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Economic and Monetary Union
Abstract
This chapter describes and explains the differentiated vertical and horizontal integration of macroeconomic policy in the EU, comprising both monetary and fiscal policy. Apart from their obvious political relevance for the EU, European monetary and fiscal policy offer rich and interesting data for the study of differentiated integration. First, monetary policy is one of the most integrated policies of the EU. It has moved, over time, from intergovernmental coordination to supranational centralization. The Economic and Monetary Union (EMU) introduced a supranational currency, the euro, and centralized monetary policy at the EU level. By contrast, fiscal policy has remained at the level of intergovernmental cooperation on member state budgetary policies. Only in the eurozone crisis have member states taken the decision to give up more sovereignty in this area. Second, macroeconomic policy is the most horizontally differentiated policy of the EU.
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This article examines the extent to which economic or political factors shaped government preferences in the reform of the Economic Monetary Union. A multilevel analysis of European Union member governments’ preferences on 40 EMU reform issues negotiated between 2010 and 2015 suggests that countries’ financial sector exposure has significant explanatory power. Seeking to minimize the risk of costly bailouts, countries with highly exposed financial sectors were more likely to support solutions involving high degrees of European integration. In contrast, political factors had no systematic impact. These findings help to enhance our understanding of preference formation in the European Union and the viability of future EMU reform.
To what extent did the EMU crisis alter the logic of EU decision making? We analyze the relevance of asymmetric market pressures as compared to that of formal voting and agenda setting rules by applying three established bargaining models to the 'EMU Positions» data. Accounting for the interdependence between issues and agreements, we locate actors' positions on three reform dimensions, namely the level of fiscal discipline, transfer payments and institutionalization. We find that market pressure during the height of the Eurozone crisis was particularly relevant, and that debtor countries were weakened by their difficulty in refinancing their public debt. Our finding shows that formal rules determining agenda setting and veto rights remain relevant even in times of. 2
The negotiations of the reforms of the Economic and Monetary Union (EMU) were highly conflictual. This article analyses the dimensions of conflict that structured these negotiations. Using several dimension-reduction methods, we conduct an in-depth analysis of the EMU Positions dataset, which codes the positions of all EU member states over a broad range of fiscal, financial, economic, and institutional proposals. The empirical findings show that the political contestation in EMU reform is one-dimensional between advocates of fiscal transfer and discipline. On this one-dimensional scale, we identify three broader coalitions, while Germany and France lead the two opposing groups. This conflict structure provides a setting conducive to the constant (re-)negotiation of compromises. We conclude the analysis with a discussion of several implications.
The Euro crisis presents a puzzle to the post-functionalist approach to European integration. In spite of unprecedented social hardships, politicization, loss of popular support and political turmoil in the Eurozone, the Euro crisis has produced major new steps of technocratic supranational integration. This article shows that integration during the euro crisis can be sufficiently explained by a neofunctionalist account based on path dependency, endogenous preference change and functional spill over. Finally, it explores three mechanisms that have helped to shield EU-level reform from a constraining dissensus: euro-compatible government formation, avoidance of referendums and delegation to technocratic supranational organizations.
The European Union (EU) project of combining a single market with a
common currency was incomplete from its inception. This article shows that
the incompleteness of the governance architecture of Europe’s Economic and
Monetary Union (EMU) was both a cause of the euro crisis and a characteristic
pattern of the policy responses to the crisis. We develop a “failing forward”
argument to explain the dynamics of European integration using recent
experience in the eurozone as an illustration: Intergovernmental bargaining
leads to incompleteness because it forces states with diverse preferences
to settle on lowest common denominator solutions. Incompleteness
then unleashes forces that lead to crisis. Member states respond by
again agreeing to lowest common denominator solutions, which address
the crisis and lead to deeper integration. To date, this sequential cycle of
piecemeal reform, followed by policy failure, followed by further reform, has
managed to sustain both the European project and the common currency.
However, this approach entails clear risks. Economically, the policy failures
engendered by this incremental approach to the construction of EMU have
been catastrophic for the citizens of many crisis-plagued member states. Politically, the perception that the EU is constantly in crisis and in need of reforms to salvage the union is undermining popular support for European
integration.
Liberal intergovernmentalism explains the politics to cope with the euro area crisis by the constellation of national preferences and bargaining power and by institutional choices designed to commit euro area countries credibly to the currency union. National preferences resulted from high negative interdependence in the euro area and the fiscal position of its member states: a common preference for the preservation of the euro was accompanied by divergent preferences regarding the distribution of adjustment costs. These mixed motives constituted a ‘chicken game’ situation characterized by hard intergovernmental bargaining and brinkmanship. Whereas negotiations produced a co-operative solution averting the breakdown of the euro area and strengthening the credibility of member state commitments, asymmetrical interdependence resulted in a burden-sharing and institutional design that reflected German preferences predominantly.
The Euro crisis presents a puzzle to the post-functionalist approach to European integration. In spite of unprecedented social hardships, politicization, loss of popular support and political turmoil in the Eurozone, the Euro crisis has produced major new steps of technocratic supranational integration. This article shows that integration during the euro crisis can be sufficiently explained by a neofunctionalist account based on path dependency, endogenous preference change and functional spill over. Finally, it explores three mechanisms that have helped to shield EU-level reform from a constraining dissensus: euro-compatible government formation, avoidance of referendums and delegation to technocratic supranational organizations.
The growing technical uncertainties and complexities of problems of global concern have made international policy coordination not only increasingly necessary but also increasingly difficult. If decision makers are unfamiliar with the technical aspects of a specific problem, how do they define state interests and develop viable solutions? What factors shape their behavior? Under conditions of uncertainty, what are the origins of international institutions? And how can we best study the processes through which international policy coordination and order emerge? While a variety of analytic approaches have been used to address the problems of international cooperation, the approaches have yielded only fragmentary insights. At its core, the study of policy coordination among states involves arguments about determinism versus free will and about the ways in which the international system is maintained and transformed. Among the overlapping topics of debate are whether national behavior is determined or broadly conditioned by system-level factors, unit-level factors, or some complex interplay between the two; whether state policymakers can identify national interests and behave independently of pressures from the social groups they nominally represent; and whether states respond consistently to opportunities to create, defend, or expand their own wealth and power, to enhance collective material benefits, or to promote nonmaterial values.' A related question of
The agreement on economic and monetary union (EMU) in the European Union (EU) is a significant move in the integration process. In explanations as to why EMU was accepted and incorporated in the Maastricht Treaty, little attention has been given to the role of monetary experts in this process. This article examines their role in the creation of EMU by focusing on the Delors Committee that wrote the blueprint for EMU which was inserted in the Maastricht Treaty with few amendments. The article discusses whether it was necessary for the EMU momentum that these monetary experts held similar ideas about how European monetary integration had to proceed. Furthermore, it investigates whether the Delors Committee fits the definition of an 'epistemic community' (Haas 1992) and concludes that this is indeed the case. The article closes by suggesting that this conceptual tool could enlarge our understanding of the role of expert committees in the process of European public policy-making.
Taking a fresh look at the impact of non-state actors on world politics and on the foreign policies of states, this book revives the debate on transnational relations which started in the 1970s. This debate withered away in the face of state-centered approaches, but this book's new approach emphasizes the interaction of states and transnational actors, arguing that domestic structures of the state as well as international institutions mediate the policy influence of transnational actors. Empirical chapters examine the European Economic and Monetary Union, US-Japanese transnational relations, multinational corporations in East Asia, Soviet and Russian security policy, democratization in Eastern Europe, and ivory management in Africa. The book concludes with chapters discussing the theoretical implications of the findings in the empirical studies.
Cambridge Core - European Government, Politics and Policy - The Responsive Union - by Christina J. Schneider
The decisions faced by members of the European Union (EU) during the sovereign debt crisis focused on fiscal policies in the Eurozone and structural reforms in the countries that experienced fiscal problems. Who sided with whom in these decision processes and why? We posit that states in strong economic positions will minimize the expense of supporting weaker economies because those economically strong states do not see austerity measures for themselves in the foreseeable future. Meanwhile, less competitive states seek to avoid austerity measures because, even if an austerity outcome that imposes heavy costs on their state is inevitable, vocal opposition to the measures will minimize the electoral costs incurred by the government. States that are neither competitive nor uncompetitive should avoid taking an open position and simply support a majority coalition. Empirically, we show that the competiveness of a given state’s national economy is the major explanatory factor for the position it ultimately takes.
The establishment of the EU banking union reveals two major shortcomings of liberal intergovernmentalism. First, it fails to explain the preference formation of the most important actor – the German government. The banking sector was divided between public and private banks, and there is no clear-cut pattern about whose interests the German government promoted. Second, material bargaining power cannot account for German concessions despite favourable power asymmetries. This article seeks to demonstrate how an ideational frame can convincingly fill these gaps. Ordoliberal ideas were constitutive for German preferences. The manipulative use of ideas as strategic resources by the German government's opponents explains why it made significant concessions. Germany's government publicly acknowledged that breaking the ‘vicious circle’ between banks and sovereigns was the main objective of the banking union. This became a rhetorical trap used by a coalition of Southern European member states to force the German government to make concessions.
Of the multiple narratives EU policymakers could have chosen at the onset of the euro crisis, why did austerity and structural reform win out over other plausible cures for member states’ problems? Arguably, sovereign debt pooling or more federalized economic governance would have been a solution to member states’ national deficits and competitiveness woes. To understand this puzzle, we draw on the sociology of knowledge literature. We argue that the response to the euro crisis was heavily informed by broader social logics that constructed the problem and the solution heavily toward ordoliberal and neoliberal ideas. Mapping the fate of the Eurobond proposals allows us to trace the complex entanglement of economic policy-making and parse out the ways in which social realities are shaped to make particular policy choices seem inevitable, even as they are themselves the product of social processes.
This paper examines the tax policy convergence in the EU-15 during the period 1965-2005 using a time series approach. The main purpose is to assess the convergence of the main components of tax revenue -income and profits, social security contributions, property, general taxes on goods and services, taxes on specific goods and services- taking as references Germany, the United Kingdom and the European average. The analysis is carried out from two complementary perspectives: the tax burden and the tax structure. Using unit roots and stationarity tests with a structural change, and also analyzing β-convergence, the results show little evidence of tax convergence. Convergence appears with similar intensity with respect to the three benchmarks, and in the years previous to the structural break which, in general, was situated endogenously at the end of the 1980s or at the beginning of the 1990s. Moreover, tax convergence is basically centred on income and profits, and goods and services taxation. The empirical evidence shows that the autonomy of the countries, their different economic structures and political preferences regarding the degree of public intervention, prevail over the idea of fiscal equalization in the EU.
This article explains Germany's function and role in European monetary cooperation. It refutes two popular hypotheses in this context — (1) that Germany serves as a regional hegemon comparable to the role of the United States in the Bretton Woods system; and (2) that Germany is dominant in terms of influencing policies in a unidirectional sense. Instead it argues that Germany's position of monetary power is policy-based by virtue of its status as a strong currency country. This has been the basis for two crucial leadership functions Germany has provided in the European Monetary System (EMS), namely those of a standard-setter and broker. The article also describes the changing circumstances for the exercise of leadership that are associated with a move to a monetary union as envisioned in the Maastricht Treaty. As in the case of the EMS, the ultimate success of a future monetary union depends heavily on the emergence of leadership.
When eight postcommunist states became European Union members in 2004, they committed to eventually joining the euro zone. But by 2005 the states' diverging preferences on pursuing rapid euro adoption had split them into 'pacesetters' (the Baltic states, Slovenia, and Slovakia) and 'laggards' (Poland, the Czech Republic, and Hungary). This contrasts starkly with their previous agreement on the desirability of EU membership. Why did the conditionality of Maastricht prove less potent than that of Copenhagen? First, I argue that a domestic cost-benefit analysis turned the smaller new member states into pacesetters. Second, I argue that Maastricht conditionality has not only allowed but encouraged the laggards to further delay their entry. By making it possible for new member states to delay entry, by increasing the difficulty of the entry conditions, and by displaying internal problems undermining the euro zone's legitimacy and attraction, EU actors discouraged the laggards from making euro-zone entry a domestic priority.
Structuralist explanations have dominated attempts to explain the process of European integration. However, as the negotiation of Economic and Monetary Union shows, policy leadership has been critical in launching, shaping, and sustaining this process. This leadership goes beyond policy entrepreneurship in setting the agenda to include the management of institutional venues in the pursuit of particular objectives.
The Franco–German relationship emerges as a key venue that defines the scope and limitations of policy leadership and that was crucial in binding in the Bundesbank and EU central bankers to the process. At the domestic level, the political drive from Kohl and Mitterrand was decisive. Delors was a key driving force, at certain stages, both within the European Commission and as chair of the Delors Committee. Together, they acted as animateurs and ingénieurs of Economic and Monetary Union. The strategic aspect of leadership in the cases of Britain and Italy was altogether different. The Thatcher and Major governments repeatedly misjudged the commitment of their partners to proceed, and the inflexibility of their positions prevented them from building countervailing coalitions. For Italy, EMU was a test of external credibility: domestic weakness limited her overall influence on the progress of the initiative, whilst EMU was seized upon by a small leadership group as a new vincolo esterno (external constraint) to secure otherwise difficult domestic reforms. This latter strategy was replicated more widely as member states endeavored to meet the entry criteria for participation in the single currency.
The outcome of the Maastricht Treaty was an imperfect agreement that generates serious future challenges for policy leadership. These challenges include cognitive gaps in EMU, institutional innovation, and imperfect legitimation.
The Stability and Growth Pact (SGP) is central to Economic and Monetary Union (EMU) in Europe. Initiated by Germany in 1995 and adopted in 1997, it regulates the fiscal policies of European Union Member States. Following numerous violations of its deficit reference value, the Pact's Excessive Deficit Procedure was suspended in 2003. The decision to suspend was brought before the European Court of Justice in 2004 and the SGP then underwent painstaking reform in 2005. After a period of economic prosperity and falling budgetary deficits, the global economic crisis is putting the system under renewed stress. Ruling Europe presents the first comprehensive analysis of the political history of the SGP as the cornerstone of EMU. It examines the SGP through different theoretical lenses, offering a fascinating study of European integration and institutional design. One cannot understand the euro without first understanding the SGP.
While most explanations of institutional change in the European Community concentrate either on the interests of governmental actors (intergovernmental institutionalism) or the interests of supranational and transnational actors (supranational institutionalism) the approach developed in this article tries to integrate the interests of governmental actors as well as domestic actors in one analytical framework. The article argues that both major decisions leading to the formation of the Economic and Monetary Union among the members of the European Community, i.e. the approval of the Delors Report and the approval of the results of the Intergovernmental Conference, can be explained in terms of this approach. In the conclusion, some indications are given that this approach might offer a more substantive explanation for the formation of the Economic and Monetary Union than both inter-governmental institutionalism and supranational institutionalism.
The Nice and Laeken Declarations put at the top of the agenda of EU reform the attainment of a clearer delimitation of the EU powers. This project is taking place in the context of a system of competences which is problematic in various senses. One of the items falling within the mandate of the Convention on the future of Europe includes the reform of the principle of subsidiarity. The emerging proposals for the reform of subsidiarity are, however, more directed towards legitimacy deficits than towards tensions in the competence system. Indeed, parallel to the competences issue, the claim for a larger role for national parliaments in the EU has come to intersect with the competence dossier, and to a larger extent this claim has reconstructed subsidiarity procedures into an answer to legitimacy deficiencies in the EU.
This article attempts to explain the variation in post-Maastricht elite attitudes toward the single currency in Western Europe. It concentrates on the British reluctance to join the single currency in the first round as well as the French and German continuing support for it. We argue, first, that explanations based solely on material conceptions of actors' interests — whether economic or geopolitical — are insufficient in explaining the variation in attitudes. There are as many good economic or geopolitical reasons in favour of the Euro as there are against it. In particular, perceived instrumental interests of actors as such do not explain the considerable variation in attitudes. Rather, we claim that actors' perception of their material and instrumental interests with regard to the Euro are deeply influenced by their visions of European political order. Second, the visions about European order which give political meaning to EMU, need to be understood in the framework of identity politics. Differences in the construction of collective elite identities pertaining to the nation-state and to Europe explain the controversies among the political elites in the three countries as well as the variation in attitudes. While the French and German political elites — from the centre-right to the centre-left — have incorporated `Europe' into their nationally defined collective identities, British policy-makers including New Labour remain hesitant. Third, on a more conceptual level, this article does not try to push an `identity versus interest' argument. Rather, we claim that the causal arrows run both ways. Collective nation-state identities define the realm of instrumental or material interests considered legitimate and appropriate in a given political discourse. We claim this to be the case in Britain and Germany. The more identity constructions are contested or in flux in a political discourse, however, the more likely it is that those constructions carry the day which actors see as furthering their perceived instrumental, political or economic interests. We argue that this was the case in France.
The critical foundation for European monetary integration is the neoliberal economic policy convergence that occurred across the majority of the European governments beginning in the mid-1970s and solidifying in the 1980s. While capital mobility determines the conditions under which international monetary agreements can be sustained, political leaders’ policy ideas or shared normative and causal beliefs about monetary policy are necessary to explain whether states choose to meet those conditions. These ideational factors are critical in part because of the high degree of uncertainty over the distributional effects of exchange rate and monetary co-operation, ambiguity which mutes both mass political debate and sectoral interest-group activity. A template of ideational change is thus proposed to explain the path of European monetary integration.
Regieren im dynamischen Mehrebenensystem
- Markus Jachtenfuchs
- Beate Kohler-Koch
EU No, Euro Yes? European Public Opinions Facing the Crisis
- Daniel Debomy