as fiscal hawks oppos-
ing any form of redistribution within the euro area or
grand leaps in European integration—reportedly with
the ‘tacit approval from Berlin’ (Khan, 2018). Hence,
the Nordics’ strategy under the umbrella of the New
Hanseatic League combines both elements of coalition-
building: coordination with like-minded small states
while also seeking German support. This has led the
Financial Times to conclude that the success of the New
Hanseatic League’s attempts to replace Britain will “be
determined by their ability to persuade the bigger EU
states, and particularly Germany, to join them” (“A daunt-
ing task,’’ 2018).
Politics and Governance, 2020, Volume 8, Issue 4, Pages 409–419 413

3.2. The ‘Frugal Four’ and Opposition to Centralising
Fiscal Powers
Yet another informal format took centre stage in debates
about the EU’s budgetary powers. Denmark and Sweden
joined Austria and the Netherlands under the label of the
‘Frugal Four,’ to position themselves jointly as advocates
of budgetary discipline from 2018 onwards. The policy
initiatives of the group can be seen in three interven-
tions designed to prevent fiscal transfers and a further
delegation of budgetary powers to Brussels: opposition
to a budgetary instrument for the euro area, to an EU
budget bigger than 1 percent of EU GDP, and to issuing
joint debt to fund the recovery from the Covid-19 crisis.
While the Frugal Four succeeded on the first two counts,
their opposition did not prevent a deal on the EU’s recov-
ery fund.
The idea to create a euro area budget—
dubbed Budgetary Instrument for Convergence and
Competitiveness—forms part of French president
Emmanuel Macron’s broader vision for European inte-
gration expressed in his Sorbonne speech in 2017. When
Germany endorsed a watered-down version of the idea
as part of the ‘Meseburg Declaration’ of June 2018, this
change of position invoked the fear among the Frugal
Four that Germany might make too many concessions
to France and hence triggered their open and proac-
tive opposition (Schoeller, 2020). While the instrument
originally was meant to be large enough to provide the
euro area with enough fiscal firepower to fight eco-
nomic downturns, the Frugal Four under the leader-
ship of Dutch prime minister Mark Rutte successfully
reined in Macron’s ambitions through public interven-
tions (Verdun, 2020). After lengthy discussions, an agree-
ment on the Budgetary Instrument for Convergence
and Competitiveness’s design in October 2019 saw its
scope and scale shrunk dramatically: It was thought
to receive only €17 billion of basic funding for the
period of 2021–2027 and hence did not allow for fis-
cal transfers to counteract asymmetric shocks. When
the Covid-19 crisis spurred proposals for a much bigger
(but temporary) recovery fund in May 2020, the small
(but permanent) Budgetary Instrument for Convergence
and Competitiveness was “unceremoniously scrapped”
(Brunsden & Fleming, 2020) altogether.
In parallel discussions about the EU’s long-term bud-
get for 2021–2027 (the multiannual financial frame-
work), the Frugal Four drew the line at 1 percent of EU
GDP. They predictably opposed the Commission’s plans
to preserve the EU’s spending power despite the loss
of the UK’s contributions because they, as net contrib-
utors, would potentially face substantially higher costs.
In a joint opinion piece issued in February 2020, the
‘frugal’ heads of government reiterated their 1 percent
limit and demanded “a system of permanent correc-
tions to protect individual states from having to shoulder
excessive budgetary burdens” (Kurz, 2020). Again, the
planned negotiations of the multiannual financial frame-
work were derailed by the beginning of the Covid-19 cri-
sis, leading to a completely new stage and intensity of
budgetary negotiations.
As the economic fallout of the Covid-19 lockdowns
became clearer in the following months, fiscal policy
debates focused on how to fund the recovery. Mirroring
earlier discussions about ‘eurobonds,’ an initiative led
by France, Spain, and Italy to issue joint European debt
(christened ‘coronabonds’) was opposed by the Frugal
Four and Germany and hence quickly stalled in April
2020. Yet in a dramatic turn of events, German chan-
cellor Merkel and French President Macron issued a
joint proposal on May 18 to jointly fund €500 billion
worth of grants to countries hit hardest by the pan-
demic. Remarkably, this proposal did not only include
sizable (non-repayable) fiscal transfers, but also foresaw
the European Commission issuing debt and thus setting
a precedent for large-scale, centralised borrowing in the
EU. Within a week, the Frugal Four issued a counter-
proposal focused on (repayable) loans worth €250 bil-
lion. Their proposal emphasised the ‘temporary, one-off
nature’ of the fund and argued for strict economic con-
ditionality and against any mutualisation of debt (Frugal
Four, 2020). The European Commission followed on May
27 by issuing its own proposal for a €750 billion recovery
fund (dubbed ‘Next Generation EU’), which combined
grants worth €500 billion with loans of €250 billion.
Frugal opposition determined the headlines in the
run-up to a crucial EU summit to negotiate both the
multiannual financial framework and the recovery fund,
when numerous European leaders visited the Dutch PM
as the informal spokesperson of the frugal group to per-
suade them (Khan & Brunsden, 2020). Throughout the
tense negotiations at what would become the second-
longest summit meeting in the EU Council’s history (July
17–21, 2020), the key battle lines focused on the ratio
between grants and loans and governance issues, with
the Frugal Four insisting on retaining national vetoes over
the disbursements of money to other member states.
The deadlock was ultimately broken when the 27 heads
of state and government agreed on a €1,074 billion long-
term budget plus a €750 billion Covid-19 recovery fund.
While the Frugal Four dropped their opposition to the dis-
bursement of any non-repayable grants, they succeeded
in reducing their value from €500 billion to €390 bil-
lion. Similarly, the agreement does not foresee national
vetoes but a temporary ‘emergency brake’ (of up to three
months) if individual member states feel that other mem-
ber states do not fulfil the reform promises made in
return for the funds received. As the joint negotiation of
the long-term budget and the recovery fund gave ample
room for horse trading, the Frugal Four received substan-
tially increased rebates for their budget contributions
in return for their agreement. Hence, they ultimately
signed on to a deal widely perceived as a historic leap
forward in European integration.
While the budget rebates and reduced volume of
grants allowed the Frugal Four to present the deal as a
Politics and Governance, 2020, Volume 8, Issue 4, Pages 409–419 414

success to their domestic constituencies, it may prove to
be a pyrrhic victory in the long run. The summit nego-
tiations clearly saw small states punching well above
their weight; yet the final agreement establishes the
principle of joint EU borrowing and thus marks a deci-
sive step towards fiscal integration. To repay some of
the borrowed sums, EU-wide plastic taxes or carbon
border fees are currently being discussed, which sug-
gest that Europe has “boarded the train towards more
common taxation and cannot get off and turn back”
(Sandbu, 2020). Despite their powerful resistance at the
July 2020 summit, its final outcome therefore contradicts
the Nordics’ preferences for limited integration in impor-
tant ways. Why?
Compared to the case of EMU reform, two elements
reduced the Nordics’ bargaining position on EU bud-
getary politics. First, they found themselves opposed by
Germany on several counts. Their position to reduce the
overall size of the multiannual financial framework took
a hit when Germany signalled its willingness to increase
its own budgetary contributions early on. More dramat-
ically, the Frugal Four counterproposal for a Covid-19
recovery fund did not only draw the ire of its usual
opponents in the South but German misgivings, too.
This suggests that Nordic cooperation on EU affairs after
Brexit may require tacit German approval to be effec-
tive. Second, the Nordic countries failed to present a
united front after Finland broke the ranks. Following par-
liamentary elections in 2019, the new centre-left govern-
ment changed course by clarifying that “Finland’s pol-
icy on Europe does not involve a single-handed commit-
ment to Hanseatic Leagues or any other blocs; instead,
we collaborate with everyone and foster the unity of the
EU” (Finnish Government, 2019). While Finnish positions
on budgetary matters were often not substantially dif-
ferent from those of the Frugal Four, domestic politics
produced a change in tactics, leading Finland’s new gov-
ernment to avoid the Hanseatic and Frugal coalitions—
much to the dismay of conservative and right-wing par-
ties in the Finnish Parliament (Eduskunta, 2020). This
ultimately changed three days into the July 2020 sum-
mit, when Finland’s prime minister Sanna Marin joined
the Frugals following heated exchanges with Southern
European leaders (Khan, Fleming, & Brunsden, 2020). For
the most part, however, Finland avoided being associ-
ated with the Frugal Four, underscoring how domestic
politics and different tactics among the Nordic countries
can undermine the effectiveness of Nordic political coop-
eration in EU affairs.
3.3. Official Nordic Cooperation on European Affairs
Nordic attempts to influence EU policy through alliances
such as the New Hanseatic League and the Frugal Four
clearly follow the tradition of informal and intergovern-
mental political cooperation. While these initiatives are
driven by national heads of government (Frugal Four) or
finance ministers (New Hanseatic League), the official
institutions of Norden seem to have little role to play on
these debates. The limited role of the Nordic Council and
the Nordic Council of Ministers may surprise against the
backdrop of several declarations to increase their role for
Nordic cooperation in EU affairs. However, these devel-
opments are in line with the limited impact of several
initiatives to increase Norden’s footprint in Brussels. One
striking example includes the proposal to establish a joint
office of the Nordic Council and the Nordic Council of
Ministers in Brussels to represent Norden in the EU. The
national governments in the Nordic Council of Ministers
did not approve of the plan—presumably because of con-
cerns about undermining their national representations
(Opitz & Etzold, 2018, p. 5). Even the inter-parliamentary
Nordic Council was deeply split on the issue, as seen in
an unusually contested 38–32 vote in favour of a much
watered-down compromise to temporarily send a Nordic
Council liaison officer to Brussels, which was opposed by
the centre-right parties (NORDEN, 2016b).
This episode underlines that the Norden institutions’
ambitions to strengthen their role in EU affairs after
Brexit have thus far not substantially altered the state
of play in Nordic political cooperation (Etzold & Opitz,
2016). An external evaluation of the reform process
‘The New North’ (Nyt Norden) consequently finds that
Norden has the “greatest room for improvement” regard-
ing their stated goal of strengthening cooperation on
international and EU issues (Resonans, 2018). As the
existing institutional forms of Nordic cooperation did
not allow much of joint Nordic positioning on EU affairs,
Brexit as a potential critical juncture may have brought
about far-ranging reforms to accommodate such ambi-
tions. Yet no such developments can be observed, pos-
sibly owing to the ‘moving-target’ character of Brexit
during the period under investigation. In this sense,
Brexit resembles a complex ‘known unknown’ which
makes it rational for other member states to adopt a
‘wait and see’ approach. Hence Brexit has thus far not
altered the Nordics’ preference for coordinating their
positions informally through relatively loose and issue-
specific intergovernmental coalitions rather than within
the long-established official institutions of Norden. This
preference for pragmatism might still change once Brexit
becomes an established fact. Otherwise one will be
tempted to agree with previous studies that the future of
Nordic political cooperation may lie outside these institu-
tions (Olesen & Strang, 2016).
4. Conclusion
What emerges from our analysis is that Brexit intro-
duces new dynamics into European politics by chang-
ing the coalitional logics among EU member states. The
loss of a powerful ally pushes smaller and relatively
prosperous states like the Nordics to voice their prefer-
ences more audibly, as experienced most clearly at the
Special European Council summit of July 17–21, 2020.
In lobbying against fiscal transfers and further integra-
Politics and Governance, 2020, Volume 8, Issue 4, Pages 409–419 415

tion of core state powers, different alliances to max-
imise Nordic influence on EU politics have come into
focus. Among these, the New Hanseatic League features
as the broadest platform, attracting large numbers of
member states in a flexible arrangement, where adher-
ence and support varies depending on substantial policy
issues. The Frugal Four, by contrast, follow a more trans-
actional coalition logic, representing a relatively exclu-
sive (and potentially volatile) club in which membership
is based on the status of net-contributors and strong
preferences for budgetary discipline. Both formats have
assumed considerable prominence in post-Brexit EU pol-
itics and joining them has proven a surprisingly success-
ful strategy for Nordic states to overcome their size-
related disadvantages in EU decision-making, albeit to
varying degrees. While the Nordics successfully opposed
far-reaching EMU reforms in the context of the New
Hanseatic League, they were forced to accept a decisive
leap towards fiscal integration following the Covid-19 cri-
sis. This suggests that, after Brexit, Nordic strategies to
influence EU affairs may require both internal unity and
(tacit) German approval to be effective.
While Brexit has pushed the Nordics to adopt a
more prominent role in EU affairs, their preferred mode
of cooperation remains informal and intergovernmen-
tal. This article identifies two important obstacles which
keep the institutions of official Nordic cooperation from
playing a more important role in EU affairs. First, the
Nordic countries are “neither homogenous nor consis-
tent with respect to EU integration” (Grøn & Wivel, 2018,
p. 269). This is particularly true concerning EMU, where
Finland’s status as the Nordic’s only full EU-insider con-
trasts with the more hesitant approach of its neigh-
bours, thus limiting their ability to cooperate across the
board. Considering the particular obstacles the Nordic
euro outsiders face to effectively influence EMU reform,
their relative success in doing so suggests that Nordic
coalition-building may be even more successful in less
‘difficult’ policy areas such as health policy or environ-
mental protection. Second, the opposition to increasing
the presence of Nordic cooperation in Brussels through
a joint representation of the ‘Norden’ institutions sig-
nals that there are continued reservations regarding the
strengthening of institutions above the national level, be
they European or Nordic. In this sense, the Nordics are
often not only reluctant Europeans but also ‘reluctant
Nordics’ (Arter, 1999, p. 311). Both aspects are nothing
new and have complicated Nordic political cooperation
for decades. While one might have expected the external
shock of Brexit to raise the costs of non-cooperation for
Nordic countries sufficiently to break with this pattern,
the empirical record thus far suggests otherwise.
Acknowledgments
The authors would like to thank Frans Af Malmborg and
Johan Erik Anderson for excellent research assistance on
the public and parliamentary debates on EU policy within
Sweden and Denmark, respectively. We are also grate-
ful to Maria Kristiina Ranta for her translations of Finnish
parliamentary debates, to three experts and (current and
former) Nordic officials who shared their views in the
context of informal background interviews, and to three
anonymous reviewers for their insightful comments.
Conflict of Interests
The authors declare no conflict of interests.
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About the Authors
Daniel F. Schulz (PhD) is Postdoctoral Research Fellow in European Studies at the University of Agder.
His research focuses on monetary policy, financial regulation, and the politics of taxation. He is par-
ticularly interested in European governments’ different approaches to EMU and how the influence of
voters and interest groups in European integration is mediated by ideas and institutions. Some of his
past work has been published in the Journal of European Integration and JCMS: Journal of Common
Market Studies.
Politics and Governance, 2020, Volume 8, Issue 4, Pages 409–419 418

Thomas Henökl (PhD) works as Associate Professor of Public Policy at the University of Agder (Norway),
and Senior Research Associate at the German Development Institute in Bonn. His interests lie in the
fields of European politics, public administration, EU foreign and security policy, international cooper-
ation and development, and more widely on comparative politics and organization theory. Previously,
Thomas Henökl worked for the European Commission, DG Relex (from 2011 the European External
Action Service), and at the European Institute of Public Administration (EIPA).
Politics and Governance, 2020, Volume 8, Issue 4, Pages 409–419 419