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30.07.2014
The financial crisis and EU integration By Henrik Vilain
Supervisor Amin Alavi
Number of characters: 171916
Exam Number: 541517
1
Abstract The European Union is an institution, which seems to have been under constant development for
the past 60 years. It is therefore interesting to look at what kind of an impact a major external
event such as the financial crisis will have on an institution such as the EU. In this paper, I have
examined the following problem statement: Has the financial crisis caused a deeper EU
integration, and if so, how can this integration be explained?
The method to answer this question has been; to compare what reforms the EU has already
initiated as an answer to the crisis, what reforms the EU is planning as a response to the crisis,
how these reforms can be expected to impact respectively euro area members states, member
states whose currencies are pegged to the Euro, and finally member states whose currencies are
not pegged to the Euro. Next, I have analyzed whether any possible obstacles could exist towards
the realization of the planned reforms. Furthermore, I have looked at which reasons are behind
the motives for initiating/planning the reforms. In order to examine whether the reforms actually
do constitute integration I have analyzed the content of the reforms against the integration
concepts which are provided by the theories of Neofunctionalism, and Liberal
Intergovernmentalism. I have then further looked at whether the initiatives in the reforms can be
termed as deep integration or not. Deep integration has been defined as; issues which do not only
contain rules on tariffs and conventional non-tariff trade restrictions, but instead relate to further
issues, for instance issues that relate to rules that govern the entire economies of nations.
The findings of the paper is that both the reforms, which have already been initiated, and the
planned reforms constitute deep integration. The planned reforms will entail a degree of
integration which go significantly further than the already initiated reforms. This integration is
affecting euro area members, and states whose currencies are pegged to the Euro more than it is
impacting states whose currencies are not pegged to the Euro. There are however indications that
the end of the financial crisis might also slow down the speed of the reforms. The reasons behind
the reforms relate to spillover, a desire to upgrade common interests, supranational institutions
which independently drive forth integration, and the wish to ensure compliance amongst the
various actors involved in the EU. Finally, the shaping of discourses, by EU institutions can be
argued to be a reason behind the reforms.
Exam Number: 541517
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Table of contents Abstract ............................................................................................................................................................. 1
Introduction ....................................................................................................................................................... 3
Methodology section ..................................................................................................................................... 6
Theoretical section .......................................................................................................................................... 11
Neofunctionalism ........................................................................................................................................ 11
Criticisms of Neofunctionalism .................................................................................................................... 13
Liberal Intergovernmentalism ..................................................................................................................... 14
Criticisms of Liberal Intergovernmentalism ................................................................................................ 17
Social Constructivism ................................................................................................................................... 18
The financial crisis in Europe ....................................................................................................................... 20
The financial crisis and the EU integration theories .................................................................................... 25
Analysis of The EU's answer to the crisis ......................................................................................................... 30
Reforms already initiated ............................................................................................................................ 30
The planned reforms ................................................................................................................................... 44
European integration, and the distinction between euro area members and other EU members ............ 55
Possible obstacles to the EU´s integration .................................................................................................. 62
The reasons behind the reforms and European integration theory ........................................................... 64
Perspectives on the EU´s reforms ................................................................................................................... 72
Conclusion ....................................................................................................................................................... 78
Bibliography ..................................................................................................................................................... 82
Books & Articles ........................................................................................................................................... 82
Internet pages ............................................................................................................................................. 82
Exam Number: 541517
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Introduction
One of the institutions, which during the past 60 years have gained a lot of influence on the
politics of many European states, is the EU. This institution started out as just a cooperation
amongst 6 member states regarding steel and coal, called The European Coal and Steel
Community (ECSC)1. Since then the institution has grown to encompass a large internal market, a
currency union as well as other matters. Decision making in Europe has therefore become more
influenced by supranational institutions such as the European Commission. Furthermore, the EU is
no longer an institution with only 6 participating states, but rather a union of 28 members, and
with more states in line waiting to join. The EU is therefore an institution, which has gained much
influence in European politics.
With more spheres of domestic politics moved to the EU arena, and more decisions taking place at
the EU level it seems interesting to look at the EU project in terms of integration. What exactly is
meant by integration, I will not elaborate on in detail in the introduction. I will however shortly
mention how the main theories in the field of European integration define integration.
Nefunctionalism sees integration as the creation of new regional institutions, or the role expansion
of existing regional institutions2. Liberal Intergovernmentalism sees integration as a way in which
states adapt to globalization in order to rescue themselves3. Of course, there can be many
matters, which influence the integration process in the EU, some matters more, and some matters
less. It is highly remarkable though to look at some of the major world events, and see to which
degree these possibly influence the integration of the EU. This means to look at how external
matters affects the development of the EU.
One world event, which has had much press coverage in the past years, and which also, seems to
have had a significant impact on societies around the world is the latest financial crisis. This crisis
unfolded in Europe in 2007 as the European central bank had to initiate liquidity operations4. As I
will elaborate on later in this paper, this crisis in Europe really manifested itself as three
interrelated crises: a sovereign debt crisis, a growth crisis, and a banking crisis. I find that it could
1 European Union. The history of the European union (Internetpage)
2 Wiener Antje & Diez Thomas p 47
3 Wiener Antje & Diez Thomas p 72
4 Lane R. Phillip, The European Sovereign Debt Crisis p 55
Exam Number: 541517
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be fascinating to investigate what impact such a crisis has on the development of EU integration. I
assume that a crisis that strikes at so many areas of European life could be expected to have an
impact also on the decisions of the actors involved in European integration. This is to be expected,
as the crisis is likely to influence not only the single states, but also influence those political areas,
which are shared by the member states. For instance, I expect that those members, which
participate in the euro area, will be impacted by the fact that they are now not at all able to
influence the exchange rate of their currency, something which can be important during a financial
crisis. The consequence of this inability for the individual states to influence the exchange rate of
the Euro is that they are now not able to influence their own economic development through
currency depreciation. This might be one factor that could be reflected in a decreased willingness
of the participating states to integrate further in the EU. It could however also have the opposite
effect that the participating states, and perhaps EU institutions, would call for further integration.
If the financial crisis indeed has caused more integration in the EU, it could be interesting to
investigate what factors it is which cause the EU to seek more integration because of the crisis.
The above considerations lead me to my problem statement; Has the financial crisis caused a
deeper EU integration, and if so, how can this integration be explained?
Before I move on I would like to define what is understood by “deeper integration”. According to
Simone Claar, and Andreas Nölke The term “deep integration means trade agreements which do
not only contain rules on tariffs and conventional non-tariff trade restrictions, but which also
regulate the business environment in a more general sense. Issues of deep integration include
competition policy, investor rights, product standards, public procurement and intellectual
property rights, for instance…the rules that govern the entire economies of different nations are
brought in line5” It is usually used in contrast to shallow integration which is understood as
“Reduction or elimination of tariffs, quotas, and other barriers to trade in goods at the border,
such as trade-limiting customs procedures”6. In this paper I will analyze whether any possible
reforms meet the criteria mentioned in the definition of deep integration, and thereby answer
whether the reforms constitute deeper integration.
5 Claar Simone, and Andreas Nölke 17/02/2010. Deep Integration (internetpage)
6 English encyclopedia. Shallow integration (internetpage)
Exam Number: 541517
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In order to answer that part of the problem statement which says; Has the financial crisis caused
a deeper EU integration? I will need to answer a number of sub questions. These are as follows:
Have reforms which the EU has already initiated caused a deeper EU integration?
Will reforms which the EU has planned as a consequence of the financial crisis cause a deeper EU
integration?
Will any possible reforms mean deeper integration for certain EU member states than for others?
The above sub questions are relevant because; firstly it is appropriate to look at reforms, which
have already been initiated. If reforms have already been initiated this can answer whether the
financial crisis has already had an impact on the EU in terms of integration. Secondly, not all
reforms, which have their roots in the financial crisis, are likely to be introduced in a short-term
perspective. It could be expected that reforms with a more far-reaching impact in terms of
integration might be planned, but not already initiated. I will need to look at any such planned
reforms in order to answer the question concerning whether the financial crisis has caused a
deeper integration in the EU. Thirdly, the common currency is likely to have importance in a
financial crisis. Therefore, it is relevant to look at whether any reforms initiated as a consequence
of the financial crisis impact certain member states more than others. It could be expected that
euro area member states will be more impacted than for instance states which are not members
of the euro area, and whose currencies do not have a peg to the Euro. Likewise, it is interesting to
look at states which are not members of the euro area, but whose currencies do have a peg to the
Euro. All of the above groups of countries are members of the EU, therefore in order to assess
possible reforms impact on the integration in the whole of the EU I will need to assess whether
certain states in the EU will be impacted more by the integration than other states in the EU.
Apart from these three sub-questions, it is relevant to look at whether are any obstacles to the
reforms. This will indicate whether all planned reforms can actually be carried out, and what the
timehorizon might be. Finally, regarding the last part of my problem statement; If so, how can the
reasons behind this integration possibly be explained? This is relevant to investigate because it
provides insight to why any reforms have been deemed to be necessary by the actors involved.
Exam Number: 541517
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In order to investigate these questions I will use some theoretical tools, which are useful in this
regard. There are some theories, which try to provide answers in regards to European integration.
These theories do not only define what they understand by the concept of European integration,
but they also try to provide explanations for what reasons are moving the various actors, for
instance states and/or supranational institutions, to participate in European integration.
The main theories and the theories which I will work with in this paper are called
Neofunctionalism, and Liberal Intergovernmentalism. Another theory which I will also include in
this paper is the theory of Social Constructivism. Why explicitly these theories have been chosen I
will not comment on more in the introduction but instead elaborate on in the methodology
section of the paper.
Methodology section I will in this section outline which methodology approach I will use in order to answer my problem
statement: Has the financial crisis caused a deeper EU integration, and if so, how can this
integration be explained?
Firstly, I will introduce the theories which I will use in my paper. As mentioned in the introduction
these theories are Neofunctionalism, Liberal Intergovernmentalism, and Social Constructivism.
Neofunctionalism and Liberal Intergovernmentalism will be the theories according to which I will
determine the concept of integration. The reason why I have chosen these two theories to define
European integration is that they both do define what they understand by integration. Therefore,
I will use their concepts of integration to say whether any EU reforms made as a consequence of
the financial crisis is causing integration that is explainable by these theories. The advantage of
this method is that I will not have to rely on the words of biased sources when I determine
whether the EU reforms cause integration, and to what degree the reforms cause integration.
Instead, I can determine this by analyzing the reforms against the theories. These theories also
provide reasons why integration is taking place. Therefore, I will also use these theories to analyze
on the reasons behind why EU reforms have been initiated as a consequence of the financial crisis.
Next, I will present the theory of Social Constructivism. This theory does not define what it
understands by integration, but it does provide reasons why actors pursue the goals that they do.
This is useful to explain why European integration is taking place. The main source regarding the
Exam Number: 541517
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theories will be a book by Wiener Antje & Diez Thomas. This is an academic book which provides
an overview of the various theories in the field of European integration.
Secondly, I will elaborate on the financial crisis in order to provide a background for this, and
define what kind of crisis it is that the EU is actually facing. The nature of this crisis, and the way it
has influenced the EU as a whole, and its individual member states is important in the analysis.
This is important when the different reforms are analyzed according to the theories since it
provides more background information to the arguments. It is also very important for the analysis
when I will assess whether the EU reforms will impact some EU states more than others.
Furthermore, It will also help to explain why the actors involved in the integration process make
the decisions that they do. Finally, the context of the crisis is very important when the findings of
the paper will be put into perspective. The sources of this part of the paper will be academic
articles.
Thirdly, I will outline how the various theories would explain what kind of impact the financial
crisis would have on the integration process of the EU.
In the analysis itself, I will firstly outline a number of reforms that the EU has already initiated as a
response to the financial crisis, and analyze how these reforms meet the different concepts, which
Neofunctionalism and Liberal Intergovernmentalism have of European integration. By doing so, I
will conclude whether it can be determined if the financial crisis has caused integration in the EU,
and if so, then to what degree. Furthermore, I will analyze whether any integration that the
analysis will show, meets the definition of deeper integration. This I will do by analyzing the
reforms against the definition of deeper integration (this is the definition mentioned in the
introduction). The source which I will mainly rely on in this part of the analysis is the Commission’s
webpage which presents a number of reforms such as; “ the EU´s answer to the crisis”.
Furthermore, I will rely on webpages administered by The European Stability Mechanism, The
European Central Bank, The European Council, and London School of economics and political
science. These sites provide an overview of the measures that the EU institutions portray as their
responses to the crisis. I am aware that the EU institutions can be expected to be very biased
sources in the matter of EU reforms. Therefore, it is possible that they will portray any reforms as
being more integrative than they actually are. As mentioned, this is why all facts in the reforms will
Exam Number: 541517
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be analyzed according to Neofunctionalism’s defintions of integration and Liberal
Intergovernmentalism’s concept of integration. In this way it can be stated what the reforms in
question actually mean in terms of integration, without relying on the words of biased sources.
After this section I will in brief analyze whether the reforms can be said to constitute deep
integration (according to the definition in the introduction).
In the second part of the analysis, I will look at the planned future reforms, which are amongst
the EU’s answer to the financial crisis. In this section, I will primarily look at two documents. A
proposal made by the Commission, which is collected in a blueprint, called “A blueprint for a
deep and genuine economic and monetary union, Launching a European Debate”. Furthermore,
I will analyze on a set of reforms proposed by the so-called “four presidents” These are Herman
Van Rompuy, President of the European Council (the main author), José Manuel Barroso,
President of the European Commission, Jean-Claude Juncker, President of the Eurogroup, and
Mario Draghi, President of the European Central Bank. This document is called “Towards a
genuine economic and monetary union” It was initiated based on a request made by the
European Council in June 20127. It was also the roadmap suggested in this last report, which
was agreed on by the European Council in December 2012. It is therefore the immediate
roadmap for the EU’s plans. This roadmap however also reflects the blueprint suggested by the
Commission8 Furthermore even if the council has so far agreed on the proposal by the four
presidents it is mentioned in the document by the four presidents that “More generally, as the
EMU evolves towards deeper integration, a number of other important issues will need to be
further examined. In this respect, this report and the Commission's "Blueprint" offer a basis for
debate”9. Therefore, the Commission’s blueprint has a large importance as it could very well
form the basis of future more far-reaching reforms. Analyzing on these two proposals for the
EU’s future will give a good overview over possible future reforms that the EU could initiate as a
response to the financial crisis. Next, I will analyze how these reforms meet Neofunctionalism’s
and Liberal Intergovernmentalism’s concepts of integration, and whether they meet the criteria
for deep integration, according to the criteria outlined in the introduction. I will thereby
7 Parliament UK. Genuine Economic and Monetary Union' and the implications for the UK (internetpage)
8 European Council. The European Council agrees on a Roadmap for the completion of Economic and Monetary Union
(internetpage) 9 Van Rompuy Herman p 5 (internetpage)
Exam Number: 541517
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determine to what degree the proposed reforms constitute deeper European integration. As
with the initiatives already initiated one should bear in mind that the sources are biased as they
are EU institutions themselves. They are however, both primary sources, and outline planned
reforms, which the EU can be expected to follow in the future. Therefore, they are relevant
sources, and all measures of integration outlined in these reports will be analyzed according to
Neofunctionalism’s defintions of integration and Liberal Intergovernmentalism’s concept of
integration. This will ensure that the impact that the reforms in question will have in terms of
integration can be determined without relying on the EU institutions own opinions of this.
After this section I will also in brief analyze whether the proposed reforms mentioned can be said
to constitute deep integration (according to the definition in the introduction).
As a third point in the analysis, I will analyze on the division in the EU amongst three groups of
member states. As mentioned in the introduction. It could be expected that euro area member
states will be more impacted by reforms than for instance states which are not members of the
euro area, and whose currencies do not have a peg to the Euro. Likewise, it is interesting to look at
states which are not members of the euro area, but whose currencies do have a peg to the Euro.
The different impact that the reforms will have on these three groups of states will be analyzed
against Neofunctionalism’s and Liberal Intergovernmentalism’s definitions of the concept of
integration, as well as the definition of deep integration. I will thereby assess to which degree the
different groups of states will be impacted by deep integration. In this part of the analysis, I will
mainly rely on webpages administered by the European Union as sources (but only for an outline
of the EMU criteria). For this purpose, a factual site administered by the European Union must be
considered a relevant source.
After having analyzed on the reforms introduced by the EU as a response to the financial crisis, I
will in brief analyze on possible obstacles to the further reforms process. The basis of this analysis
will be an article from the Economist. This will also help to bring in a different perspective on the
reforms.
Fourthly, I will analyze on the reasons behind the reforms. For instance, what reasons could
compel states or regional institutions to wish for further integration in terms of macroeconomic
surveillance. I will divide this section of the paper into 3 sub-sections, which will clarify reasons
Exam Number: 541517
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which can be explained according to Neofunctionalism, Liberal Intergovernmentalism and Social
Constructivism. The sources that I will use for this section of the paper are again the
Commission’s webpage, the above mentioned blueprint by the Commission the four presidents’
report an article from the English edition of the German magazine, Spiegel. The reason for
choosing the Commission’s webpage, the blueprint, and the four presidents’ report is that these
sources do provide some firsthand information as to why the EU is pursuing the reforms it is. By
bringing in the article from Spiegel and the academic article I would like to provide a broader,
and more diversified basis for the analysis of the reasons behind the reforms. By analyzing all
reasons mentioned in these sources according to possible explanation models provided by
Neofunctionalism, Liberal Intergovernmentalism, and Social Constructivism I will assure that all
reasons mentioned will be put into a theoretical context, which can help to explain why the
actors involved pursue integration.
Next, I will put the findings of the paper in perspective. In doing so, I will use the conclusions
from the analysis to argue about what can be expected in terms of the EU’s future integration. I
will also compare my findings from the analysis with what I stated in the section on the theories,
that these theories would expect in terms of the financial crisis impact on the EU’s integration.
Thereby I will say whether the financial crisis has actually had the impact on the integration
process of the EU that could be expected.
Finally, I will write a conclusion which will sum up my findings and answer my problem statement:
Has the financial crisis caused a deeper EU integration, and if so, how can this integration be
explained?
Exam Number: 541517
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Theoretical section
Neofunctionalism Neofunctionalism is a theory which was first advocated by Haas & Lindberg in the 1950es in
response to the establishment of the European coal and steel community and the European
Economic Community. The theory had its hay days in the 1960es, and a revival from the 1980es
and onwards10. Lindberg & Haas both agreed that integration entailed the creation and role
expansion of regional institutions. Moreover, they both stressed change in expectations and
activities on the part of participating actors11. Important differences in the views of integration
held by respectively Lindberg & Haas exist however.
Haas defined integration as “The process whereby political actors in several distinct national
settings are persuaded to shift their loyalties, expectations and political activities toward a new
centre, whose institutions posses or demand jurisdiction over the pre-existing national states. The
end result of a process of political integration is a new political community, superimposed over the
pre-existing ones”12.
Lindberg defined integration as “The process whereby nations forego the desire and ability to
conduct foreign and domestic policies independently of each other, seeking instead to make joint
decisions, or to delegate the decision making process to new central organs: and the process
whereby political actors in several distinct settings are persuaded to shift their expectations and
activities to a new political centre”13.
It should be noted that in contrast to Haas, Lindberg is not suggesting an endpoint to integration,
implicitly acknowledging that the breadth and depth of integration can be in constant flux.
Furthermore, he is also only suggesting that political actors merely shift their expectations and not
10
Wiener Antje & Diez Thomas pp 45 & 46 11
Wiener Antje & Diez Thomas p 47 12
Wiener Antje & Diez Thomas p 47 13
Wiener Antje & Diez Thomas p 47
Exam Number: 541517
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their loyalties to the new centre. Therefore Lindberg’s definition of integration can be seen as
more cautious 14. Some important differences exist between Neofunctionalism and the other main
European integration theory, Liberal Intergovernmentalism. Integration is according to
Neofunctionalism seen as an ongoing process and not a series of isolated events such as treaties.
This process, according to Neofunctionalism evolves, and takes on a dynamic of its own15. This will
be important with respect to the concept of Spillover which I will shortly introduce. Furthermore
Neofunctionalism is pluralist in nature as it holds that regional integration is characterized by
multiple, diverse and changing actors who are not restricted to the domestic political realm, but
build coalitions across national frontiers and bureaucracies.
According to Neofunctionalism there are 5 assumptions behind European integration. These are
briefly explained as follows:
1. Rational and self interested actors who have the capacity to learn and change their
preferences.
2. Institutions can take on a life of their own and escape the control of their creators.
3. The importance of incremental decisions over grand schemes. Seemingly marginal
adjustments are often driven by the unintended consequences of previous decisions.
4. “Games” played between actors are not zero-sum games, compromises can upgrade
common interests.
5. Haas believed that functional interdependencies between whole economies and their
productive sectors foster further integration. This also led Haas to believe that the spillover
process would be automatic16.
A concept very crucial to Neofunctional theory is “spillover”. This concept formed the initial
Neofunctionalist explanation for integration in Europe. The concept covers the assumption that
the logic behind integration is increased economic interdependence. Some sectors are so
interdependent that the integration of one sector at the regional level is only practicable in
combination with the integration of other sectors, as problems arising from the integration of one
14
Wiener Antje & Diez Thomas p 47 15
Wiener Antje & Diez Thomas p 47 16
Wiener Antje & Diez Thomas p 47
Exam Number: 541517
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task can only be solved by integration of more tasks17. Furthermore, Haas and Lindberg perceived
that national elites would support the integration process as they would come to view it as a way
to solve substantial problems which could not be solved at the domestic level. Not least because
of the above mentioned spillover effect. They differ a bit in their view though as Haas emphasizes
the pressures of non- governmental elites while Lindberg emphasized the pressures of
governmental elites and socialization processes. The socialization processes should in this respect
be understood as national officials being socialized by common interaction in for instance the
Commission18. Furthermore, Neofunctionalism holds that regional integration can be pushed
ahead by those employed by supranational institutions. The supranational actors would be
effective at reaching integrative decisions as they (as mentioned above) do not see negotiations as
a zero-sum game, but one in which common interests can be upgraded. This last matter with
supranational actors as independently driving forth integration is an aspect that separates
Neofunctionalism from its predecessor Functionalism. According to Functionalism form, scope and
purpose of an organization was determined by the task that it was determined to fulfill. In contrast
to this Neofunctionalists has attached importance to the autonomous influence of supranational
organizations, and the emerging role of organized interests19.
Criticisms of Neofunctionalism Neofunctionalism has been criticized on a number of parameters. It has been claimed that it
cannot provide a general theory of regional integration in all settings; it presumes that member
countries are relatively developed and diversified in their productive systems, and that they have
democratic politics. Furthermore, its analytical tools are all related to explaining integration.
Liberal intergovernmetalists such as Moravsick, and Liberal interdependence theorists, Keohane
and Nye have questioned that spilllover is inevitable as well as Neofunctionalisms exclusive
reliance on economic determinism. Neofunctionalists have been unclear about the specifications
under which spilllover would occur. This is exemplified in Lindberg’s statement from 1963 that
spillover will not take place if there is an absence on the part of member states to proceed.
Neofunctionalism has also been criticized for being too actor centered, and also for having to little
17
Wiener Antje & Diez Thomas p 49 18
Wiener Antje & Diez Thomas pp 49-50 19
Wiener Antje & Diez Thomas pp 46-50
Exam Number: 541517
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focus on actors, especially in the role assigned to civil servants20. Critics such as Holland and Webb
have claimed that spillover is essentially a fair weather concept. They claim that it has been linked
to the implicit assumption that economic growth would remain unabated in the capitalist world
and that all member states would benefit more or less equally from that growth. It has accordingly
also been suggested that the sluggish growth in the 70es caused the European integration process
to stagnate, and the institutional balance in the EC to go in the direction of Intergovernmental
decision making21. Neofunctionalism has also been criticized for not taking the external
environment adequately into consideration. Hoffmann stated that external events were a
disintegrative force and that diverse response to its pressures from member states would create
unbridgeable divisions and even ruptures. Actually even Haas himself saw Neofunctionalism’s
neglect of the wider world context as a serious shortcoming. Finally, Neofunctionalism has been
criticized for its lack of attention to domestic political structures, as it saw national politicians as
economic incrementalists and welfare seekers. Lindberg himself has stated that Neofunctionalism
describes domestic processes but says little about the underlying causes for disparate national
demands for integration22.
Liberal Intergovernmentalism Liberal Intergovernmentalism sees European integration, not as a process whereby the nation
state is replaced, but rather as a process that is to rescue the state and adapt it. In the words of
historian Alan Milward (this is)“to cope with globalization”23. This has to do with the theory’s
belief in intergovernmental institutions as means to avoid non-compliance (in connection with
international bargainings). Rules set up by the EU are however to be administered by national
officials, and the key to credible national commitment, therefore lays in strengthening domestic
institutions, and groups that favor the policy decided upon in bargainings instead of groups that
would favor non-compliance24. The reason for this belief in the importance of compliance as well
as other core assumptions of the theory of Liberal Intergovernmentalism will be outlined below.
20
Wiener Antje & Diez Thomas PP 51-52 21
Wiener Antje & Diez Thomas PP 51-52 22
Wiener Antje & Diez Thomas PP 51-52 23
Wiener Antje & Diez Thomas p 72 24
Wiener Antje & Diez Thomas p 72
Exam Number: 541517
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The theory has two core assumptions. The first assumption is that states are actors. This means
that states achieve their results through intergovernmental bargaining rather than through
decisions made by and enforced by a central authority. Thereby the EU is seen as an international
institution for policy coordination25. Therefore, “member states are masters of the treaty and
continue to enjoy pre-eminent decision making power and political legitimacy”26. The second core
assumption is that states are rational actors. This means that the decisions made by states are
based on rational calculations. Various alternatives are calculated and the option that maximizes
or satisfies the utility that the states in question need is chosen. Collective outcomes are explained
as the aggregated outcome of these actors pursuing their own interests, decisions to cooperate
are therefore the results of rational strategic decisions made by the individual states and
intergovernmental negotiations. The decisions are however influenced by the information at hand
and the uncertainty of the future that is influencing the actors27. Antje Wiener and Thomas Diez
mentions that states decisions to cooperate internationally can by Liberal Intergovernmentalism
be explained in a three stage framwewok. “states first define preferences, then bargaining to
substantive agreements and then finally create or adjust institutions to secure those outcomes in
the face of future uncertainty28. Moravsick and other Liberal Intergovernmentalists have further
investigated what shapes preferences, bargaining, and institutionalization in the context of the
EU29. I will below elaborate on this.
The definition of national preferences According to Liberal institutionalism, national preferences are shaped through domestic
bargaining, and through diplomacy, and representation, this secures that the state functions as a
unitary actor. This means that Liberal institutionalism actually recognizes that there are many
actors involved on the national stage, however the above mentioned bargaining, preferences are
shaped to form the state as a unitary actor. This bargaining process also means that state
preferences are not fixed over time or concerning subject; instead they are issue specific and vary
over time and subject according to pressures from different social groups30. This concept of issue
25
Wiener Antje & Diez Thomas p 68 26
Wiener Antje & Diez Thomas p 68 27
Wiener Antje & Diez Thomas p 68 28
Wiener Antje & Diez Thomas pp 68-69 29
Wiener Antje & Diez Thomas p 69 30
Wiener Antje & Diez Thomas p 69
Exam Number: 541517
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specific preference formation also means that preferences are not shaped according to general
policy concerns, but according to issue specific preference functions about how to manage the
globalization. Issue areas preferences are generally formed through a balance of equilibrium, of on
the one side producer interests, and on the other side the interests of taxpayers and of those
interested in legislation31.
Concerning European integration Moravsick has made an empirical analysis where he finds that
the preferences of national governments regarding European integration have mainly reflected
economic interests rather than national security concerns or European ideals32. Antje Wiener and
Thomas Diez mentions that this is to be seen in a context where most of the initial policy issues in
European integration were economic and the chances of war indeed remote33. Moravsick´s
analysis furthermore points out those concrete preferences emerged “from a process of domestic
conflict in which specific sectoral interests, adjustment costs and sometimes geopolitical concerns
played an important role. Governments pursued integration as a means to secure advantages to
producer groups subject to budgetary and regulatory constraints and the macro-economic
preferences of ruling governmental coalitions” 34.
Substantive bargains Liberal Intergovernmentalists views the bargaining processes amongst states as processes in which
the relative bargaining power of the implicated states determine the outcome of the bargaining. In
the EU context bargaining power is viewed by Liberal Intergovernmentalists to rest on several
matters. Most important is the concept of asymmetrical interdependence. The meaning of this
concept is that the benefits of an agreement may be unevenly distributed amongst the actors.
Those actors which are least in need of reaching a specific agreement may threaten the others
actors with non- cooperation and thereby forcing them to grant concessions. Furthermore,
information plays a crucial role as those actors who have more information about the other actor’s
31
Wiener Antje & Diez Thomas p 70 32
Wiener Antje & Diez Thomas p 70 33
Wiener Antje & Diez Thomas p 70 34
Wiener Antje & Diez Thomas p 70
Exam Number: 541517
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preferences and about the workings of the implicated institutions may be able to manipulate the
outcome of the negotiations35.
Institutional choice Liberal Intergovernmentalists view international institutions as “instruments to cope with
unforeseen, unintended, and often unwarented consequences”36. International institutions are
necessary for establishing durable cooperation; actually, states are seen by Liberal
Intergovernmentalists to deliberately delegate power to international institutions in order for
these to be capable of acting against the subsequent preferences of governments37. Primarily
states however set up international institutions in order for these to reach a collectively superior
outcome by reducing transaction costs, reducing uncertainty about other states preferences and
to establish rules for the distribution of ganes that are in accordance with the pre-existing
bargaining, monitoring the behavior of other states and sanctioning non-compliance38. In
accordance with this, the issue specific delegation of sovereignty by governments is caused by
concern about other government’s compliance in the issue specific area39.
Criticisms of Liberal Intergovernmentalism This theory has been criticized on a number of points. First of all it has been claimed that as its
emphasis is on grand bargainings it can’t explain everyday events. Secondly it has been claimed
that it only looks at conscious governmental decisions, and do not anticipate the unintended or
undesired consequences which might occur in relation to treaty amendments. Behind this
argument with unintended and undesired consequences are two assumptions: That national
preferences can shift, for instance after a major economic shock, and that supranational
institutions might work to enhance their own autonomy and influence within the European polity,
and thereby constraining governments40. Andrew Moravscik and frank Schimmelfennig however
stress that even though it is a valid point that EU institutional arrangements can drift away from
initial expectations, since if unintended consequences did not exist, there would be no need for
35
Wiener Antje & Diez Thomas p 71 36
Wiener Antje & Diez Thomas p 71 37
Wiener Antje & Diez Thomas p 72 38
Wiener Antje & Diez Thomas p 72 39
Wiener Antje & Diez Thomas p 72 40
Wiener Antje & Diez Thomas pp 73-75
Exam Number: 541517
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international institutions to elaborate incomplete contracts to begin with41. Moravscik and Frank
Schimmelfennig cautions though that in economic areas such as monetary policy, which are less
predictable, as knowledge, is more uncertain, and where costs and benefits are more diffuse,
national preferences can be more volatile and less predictable. Furthermore, they mention that
intergovernmental bargainings based on asymmetrical interdependence dominates interstate
bargaining, except in rare cases of high transaction costs, and asymmetrical information. In these
cases, supranational entrepreneurs may wield influence. The cases they mention mostly occur
when governments lack critical information or bargaining skills, which is mostly in cases where
domestic coordination problems are severe42.
Social Constructivism First it has to be emphasized that Social Constructivism is not really a theory which makes any
substantive claims about European integration such as for instance Liberal Intergovernmentalism
and Neofunctionalism. Constructivists may join an intergovernmental reading about interstate
negotiations as the central way to understand integration or they may join Neofunctionalists in
emphasizing spillover effects and supranational institutions. It is a theory, which has entered the
field of EU studies from international relations theory, and research inspired by Social
Constructivism has since the late 90es contributed significantly to European integration studies43.
Social Constructivism claims “social reality does not fall from heaven, but that human agents
construct and reproduce it through their daily practices”44. The theory states that human beings
define their social identities based on the environment that they are in. At the same time human
agency also creates changes and reproduces culture through its daily practices45. In opposition to
theories such as Liberal Intergovernmentalism, Neofunctionalism, and multilevel governance,
Social Constructivism is not based on rational agency centered ontology, but is able to
complement the theories, which are. This is based on Social Constructivism´s claim that interests
are not exogenously given or derived from a specific material structure. Instead political culture,
41
Wiener Antje & Diez Thomas p 75 42
Wiener Antje & Diez Thomas p 77 43
Wiener Antje & Diez Thomas pp 144 -145 44
Wiener Antje & Diez Thomas p 145 45
Wiener Antje & Diez Thomas p 146
Exam Number: 541517
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discourse and the social Construction of interests and identities matter. This is according to
Thomas Risse especially relevant when it comes to new institution building46.
Recent work on Social Constructivism and European integration has started to look at how the
integration processes itself feeds back into the domestic level. This is well in accordance with how
Constructivists see institutions as social structures, which influence agents and their behavior. This
view is somewhat different from the view of rationalist theories such as Institutionalism, as it is
primarily constraining the behavior of agents47. According to theories such as Neofunctionalism
and Liberal Intergovernmentalism actors follow a “logic of consequentialism” with given interests
and identities, trying to realize their preferences through strategic behavior. In contrast with this,
Social Constructivism follows a different logic, which March, and Olsen have called “the “logic of
appropriateness”. According to this logic, “Human actors are imagined to follow rules that
associate particular identities to particular situations, approaching individual opportunities for
action by assessing similarities between current identities and choice dilemmas and more general
concepts of self and situations”48. In other words, this differs from strategic behavior in that actors
try to do the right thing rather than to optimize their given preferences49. Concerning the workings
of the EU this means that actors involved with the EU institutions, be they governments, firms, or
interest groups are impacted by the norms of the institutions that they work with. This helps to
constitute the identities of the actors as members of a social community. In this way, the EU helps
to construct the identities of states and also to define their interests50. Constructivists therefore
furthermore claim that the EU influences the discourse and behavioral practices of the actors
involved, and that EU membership entails a socializing effect51. One very crucial part of
constructivist thinking is its emphasis on discursive settings. This implies that agents make sense
of the world they live in through the discursive context in which they are situated. The meaning of
discourses has been studied in at least three different ways. One is according to Habermas´s
theory on communicative action to international relations. Reason-giving and arguments are seen
as an agency-centered mode whereby to challenge validity arguments in normative or causal
46
Wiener Antje & Diez Thomas p 146 47
Wiener Antje & Diez Thomas p 147 48
Wiener Antje & Diez Thomas p 147 49
Wiener Antje & Diez Thomas p 148 50
Wiener Antje & Diez Thomas p 148 51
Wiener Antje & Diez Thomas p 148-149
Exam Number: 541517
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statements and to seek a communicative consensus about the understanding of a situation. This
in turn means that agents are open to be persuaded by better arguments. This behavior is as goal
oriented as strategic interactions, however the goal is not to attain ones fixed preferences, but
rather to seek a reasoned consensus52. Another part of the research on the importance of
discourses has focused on discourses as a process of meaning construction, allowing for certain
interpretations while excluding others. This basically defines who is allowed to speak in a certain
arena, what counts as a sensible proposition, and which meaning constructions become so
dominant that they are being taken for granted53. Finally, it should be mentioned that lately
studies have started to focus on a transnational European public sphere. These studies find that
only insofar as a common frame of interpretation is shared, is a transnational public sphere
possible54.
The financial crisis in Europe In this section, I will provide an overview of the financial crisis, which evolved in Europe as a
consequence of the global financial crisis of 2008. As it will become evident of the below, a very
central concept of the crisis in Europe is the concept of sovereign debt, which I will therefore start
by defining. According to the Oxford dictionary, sovereign debt is “the amount of money that a
country’s government has borrowed, typically issued as bonds denominated in a reserve
currency”55.
Already in 2007, the European central bank had to initiate liquidity operations. Major European
banks were exposed to losses in the U.S. market in asset-backed securities, and were dependent
on these markets as a source of dollar finance, and as the crisis unfolded during 2008 and 2009 the
crisis struck Europe as much as the United States56. The effect of these events were however
unevenly distributed across the euro area, as cross border flows dried up during 2008 due to
investors, repatriating funds to their home markets and reassessing their international exposure
levels. The countries which were the most affected were those which relied most on external
funding, especially funding from inside the euro area. An example of a country which was very
52
Wiener Antje & Diez Thomas p 149 53
Wiener Antje & Diez Thomas p 150 54
Wiener Antje & Diez Thomas p 150 55
Oxford Dictionairies. Sovereign debt (internet page) 56
Lane R. Phillip p 55
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severely impacted was Ireland which banks relied on international short-term funding. Therefore,
the Irish government had to, as of September 2008 grant a two-year guarantee to its banks57.
Overall, the crisis prompted a reassessment of asset prices and growth prospects. The countries
which were impacted the most were those countries where macroeconomic imbalances were
present. A study by Lane and Milesi-Ferretti (2011) “show that the pre-crisis current account deficit
and rate of domestic credit expansion are significant correlates of the scale of the decline in output
and expenditure between 2007 and 2009”58. An important aspect of the crisis is that several
countries in the EU had seen a very large growth in credit/GDP ratios in the years before the crisis.
This was especially true for Greece, Ireland, Portugal and Spain, but also for instance for Italy. The
trend in the development of this credit/GDP ratio in the years before a banking crisis is according
to (Gourinchas and Obstfeld 2012) a key predictor of whether a banking crisis is going to happen59.
Another important aspect of the crisis was the large variances in the current account balances
across the EU in the years leading up to the crisis. In spite of the overall EU current account
balance being close to zero, several countries ran large deficits. This was true for Portugal, Greece
and Spain, while Germany ran a substantial surplus. One of the adverse effects of an account
balance deficit is that in the case of a stop in funding markets, the deficit must be narrowed
quickly60. Furthermore, it is worth to note that in the period leading up to the crisis the
aforementioned worst impacted countries did not show particularly worrying trends in the ratio of
public debt towards GDP. In Ireland and Spain, the public debt to GDP ratios actually decreased
from the 90es and onwards, towards the beginning of the recession. This was caused by the rapid
GDP growth rates in these countries. Only Italy and Greece were in breach of the EU’s fiscal rules
with public debt rates towards GDP of above 90 percent (where EU’s fiscal rules prescribed 60
percent).
From late 2009, several countries started to report larger than expected increases in deficit/GDP
ratios. Because of the recession, tax revenues dropped significantly, in for instance Spain and
Ireland, and Greece reported an especially high deficit, and revised up its deficits for previous
years. GDP growth in these countries now also became restricted by the fact that they were now
57
Lane R. Phillip p 55 58
Lane R. Phillip 55 59
Lane R. Phillip p 52 60
Lane R. Phillip p 52
Exam Number: 541517
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part of a currency union. Under normal circumstances a currency run that will depreciate a
countries currency, will occur if the country in question, run a large balance of payment deficit and
foreign lenders stop providing funds to the country. This will allow the country to get more
competitive which again will help boost its GDP growth. Nevertheless, since the euro area overall
has a small surplus on its balance of payments this did not happen to those EU countries with the
worst imbalances in their economies. Since much of these countries, trade is intra EU trade, there
is no hope of gaining a competitive advantage in this trade either, as the currency obviously
cannot depreciate towards the Euro. Furthermore as mentioned above, Greece, Italy, Portugal,
Spain, And Ireland had large current account deficits at the onset of the crisis. Furthermore, labor
mobility within the EU remains low and the opportunity for increased fiscal spending has been
taken away by a pressure in the sovereign bonds market61. What has now occurred, is spreads on
sovereign bonds, as a large gap has now materialized in the yield between Germany and some of
the states most impacted by the crisis, such as Greece, Ireland, Portugal, Spain, and Italy. This
development has also been nourished by rising estimates of prospective banking-sector losses on
bad loans in a number of countries62. Following these events first Greece, then Ireland and
Portugal were shut out from the bonds market and had to apply for official funding. Furthermore
Spain and Cyprus also applied for official funding. As the packages needed were much larger than
what IMF normally provides, the EU provided the majority of the funds. In each of the three bail
out cases, it was decided that the funding would be provided only if the recipient countries
implemented fiscal austerity packages and structural reforms to boost growth, and redeleveraged,
and recapitalized overextended banking systems63. There are several reasons why the EU would
concern itself with helping the states most impacted by the crisis. Many European banks have
large holdings of sovereign debt from, Greece, Ireland, Portugal, Italy and Spain. Therefore, if
these countries cannot pay their debt, the banking system as a whole will become insolvent64. The
crisis has developed into really being 3 intertwined crises, a crisis of sovereign debt, a crisis of
growth, and a banking crisis which are all interrelated. These crises are briefly explained as
follows. There are in the EU a number of banks, which are very large compared to the GDPs of
their respective home countries. One of the reasons for this is that European companies are more
61
Shambaugh C. Jay pp 172-174 62
Lane R. Phillip Crisis 55 63
Lane R. Phillip Crisis 57 64
Shambaugh C. Jay pp 158-159
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likely to lend capital from banks than companies in for instance the US, which are more likely to
access the capital markets directly. In terms of banking crises where there is a bank run
(depositors withdrawing their funds) and banks are threatened by insolvency a central bank will
typically be the last resort to provide such capital. If the banks in question however do become
insolvent, there are only the creditors, or taxpayers to step in. In the euro area where funds can
flow freely in the same currency across borders, the creation of the European Banking Authority
has centralized some functions, but super-vision and especially fiscal support are still provided at
the national level. There is in the euro area only one central bank, the ECB, (and it has no statutory
responsibility to serve as the lender of last resort, although it can act as one). Therefore during the
banking crisis from 2008 and onwards the ECB was accordingly also more passive than other
central banks in providing capital to banks that were having liquidity issues and euro area banks
required a series of bailouts and guarantees, and continue today to struggle with
undercapitalization65. Concerning the sovereign debt crisis, this has in the euro area gone through
a number of acute phases as the yields on the bonds of some euro area members increased
drastically, and as mentioned the spread towards Germany increased greatly as well. This is due to
investors’ concern that these countries eventually will have to default on their debts. The issue is
that the higher an interest rate these countries will have to pay on their debts, the higher growth
they will need in order to pay off their debt, so that it does not decrease as a share of GDP.
Obviously the larger the outstanding stock of debt is the more pressing the issue will be, as the
more, the country will have to pay in interest rates. Therefore, it is important that the interest on
the outstanding debt does not surpass the growth rate of the economy, as this will make the debt
grow, even if the budget is in balance. Therefore, the GDP growth rate is important and a slow
growth rate can doom an otherwise solvent country to bankruptcy66. Concerning the growth
crisis, the euro area was as mentioned previously struck by the international crisis in 2008 and
unemployment has been rising, especially in Greece, Ireland, Italy, Portugal and Spain where it has
risen more than the EU average, and the crisis has worsened in the countries undergoing severe
austerity measures. Therefore, essentially the euro area has two growth crises. Firstly, the euro
area economy as a whole is growing too slowly to reduce unemployment, and reduce existing
debt. Secondly, the growth issues are very unbalanced with those countries facing the largest
65
Shambaugh C. Jay pp 162-166 66
Shambaugh C. Jay pp 166-169
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pressures in the bonds markets growing more slowly than the remaining euro area. As previously
mentioned this means that these countries will have to fight their debt burden, as they need
growth in order to become solvent. Therefore, these countries cannot meet their liquidity and
funding needs without growth, even if the banking system survives67. Furthermore, as we saw
previously, these countries do not have the possibility to grow via a devaluated currency, as they
are now part of the common currency. As mentioned, these three crises are interlinked.
As already mentioned weak growth impacts on the sovereign debt crisis, as weak growth means
that it is it is more difficult for governments to pay of interest on loans. It seems that a deficit on
the current account balance seems very important in respect to restoring growth, as it is a sign of
a country not being competitive enough. Participating in a currency union however makes it more
difficult for the worst struck countries with foreign account deficits to generate growth. Studies
also show that the countries with the largest foreign account deficits on the eve of the crisis were
later those worst hit by slow growth68. The sovereign debt crisis also influences banks as many
banks hold European government bonds. Therefore, any risk of a default on sovereign debt
translates directly into an increased risk of banks defaulting. Furthermore as mentioned
previously, there is a large cross country ownership of sovereign debt so that German and French
banks hold for instance the equivalent of 5 percent of their country’s GDP in sovereign debt from
Greece, Ireland, Portugal, Italy and Spain69. The bank crisis also impacts on the sovereign debt
crisis, as national governments stepped in to help many insolvency threatened banks under their
jurisdiction with funds or guarantees. In Ireland, for instance this support amounted to 41% of
GDP. The cost of the bailouts in the euro area has thus had a serious impact on sovereigns’ ability
to repay their own debt. 70 The sovereign debt crisis affects growth in the way that austerity
measures will have a negative impact on growth, and the countries undergoing stringent fiscal
tightening have faced very slow growth. In this way, it influences back on the sovereign debt crisis
as this makes it more difficult to repay debt (as we saw above). The banking crisis influences
growth in the way, that if banks will not loan out money, a rapid cut in the availability of credit will
reduce both consumption and investment. In addition, a weak banking sector can make attempts
67
Shambaugh C. Jay pp 166-172 68
Shambaugh C. Jay pp 178-182 69
Shambaugh C. Jay pp 186 -188 70
Shambaugh C. Jay pp 189 -192
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at using monetary policy to stimulate the economy more difficult, as it compromises the credit
channel of monetary policy transmission71. Finally, slow growth affects banks because it means
that more private people, as well as companies, cannot repay their loans. Furthermore, the slow
growth, which as mentioned above is linked to sovereign solvency, can also damage the solvency
of the banks (due to their ownership of sovereign debt)72.
As shown above the EU is plagued by three interlinked crises, and these have to be seen in
combination, both when it comes to root causes and solutions.
The way the EU was originally equipped to prevent crises like these was poor. According to
Shaumbagh “The only institution added as part of, the 1992 Maastricht Treaty and its refinements
was the Stability and Growth Pact, which restricted countries’ public budget deficits. A combination
of politics and ideology meant that public sector borrowing and inflation were supposed to be
controlled, but private borrowing, banking system issues, unemployment, and other
macroeconomic challenges were left unattended at the euro-area”73. Therefore, the euro area
today is plagued by three different but interlinked crises, which could all potentially threaten the
survival of the euro area. How the EU has so far chosen to, and is planning to handle these crises
in the future, is something that I will elaborate on in coming sections of this paper.
The financial crisis and the EU integration theories In the below section I will try to explain how the various European integration theories would be
expected to suggest that the EU will respond to the financial crisis. Part of this will also be to look
at how the theories will explain how the crisis has influenced the EU. As there is a difference in
how well the different theories define the concept of integration, and as Social Constructivism
should be seen more as complement to the other theories, this means that there will be a variance
in how much space each theory will be given in this section.
Neofunctionalism The first theory that I will analyze on is Neofunctionalism. As we saw above some of the
distinguishing features of this theory is that: It acknowledges rational actors, Institutions can take
on a life of their own, the importance of the spillover effect, and that the games played amongst 71
Shambaugh C. Jay pp 198-200 72
Shambaugh C. Jay p 200 73
Shambaugh C. Jay p 175
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various actors are not zero sum games. Concerning how the crisis has impacted the EU it could
therefore be expected that a proponent of this theory would say that it is an issue that a common
currency has been created without the set up for this currency being thorough enough. Being in a
currency union, the countries worst struck by the crisis are without the possibility of depreciating
their currencies. This means fluctuations in the value of currencies will not be a solution to
creating more growth in these countries. Therefore the solution according to Neofunctionalists
would be to say B, once they have already said A. That means that deeper integration is necessary,
so that future crises can be avoided. In this case, deeper integration should be understood as
more supranational involvement in preventing macroeconomic imbalances from occurring. This
could take the form of surveillance of the banking system in order to avoid major banking crises in
the future, and thereby to limit the danger that banks going bankrupt would be to the whole EU
economy. The spillover concept could also mean that Neofunctionalists would want the EU to
implement more supranational involvement concerning fiscal policies, so that the member states
would not have the same fiscal autonomy as before. This could also be a step towards avoiding
future macro-economic imbalances within the euro area. As we saw in the previous section, these
imbalances were amongst the root causes of the crisis in the EU. Such a development would also
be well in line with Haas’s view that functional interdependencies between whole economies and
their productive sectors foster further integration. As the EU banking sector, financing of public
debt, and growth has become intertwined a deeper integration is necessary. Since
Neofunctionalists do not see negotiations as a zero sum-game, Neofunctionalists would expect
that the involved actors could find an agreement, which can benefit all. That means that both the
countries most influenced by the crisis, as well as other countries should emerge with overall long-
term gains to their economies from the reforms. Overall, it can be stated that according to Haas’s
and Lindberg’s definition of integration, that is the creation and role expansion of institutions, and
a change in expectations and activities of the participating actors, Neofunctionalists would expect
the crisis to have an impact on the EU that would mean that integration would move forward. This
would primarily be due to the spillover concept. This is so, since more fiscal integration would
probably entail a role expansion for existing institutions, and a possible setup of new institutions.
Furthermore, the actors involved with these institutions would expect them to take on more
responsibility, which had hitherto been in the domain of national governments.
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Liberal Intergovernmentalism Liberal Intergovernmentalism would view the crisis in terms of a belief in states as actors, and as
rational actors. This means that according to Liberal Intergovernmentalism the impact of the crisis
can be viewed as the flawed policies of some national governments (the governments of the
states most impacted by the crisis). These governments have pursued financial policies that have
jeopardized their own economies and due to the interlinkage of the EU economies, this has
damaged the whole EU economy. Liberal Intergovernmentalism would however not see the crisis
as necessarily being dependent upon a lack of integration but rather as a lack of information
available to the national governments when the original setup of the Euro was made. As all actors
are rational and self-interested, the reason why some governments could get away with huge
imbalances could be explained as a lack of information, and or transparency, and uncertainty
about the future in the bargainings leading up to the Euro agreement. The solution could be to
strengthen the institutions of the EU, in order to assure that states cannot get away with non-
compliance, when one compares to the intentions of the original bargainings. This would however
not be based on the same assumption as Neofunctionalist thinking, that once integration has
started in one area of the economy it will have to follow in interlinked areas as well. Rather Liberal
Intergovernmentalist thinking could perceive of a strengthening of the EU institutions as an
advantage, since it would reduce uncertainty about other states preferences and help to establish
rules for the distribution of ganes. This could ensure that the intentions of preexisting negotiations
would be followed so that a maximum compliance outcome could be assured. This could
counteract future imbalances in the EU economy since it would make it more difficult for states to
get away with imbalances in their economies, which could endanger the economies of all
participating states. It could be anticipated that the states most impacted by the crisis would also
be those who would have to make the most concessions in the bargainings leading up to an
outcome of the reforms. This is because those actors which are least in need of reaching a specific
agreement may threaten the others actors with non- cooperation and thereby forcing them to
grant concessions. This would in turn mean that the countries who are the least impacted by the
euro area crisis might also be those which will try to obtain more advantages through the
bargaining, or which will try to delay the bargaining process (as their economies are not in such a
critical state that a national bankruptcy is near). A development in accordance with the one
prescribed above would be well in line with Liberal Intergorvernmentalist thinking, as it sees
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European integration as not a process by which to replace the nation state, but rather as a process
by which to save it, and adapt it. The above process could save the nation states involved, as they
would avoid the danger of a collapsing banking system and of economies, which are collapsing due
to sovereign debt. At the same time, they would only allow the EU to gain as much power as is
needed for it to ensure that all participating states comply with any agreements. The states would
however of course have to adapt to EU institutions. These institutions would thereby gain an
increased responsibility.
Social Constructivism According to Social Constructivism the root causes of the crisis can be determined according to the
eyes of the beholder. This in turn will also influence the solution chosen to manage the crisis. If the
ruling discourse says that the crisis has been caused by some states behaving recklessly, then it is
probable that the solution will be that these states should simply manage their economies better.
In the same way if there is a discourse saying that the crisis is something coming from the outside,
for instance by reckless behavior in US banks, or perhaps by an over optimistic US national bank
policy with too low interest rates, then this will also impact the solution to the crisis. If the
discourse is about the crisis being something that can’t be helped by EU policies, then the answer
to the crisis by the EU could be expected to be more or less of a laissez faire policy, where not
much is done since it is not anticipated that doing anything will help. The reason for this is that, as
mentioned above, Social Constructivism sees human agents as being impacted by the norms and
rules, which surround them. This in turn also means that if the prevailing discourse in the EU, in
the nations states, or in society in general, is that a lack of integration in the EU can be blamed for
the issues related to the financial crisis, then the solution would be in accordance with this. In this
case, the solution to the crisis could be expected to be a deeper integration where more new
institutions are created, and the roles of existing institutions are expanded.
The EU itself can also be anticipated to play a significant role concerning discourses related to
integration. Actors involved with the EU institutions, be they governments, firms, or interest
groups, are impacted by the norms of the institutions that they work with. Therefore, the
discourses used internally by EU institutions can be expected to form the basis for further
integration. This depends on whether the EU institutions are influenced by a normative/discursive
value, which is supporting integration.
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In other words according to Social Constructivist thought, it is the prevailing norms and discourses
connected to the crisis that will define its root cause, and hence also its solution. Therefore, if one
is to analyze the crisis with Social Constructivist eyes, then one has to look at which discourses and
which norms have prevailed in connection with the crisis, and what that has meant to EU
integration.
Conclusion on the financial crisis and the EU integration theories Above I have written some possible ways in which to interpret how the various European
integration theories could interpret the impact of the financial crisis in the EU, and accordingly
how they would conceptualize of a solution to the crisis, and whether this solution will mean a
deeper EU integration. In my section on the EU crisis in perspective, I will look at how these
expectations will compare to the findings of the analysis.
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Analysis of The EU's answer to the crisis In the below section I will outline the solutions provided by the EU in response to the financial
crisis, and analyze whether these measures have, according to Neofunctionalism, and Liberal
Intergovernmentalism lead to integration in the EU. I will start out with analyzing the measures,
which have already been initiated. Then I will move on to future initiatives, which are being
planned by EU institutions. Next, I will look at what these reforms mean in terms of integration for
respectively euro area, and non-euro area countries. After each sub-section, I will in brief analyze
whether any possible integration constitutes deep integration. After having analyzed on
initiated/planned reforms, I will look at possible obstacles to these reforms. Furthermore, I will use
Neofunctionalism, Liberal Intergovernmentalism and Social Constructivism to analyze how it can
be explained that the EU has chosen to initiate the reforms it has as a response to the financial
crisis.
Reforms already initiated
The Commission on its webpage very briefly sums up the EU’s answer to the crisis. Under
Economic and Financial affairs, the European Commission has set up a link, which is called: “EU
response to the financial crisis”74. It is the measures mentioned on this webpage that will form the
main basis of the analysis in this section of my paper. Of course, one should stay cautious about
relying on the Commission’s webpage as a source for EU reforms, as obviously the Commission
due to its own involvement is a biased source in EU matters. It is however also a primary source
with firsthand knowledge about the EU reforms. Therefore, it can be used in an analysis as long as
one remains aware of the bias, and as mentioned in the methodology section, use
Neofunctionalism, and Liberal Intergovernmentalism to analyze what impact the reforms have had
in terms of integration. In terms of which measures constitute the EU’s response to the crisis it
should however be mentioned that many of the same measures as those mentioned on the
Commission’s webpage are also mentioned on the webpage of the European stability mechanism
(ESM), which is itself a measure initiated as a response to the financial crisis. The ESM is as we will
see later an intergovernmental institution, and the fact that it more or less aligns with the
Commission on which reforms are significant as a response to the sovereign debt crisis (which as
we saw is a part of the financial crisis), is something which gives credence to both sources (in
74
European Commission . Economic And Financial Affairs. EU response to the crisis (internetpage)
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establishing which reforms constitute the EU’s answer to the crisis). “The establishment of the
ESM should not be regarded as a stand-alone response to the sovereign debt crisis, but rather as
complementary to a series of measures undertaken at national and EU level. The efforts taken by
EU Member States with respect to fiscal consolidation and structural reforms, along with EU
initiatives such as the strengthened Stability and Growth Pact, the Treaty on Stability, Coordination
and Governance in the EMU (fiscal compact), European Semester, the Euro Plus Pact and the new
European system of financial supervision are all crucial for addressing the roots of the crisis and
creating conditions that are conducive to economic growth, job creation and improved
competitiveness”75.
The Commission’s webpage mentions the initiatives listed below.
Regarding financial stability:
The ESM
Concerning financial stability the European Financial Stabilisation Mechanism (EFSM) and
the European Financial Stability Facility (EFSF) were initially set up. These first measures were
however only temporary mechanisms which from October 2012 have been replaced by the
European Stability Mechanism (ESM)76. The purpose of the ESM is that it is an important
component of the EU strategy to safeguard financial stability within the euro area. The ESM
provides financial assistance to euro area member states experiencing or threatened by financing
difficulties. Loans can however only be granted according to strict conditionality, and only in cases
where it is appropriate in order to safeguard the financial stability of the euro area as a whole77.
This conditionality entails measures that may range from a macro-economic adjustment program
to continuous respect of pre-established eligibility conditions.78. In order to fund its operations the
ESM raises funds by issuing money market instruments as well as medium and long-term debt
with maturities of up to 30 years. The issuance is backed by a paid in capital of 80 billion Euros,
and the irrevocable and unconditional obligation of ESM member states to provide their
contribution to ESM´s authorized capital stock79. The ESM is an intergovernmental institution
75
European Stability Mechanism. About us (internetpage) 76
European Commission . Economic And Financial Affairs. EU response to the crisis (internetpage) 77
European Commission. Treaty establishing the European stability mechanism p5 (internetpage) 78
European Commission. Treaty establishing the European stability mechanism p27 (internetpage) 79
European Stability Mechanism. About us (internetpage)
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where the decision structure and voting rules are based on a board of directors, where the Euro
zone finance ministers are members80. Voting rights are accorded according to the proportion of
the member states of the ESM´s number of shares allocated in the authorized capital stock81.The
member states of the ESM are all the euro area members82. Concerning the decision leading to the
establishment of the ESM, this was taken by the European council in December 2010. The euro
area member states signed an intergovernmental treaty establishing the ESM on 2 February
2012”83 . The ESM is however not the EU’s first line defense against future crisis but only a last line
of defense for certain states that are already in severe difficulties84.
Neofunctionalism
The setting up of the ESM fulfills the criteria for European integration according to the
Neofunctionalist definition. According to this definition one of the defining criteria of integration
is, as we previously saw, the setting up of new regional institutions. The ESM can be said to meet
this criteria. Apart from this aspect, the ESM does not meet so many of the Neofunctionalist
criteria for integration. The ESM does not seem to shift loyalties or expectations toward a new
centre. This is so since the ESM is an Intergovernmental institution headed by a board of directors
consisting of finance ministers from each member state, and decision powers are delegated
according to the funds made available by each country. Furthermore, it is not a political
community that is superimposed on the nation states. It is only the last line of defense in order to
provide funding to states if all other options fail, and many other mechanisms have more
importance in combating the roots of the financial crisis. Furthermore, the ESM cannot be said to
be an institution which makes nations forego the desire and ability to conduct foreign and
domestic policies independently of each other. It is merely an intuition which has some holdings
over euro zone members money, and which has some decision power concerning which euro area
countries to help in a crisis.
Liberal Intergovernmentalism
The set up of the ESM is explainable according to Liberal Intergovernmentalism’s concept of
integration. The setting up of the ESM can be explained as a way of rescuing the nation state by
80
ECB. (2011). THE EUROPEAN STABILITY MECHANISM. p 76 (internetpage) 81
European Commission. Treaty establishing the European stability mechanism p12 (internetpage) 82
European Commission. Treaty establishing the European stability mechanism p 1 (internetpage) 83
European Stability Mechanism. Home (internetpage) 84
European Stability Mechanism. Home (internetpage)
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adapting it to globalization, and by securing compliance. This can be argued even though the
involved states can be said to give away some freedom of action by “tying up money” in the ESM.
This is because this “tying up of money ”does serve the purpose of securing the overall financial
stability in the euro area. Thereby the finances of all euro area states are being better
safeguarded as those states most threatened by financial difficulties will have a way to obtain
funding through crises (and thereby it is prevented that a financial collapse in one state will affect
the other states). Through the criteria of strict conditionality, those states who receive loans from
the ESM have to comply with criteria that serve to mitigate the same macroeconomic imbalances,
which lead to the recent financial crisis. This conditionality can be explained as a way in which
those euro area member states who will take a risk by providing funding to less capital strong
countries have a way to ensure that these countries actually comply to the intentions behind the
bargainings (the loans), namely to increase the financial stability in the euro area. This is also
secured through the voting structure in the institution whereby those ESM members providing the
most funding also have the largest say in the process. Furthermore, it can be stated that as the
ESM is based on an Intergovernmental treaty, this is well in line with Liberal Intergovernmentalist
expectations of states as masters of the treaties. This is also the fact with member governments
appointing directly the board of directors, something that again testifies to nation states as being
the main actors involved in, and driving the ESM project.
Concerning surveillance and the coordination of economic policies: On the above-mentioned webpage concerning the EU’s response to the crisis it says
“The economic governance architecture has been strengthened so that the EU and the euro area
are now better equipped for future challenges”85.
“The crisis clearly showed that economic policy coordination and surveillance had to be reinforced
with a view to detect and correct harmful fiscal and macroeconomic trends much earlier than in
the past. This is especially important within the euro area, where national economies are
particularly strongly interlinked86”. The measures which are included in the economic governance
architecture are the below measures. These measures are also mentioned in the ESM treaty as
crucial first line defenses towards a future crisis.
85
European Commission . Economic And Financial Affairs. EU response to the crisis (internetpage) 86
European Commission . Economic And Financial Affairs. EU response to the crisis (internetpage)
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reformed the Stability and Growth Pact (as part of the "Six-Pack" set of legislation)
set up the "European semester" of integrated multilateral economic and budgetary
surveillance
introduced a new procedure for macroeconomic surveillance, the Macroeconomic
Imbalance Procedure (as part of the "Six-Pack" set of legislation)
agreed on two regulations to enhance economic surveillance, coordination, integration and
convergence amongst euro area Member States (Two-Pack)
Moreover, 25 Member States agreed on a Treaty for Stability, Coordination and
Governance that entered into force on 1 January 2013 and further strengthens budgetary
discipline and economic governance among these Member States87.
Reformation of the stability and growth pact
The stability and growth pact is crucial in terms of the interlinked crises. This is evident from the
following statement on the Commission’s webpage “The Stability and Growth Pact (SGP) is a rule-
based framework for the coordination of national fiscal policies in the European Union. It was
established to safeguard sound public finances, based on the principle that economic policies are a
matter of shared concern for all Member States. The Macroeconomic Imbalances Procedure (MIP)
operates alongside the SGP to identify and correct macroeconomic imbalances and monitor
competitiveness developments”88.
The stability and growth pact was reformed in 2011. The reforms are very interesting as they
“addressed gaps and weaknesses in the framework identified during the recent economic financial
crisis89”. This meant that: “These reforms significantly strengthened both the fiscal surveillance
and enforcement provisions of the SGP by adding an expenditure benchmark to review countries'
fiscal positions, operationalising the Treaty's debt criterion, introducing an early and gradual
system of financial sanctions for euro area Member States, and requiring new minimum standards
for national budgetary frameworks”90. Hence, these measures imply that the EU is now more
87
European Commission . Economic And Financial Affairs. EU response to the crisis (internetpage) 88
European Commission . Economic And Financial Affairs. Stability and Growth Pact (internetpage) 89
European Commission . Economic And Financial Affairs. Stability and Growth Pact (internetpage) 90
European Commission . Economic And Financial Affairs. Stability and Growth Pact (internetpage)
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involved in determining, and monitoring which economic criterions member states should fulfill in
order not to be sanctioned.
This concretely means that member states budgetary balance shall converge towards the country
specific medium term objective (MTO). The MTO entails that for each member state a set of
country specific medium term reference values are defined. These values relate to budgetary
positions defined in structural terms91. This is part of the preventive arm. Furthermore, the
general government deficit must not exceed 3% of GDP, and public debt must not exceed 60% of
GDP or at least it should diminish sufficiently towards the 60% threshold. Furthermore, stricter
application of the fiscal rules are ensured, by defining quantitatively what a significant deviation
from the MTO or the adjustment path towards it means. It is also ensured that corrective
measures (excessive deficit procedure, EDP) can be taken against members which have a debt
ratio above 60% of GDP and where the debt ratio does not diminish towards the treaty reference
at a satisfactory pace (hitherto the excessive deficit procedure was only applied on the basis of a
deficit above 3% of GDP). Finally, but quite importantly, “Financial sanctions for euro area Member
States are imposed in a gradual way, from the preventive arm to the latest stages of the EDP, and
may eventually reach 0.5% of GDP. The Six-pack introduces reverse qualified majority voting
(RQMV) for most sanctions, therefore increasing their likelihood of occurring to euro area Member
States. RQMV implies that a recommendation or a proposal of the Commission is considered
adopted in the Council unless a qualified majority of Member States votes against it.92” Previously
a qualified majority of member states had to support the proposal in order for it to materialize93.
It should be mentioned that the Six-pack is EU secondary law94 . This is legislation made by the EU
institutions95. It applies to all member states with specific rules for euro area members, especially
concerning financial sanctions96.
91
European Commission . Economic And Financial Affairs. Policy and surveillance (internetpage) 92
European Commission . Economic And Financial Affairs. Six-pack? Two-pack? Fiscal compact? A short guide to the new EU fiscal governance (internetpage) 93
Seng Kilian & Biesenbender Jan p 454 94
European Commission . Economic And Financial Affairs. Six-pack? Two-pack? Fiscal compact? A short guide to the new EU fiscal governance (internetpage) 95
Oxford LibGuides. European Union Law 96
European Commission . Economic And Financial Affairs. Six-pack? Two-pack? Fiscal compact? A short guide to the new EU fiscal governance (internetpage)
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Neofunctionalism
According to the Neofunctionalist definition of integration the reformation of the stability and
growth pact can be said to mean more European integration. It does not meet the criteria of
setting up a new regional institution it however does fulfill the criteria of the role expansion of an
already existing European institution. This is so since the Commission according to the new
excessive deficit procedure can more easily delegate fines to member states than it previously
could. Of course, the Council, which is an intergovernmental setting, still has to provide a qualified
majority in order for the Commission’s proposal to materialize. This however does increase the
powers of the Commission as it makes it more difficult for member states to decline the proposal,
unless a coalition can be raised against the proposal. Furthermore, it can be said that the reforms
of the stability and growth pact meet a considerable part of Lindberg’s definition of integration.
This is because more parts of the decision making process have been delegated to a central organ,
as the Commission now has a role in the say over nation states public finances (although this
probably still does not meet that part of Haas’s definition of integration which implies jurisdiction
over pre-existing national states). Furthermore, the specific rules concerning financial sanctions on
euro area states mean that the strengthening of the SGP will impact euro area states more by
integration than other EU states. This is so since the reforms entail that a larger degree of
economic autonomy have been delegated for euro area member states, as they will need to be
more in line with the criteria of the strengthened SGP, and thereby will have less scope for
independent economic policies.
Liberal Intergovernmentalism
The reforms of the SGP are explainable according to this theory’s concept of integration. These
measures to some degree might constrain national governments freedom, as they make it more
difficult for each government to follow the financial policy it wishes. This is due to the larger
requirements, and greater threat of sanctions from the EU. The reforms will however also make it
increasingly difficult for states to be non-compliant towards the stability and growth pact. One of
the key arguments that Liberal Intergovernmentalists have regarding the setting up of institutions,
is that the institutions are to monitor other states and sanction non-compliance. These elements
of compliance are key purposes of the reformation of the stability and growth pact. This in turn
means that all states will be more likely to stick to the intentions of the bargainings (not to run
large deficits) and not to violate the stability and growth pact. Therefore, the reformation of the
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stability and growth pact can be argued to mean that nation states adapt themselves in order to
survive, (as non-compliance from certain states will be less likely, and damage to the overall
economy of the Euro zone therefore will be less likely). Furthermore, under the strengthened SGP
the states can still be said to be masters of the treaties as the reforms do not entail that a central
authority gains authority over them. Even if the Commission can more easily influence national
economic policies by fines the policies are still defined by, and have to be approved by the
member states.
The European Semester
The European semester is the first phase of the EU’s annual cycle of economic policy guidance and
surveillance. In this semester the European Commission analyses the fiscal and structural reform
policies of every member state, and provides recommendations and monitors the implementation
of these recommendations. In the second phase of the yearly cycle, member states implement the
policies agreed on. This is known as the national semester. Based on an annual growth survey
published by the Commission, EU leaders agree on a common direction for fiscal, structural, and
financial sector policies. Next member states report to the Commission on their priorities when it
comes to boosting growth and jobs, and to prevent macroeconomic imbalances. Furthermore, the
states report on which measures they plan in order to ensure compliance with the EU’s fiscal rules.
The Commission then assesses these plans, and makes country specific recommendations which
are discussed between member states ministers, and finally endorsed by EU leaders, and
incorporated into national budgets97.
Neofunctionalism
According to this theory’s, definition of integration the European semester can be said to
constitute more European integration. This is so because the role of the Commission has
expanded. This regional institution is now granted the role to make recommendations regarding
the financial reforms in each member state. The role of the Commission is however not expanded
as much as it is regarding the stability and growth pact. The main outcomes are still determined by
EU leaders and the decision structure is therefore still more intergovernmental than what is the
case when the Commission has to have a reversed majority against its proposals in order for them
to fall.
97
European Commission . Economic And Financial Affairs. European Semester. (internetpage)
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Liberal Intergovernmentalism
The setup of the European Semester is according to Liberal Intergovernmentalism explainable
according to the theory’s concept of integration. This is due to the large monitoring aspect of the
set up. The Commission has surveillance and monitoring rights and can make recommendations to
the EU ministers and leaders. This is one of the cornerstones of Liberal Intergovernmentalism’s
explanations for national actors to set up international institutions. By monitoring member states
and providing information to national leaders the chances of non-compliance and the uncertainty
about other states preferences are reduced. This is in line with the surveillance and monitoring
aspect of the European Semester. It can be said that surveillance and monitoring rights
furthermore points back to the establishment of rules for the distribution of ganes, in order to
ensure that these ganes are in accordance with the pre-existing bargainings. This is explainable
according to Liberal Intergovernmentalist theory as a way to adapt and rescue the national states
involved (as this ensures that the economic environment will be less uncertain). Furthermore,
under the European Semester the states will still be masters of the treaties as the measures only
relate to monitoring and coordination.
The Macroeconomic Imbalance Procedure
According to the Commission’s webpage, the reason for setting up the macroeconomic imbalance
procedure is that “Over the first decade of the century, the EU has registered serious gaps in
competitiveness and major macroeconomic imbalances”.
An early warning system is set up based on a scoreboard of 11 indicators regarding
macroeconomic imbalances. Based on these indicators countries which need in depth analysis are
selected for review. The Commission and the Council are allowed to adopt preventive
recommendations, which will be put forward as a part of the European Semester. In more severe
cases, an excessive imbalance procedure can be applied against member states, which are found
to experience excessive imbalances. In these cases member states concerned will have to issue
corrective action plans, and the Commission will step up the surveillance. For euro area countries,
a rigorous enforcement regime is in place with interest bearing deposits, fines and possible
sanctions as penalties. The decision making process is reverse qualified majority voting (RQM).
This procedure makes it very difficult for member states to block a majority98.
98
European Commission . Economic And Financial Affairs. Macroeconomic Imbalance Procedure (internetpage)
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Neofunctionalism
The role-expansion of a regional institution (the Commission) would make Neofunctionalism term
the Macroeconomic Imbalance Procedure as a step towards more integration. This can be argued
since more surveillance powers are being handed over to the Commission. Furthermore, as RQM
applies to these recommendations from the Commission, this also entails the role expansion of
the Commission (as it will be more difficult to reject its proposals). The Macroeconomic Imbalance
procedure also meets Lindberg’s definition of integration by delegating decision-making processes
to new central organs. Thereby activities are to a moderate degree shifted toward a new centre.
Liberal Intergovernmentalism
For the same reasons as regarding the European Semester, the setup of the Macroeconomic
Imbalance Procedure is explainable according to the theory’s concept of integration. Monitoring of
compliance and the provision of information explains why national actors would increase the
scope of the Commission. The reason is that the risk of non-compliance will diminish. According to
Liberal Intergovernmentalism this could be explained as a way to “rescue” the nation states
involved in the process as it adapts them to the reality of a globalized economy where some EU
countries could be perceived to pose a risk to the overall financial climate due to unsound financial
policies. The states will still be masters of the treaties as the measures still mostly only relate to
monitoring and coordination.
The Two-Pack regulations to enhance economic surveillance, coordination, integration
and convergence amongst euro area Member States
Concerning the Two-pack it says on the Commission’s webpage; “Recognizing the extent and
potential consequences of spillovers among euro area Member States' economic and budgetary
situations, the Two Pack Regulations, which entered into force on May 30, 2013, build on the Six
Pack reforms by introducing additional surveillance and monitoring procedures for euro area
Member States. “99.
The Two-pack regulations supports adherence to the stability and growth pacts existing fiscal
surveillance, while furthermore establishing comprehensive surveillance measures for those
member states in the euro area which are particularly threatened by financial instability. The
details of this surveillance includes a European assessment of draft budgetary plans, the setting up
of independent bodies in charge of monitoring national fiscal rules, and to base budgetary
99
European Commission . Economic And Financial Affairs. Stability and Growth Pact (internetpage)
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forecasts on independent macroeconomic forecasts. European National Parliaments remain fully
sovereign in voting the Budget Law. For euro area member states in the excessive deficit
procedure a graduated monitoring is established in order to timely correct deficits100.
Neofunctionalism
According to Neofunctionalism the Two-Pack, regulations meet the criteria of deeper integration.
The setting up of new independent bodies, although only advisory is a step towards integration, as
these could be argued to shift political activities towards a new centre. Although these bodies are
independent, they do signal that certain European standards should be met. This is a very modest
step towards integration.
Liberal Intergovernmentalism
According to Liberal Intergovernmentalism the Two-pack can also be explained according to the
theory’s concept of integration. This stems from the monitoring functions of the independent
bodies, which reduces the risk for non-compliance. According to Liberal Intergovernmentalism,
this is explainable as a way to rescue the states involved by adapting them to a different economic
environment where they need to assure compliance from other states. The states do put
themselves under surveillance, but at the same time, they ensure a larger degree of compliance
concerning agreed on bargainings. Thereby they are better equipped to deal with the intertwined
economies of globalization. At the same time national actors, remain in control as they have the
final say over the recommendations. Thereby, under the Two-pack regulations the national states
remain masters of the treaties.
Treaty for Stability, Coordination and Governance (TSCG)
This is an intergovernmental agreement signed by all EU member states except the UK and the
Czech Republic. It is binding for euro area members that have ratified it, while other states will be
bound once they adopt the Euro, or earlier if they wish so. This treaty says that member states
should provide in the national law balanced budget rule (which should be binding and
constitutional in character101.) It should have a lower limit for a structural deficit of 0.5% centered
on the concept of the country specific MTO as it is defined in the stability and growth pact. The
TSCG furthermore states that independent bodies should monitor national compliance with
national fiscal rules, including the operation of the national correction mechanism in case of
100
European Commission. Economic And Financial Affairs. Stability and Growth Pact (internetpage) 101
European Council. Treaty on stability, coordination and governance p5 (internetpage)
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deviation from the MTO or the adjustment path towards it (also included in the Two-Pack)102.
Another interesting feature of the TSCG is that the European court of justice (ECJ) now has had its
powers enlarged so that it can impose fines on countries, which do not honor the deficit target of
0.5% centered on the concept of the country specific MTO, as this is defined in the stability and
growth pact103.
Neofunctionalism
According to Neofunctionalism this treaty can be explained as a process of more integration. By
the implementation of new binding budget rules it can be said that states shift their activities to a
new political centre, as these rules along with the independent bodies help to shift the mindset
more towards common standards. Even though the whole set-up relies on an intergovernmental
institution, it still expands the role of a pre-existing regional wide institution. This is due to the
enlarged powers of the ECJ. This supranational actor will now acquire the powers to determine
whether a country fulfills its obligations according to the TSCG. Therefore, overall the
establishment of the TSCG according to Neofunctionalist theory can be said to imply a step which
to a degree meets Haas’s definition of integration. This is so, since it can now be argued that to
some degree a new centre possess jurisdiction over the pre-exisiting national states. This
possession of jurisdiction might only still be quite limited as it only concerns the imposition of fines
according to measures which have been defined in an intergovernmental treaty; however this is a
small step towards more possession of jurisdiction on the part of a supranational institution.
Liberal Intergovernmentalism
This treaty is also explainable according to Liberal Intergovernmentalism’s concept of integration,
all tough in some areas it goes beyond what is stated in this concept. States have to adapt by
accepting common rules. These rules should however ensure a larger degree of compliance in all
EU member states. Thereby the rules should prevent that a crisis such as the current financial
crisis escalates again. Hence, the rules can according to Liberal Intergovernmentalism be said to be
set up in order to rescue the nation states from the impact of the financial crisis, this is well in line
with this theory’s thinking when it comes to explaining why new international institutions are set
up. In the eyes of Liberal Intergovernmentalist theory there are however some quite far-reaching
102
European Commission . Economic And Financial Affairs. Stability and Growth Pact (internetpage) 103
Chalmers Damien (internetpage)
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elements included in the treaty as states are no longer masters of the treaties in the issue specific
areas where the ECJ will be involved.
The Euro plus pact
Even though the Euro plus pact is not mentioned in the same overview as the above mentioned
measures, it is still one of the EU`s responses to the financial crisis. This is evident from a
document by the Commission104.
The Euro plus pact is a measure initiated in 2011, which aims to achieve a new quality of economic
policy coordination, and improve competitiveness, something that should lead to a higher degree
of convergence. It is another instrument, which builds on improved policy coordination to reach
its goals. Participating states have to set up concrete commitments and actions, as well as
timetables according to which the goals agreed on should be reached. The Commission will have a
strong role in regards to the monitoring of the commitments. It up to each member state to
present the specific measures it will initiate in order to reach the goals. The Euro plus pact was
agreed among the euro area Heads of State or governments, and joined by Bulgaria, Denmark,
Latvia, Lithuania, Poland, and Romania 105.
Neofunctionalism
According to Neofunctionalism it can be argued that the Euro plus pact constitutes deeper
European integration. This is so since the coordination of policies and the monitoring role of the
Commission constitutes the expansion of the role of an existing EU institution (the Commission).
Furthermore, it can be argued that this is another reform, which helps to shift activities to a new
political centre since the Commission will now be even more involved in EU wide growth enabling
policies.
Liberal Intergovernmentalism
According to Liberal Intergovernmentalism the Euro plus pact fulfills the criteria of this theory’s
concept of integration. This is due to the elements concerning the Commission’s monitoring role,
elements which are steps towards more compliance something, which as mentioned previously is
a cornerstone of Liberal Intergovernmentalism’s reasons for setting up supranational institutions.
To increase compliance in areas which enable growth can be argued to be a strategy by which the
104
European Council. (2012). EuroPlus Pact – the way forward (internetpage) 105
Europedia. The Euro Plus Plact (internetpage)
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states involved adapt to globalization in order to survive. Furthermore, the states involved remain
masters of the treaties as the measures build on policy coordination.
Conclusion on The EU’s crisis measures implemented so far
Neofunctionalism
The entire measures can according to Neofunctionalism, be argued to constitute integration,
however, only one of them (the ESM) implies the setting up of a new regional institution, and this
is a thoroughly intergovernmental institution. Four of the measures, the reformation of the
stability and growth pact, the Macroeconomic Imbalance Procedure, the European Semester, the
TSCG and the Euro plus pact entail the expansion of the roles of existing institutions (the
commission and the ECJ). Concerning the European Semester this role-expansion, is though mostly
as an advisory body. The Two-pack can only be argued to quite modestly constitute more
integration. This is since the member states to some degree shift their activities to a new political
centre. Only in connection with the expanded role of the TSCG do the measures also meet that
part of Haas’s definition which requires that a new centre possess jurisdiction over the pre-
exisiting national states.
Overall, the measures according to Neofunctionalist theory are modest steps toward integration.
Liberal Intergovernmentalism
The above measures all fulfill this theory’s concept of integration, all though concerning the role of
the ECJ the reforms go further then what is stated in this concept. The National states do give
away some scope to international institutions, however this can be said to be part of a strategy,
which ensures compliance to previous political bargainings, and thereby adapts the states to
current circumstances (pressures from globalization), so that they might survive in the long term.
It is only concerning the ECJ´s expanded role in relation to the TSCG that the measures go so far
that the states are no longer masters of the treaties in the issue specific area.
The concept of deep integration and the reforms already initiated It can be concluded that all the already initiated reforms relate to deep integration. This is so since
all of the reforms go beyond rules on tariffs and conventional non-tariff trade restrictions. The
ESM is a mechanism, which has in its scope to safeguard the financial stability of the euro area.
The reforms of the SGP relate to a strengthening of both the fiscal surveillance and enforcement
provisions of the SGP. The reforms of the European Semester, and the Macroeconomic Imbalance
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procedure relate to policy guidance and surveillance. The Two-pack aims to enhance economic
surveillance, coordination, integration and convergence amongst euro area Member States. The
treaty for stability coordination and governance sets up common budget rules, and finally the Euro
plus pact aims to improve economic policy coordination, and to improve competitiveness.
Therefore the reforms relate to rules that govern the entire economies of nations, and hence
constitute deep integration.
The planned reforms As it can be seen above, several measures have already been undertaken to mitigate the crisis.
More measures are however likely to be on the way. These are included in two reports mentioned
in the methodology section. One report is the “Blueprint for a deep and genuine economic and
monetary union” This blueprint was presented in November 2012 by the Commission. This is one
proposal for the future of the EU, and is according to the homepage of the UK parliament the most
comprehensive of the visions for the EU’s future106. It is however, also according to the homepage
of the UK parliament really a complementary document to the document “Towards A genuine
Economic and Monetary Union”, Launched by the so-called “four presidents”. However, as it says
in the methodology section, the Commission’s blueprint has a large importance as it could very
well form the basis of future more far-reaching reforms. I will below present some of the features
of these two major reports on the EU`s possible future, and look at what implications they could
have for the future of the EU in terms of integration. Firstly, I will analyze on the short-term
measures proposed by the Commission and the stage 1 and 2 measures proposed by the four
presidents. This is because these reforms seem to align most with each other in terms of a time
horizon. Next, I will analyze on the medium term measures proposed by the Commission as well as
the stage 3 measures proposed by the four presidents. The reason is that these measures align
with each other in terms of the starting point (even though there is not specified, and end to the
time horizon of the four presidents’ proposals). Finally, I will analyze on the Commission’s long-
term measures.
The proposals for the EU’s future and their relations to the financial crisis
The Commission establishes on its own homepage that the blueprint was made as a response to
the financial crisis. “The EU has embarked on ambitious reforms to overcome the crisis, but further
106
Parliament UK. Genuine Economic and Monetary Union' and the implications for the UK (internetpage)
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work is needed to complete the design of the Economic and Monetary Union. The Blueprint
suggests this be done through gradual reforms, some possible in the short term and under the
current Treaty, some requiring more time and Treaty change”107. As the Commission’s blueprint
really is to be seen as complementary to the document Towards A genuine Economic and
Monetary Union this last document can also be seen as a being partly made as a response to the
financial crisis. That the reforms can be seen as answers to the crisis can also be seen various
places in the document “Towards A genuine Economic and Monetary Union” “The crisis has
revealed the high level of interdependence and spill-overs between euro area countries. It has
demonstrated that national budgetary policies are a matter of vital common interest. This points
to the need to move gradually towards an integrated budgetary framework ensuring both sound
national budgetary policies and greater resilience to economic shocks of the euro area as a
whole”108. Furthermore “The sovereign debt crisis painfully exposed that the unsustainable
economic policies pursued by some euro area countries in the past and the rigidities existing in
their economies have negative repercussions for all members of the EMU. An integrated economic
policy framework is necessary to guide at all times the policies of Member States towards strong
and sustainable economic growth to produce higher levels of growth and employment”109.
Short term reforms (6-18 months) (The Commission’s blueprint)
It will go too far to mention all of the reforms in scope in the short term, so I have chosen some of
those that seem to relate to a path towards more integration. The blueprint mentions that the
immediate focus should be on the deployment of the previously mentioned already initiated
reforms. Furthermore, it mentions that still more can be done through secondary law, in particular
in the area of banking union (through an institution called the single supervisory mechanism or the
SSM), (SSM is a mechanism whereby the ECB will take on supervisory roles in relation to the
national participating EU countries110. Furthermore through reforms which relate to economic
policy coordination (ex ante coordination of major reforms and the creation of a "Convergence
and Competitiveness Instrument") and support to structural reforms necessary to overcome
imbalances and to improve competitiveness (the multifinancial framework or MFF). It also
107107
European Commission. President of the European Commission. Blueprint for a deep and genuine Economic union (internetpage) 108
Van Rompuy Herman 8 (internetpage) 109
Van Rompuy Herman p 13(internetpage) 110
European Central Bank. Banking Supervision (internetpage)
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mentions an instrument to support rebalancing adjustment and more deeply integrated policy
coordination mechanisms. Furthermore, a strengthening of the euro areas external
representation towards international economic and financial organizations is in the pipeline111.
Stage 1 (End 2012-2013) Ensuring fiscal sustainability and breaking the link between
banks and sovereigns (Towards A genuine Economic and Monetary Union)
The short term measures mentioned in the document Towards A genuine Economic and Monetary
union are again basically the same as those reforms which have already been initiated, and which
were mentioned under the Commission’s short term measures. These include:
The completion and thorough implementation of a stronger framework for fiscal governance ('Six-
Pack'; Treaty on Stability, Coordination and Governance; 'Two-Pack').
“Establishment of a framework for systematic ex ante coordination of major economic policy
reforms, as envisaged in Article 11 of the Treaty on Stability, Coordination and Governance (TSCG).
The establishment of an effective Single Supervisory Mechanism (SSM) for the banking sector and
the entry into force of the Capital Requirements Regulation and Directive (CRR/CRDIV). Agreement
on the harmonisation of national resolution and deposit guarantee frameworks, ensuring
appropriate funding from the financial industry.
Setting up of the operational framework for direct bank recapitalisation through the European
Stability Mechanism (ESM)”112.
Stage 2 (2013-2014) Completing the integrated financial framework and promoting
sound structural policies (Towards A genuine Economic and Monetary Union)
This stage would consist of two essential elements: “The completion of an integrated financial
framework through the setting up of a common resolution authority and an appropriate backstop
to ensure that bank resolution decisions are taken swiftly, impartially and in the best interest of
all”113.
111
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate. Executive Summary pp 3-4 (internetpage) 112
Van Rompuy Herman p 4 (internetpage) 113
Van Rompuy Herman p 4 (internetpage)
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“The setting up of a mechanism for stronger coordination, convergence and enforcement of
structural policies based on arrangements of a contractual nature between Member States and EU
institutions on the policies countries commit to undertake and on their implementation. On a case-
by-case basis, they could be supported with temporary, targeted and flexible financial support. As
this financial support would be temporary in nature, it should be treated separately from the
multiannual financial framework”114.
The above-mentioned resolution mechanism refers to the Single Resolution Mechanism, a
mechanism that has it as its purpose to support financial institutions during crisis. It should be
under the supervisory responsibility of the ECB115.
The mechanism for stronger coordination, convergence and enforcement of structural policies is a
mechanism which is referring in the first instance to the already implemented reforms, but which
also means that: “In stage 2, structural reforms could, in specific cases, be supported through
limited, temporary, flexible and targeted financial incentives as Member States enter into
arrangements of a contractual nature with EU institutions. These arrangements would be
mandatory for euro area Member States, and voluntary for the others”116.
Neofunctionalism
Regarding the proposals in the Commission’s blueprint, these relate to more policy coordination,
supervisory functions and support to structural reforms that will entail the role expansion of
existing institutions. Furthermore, a strengthening of the euro areas external representation
seems to indicate a try to shift expectations and activities towards a new political centre. The
remaining of the reforms in the Commission’s proposal are the same as those already mentioned
under the already initiated reforms. This is also true for the reforms in the four presidents’ report.
Furthermore, there are elements in the four presidents’ report stage 2 framework which point to a
limited spending capacity of EU institutions. All in all this means that concerning the short term
measures, and the stage 1 and 2 measures it can be stated that only regarding the ESM these
imply the setting up of a new regional institution whereas the other measures imply the expansion
114
Van Rompuy Herman p 4 (internetpage) 115
Van Rompuy Herman pp 6-7 (internetpage) 116
Van Rompuy Herman p 9(internetpage)
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of already existing institutions, and a modest attempt to shift expectations and activities to a new
centre. Thereby these measures definitely imply further integration, but not to an extent that
seem to be more far reaching then what has already been put in place. This is so since the
measures still mostly relate to coordination, supervision and support. There is nothing implied that
would grant the EU any autonomy.
Liberal Intergovernmentalism
These measures are explainable according to Liberal Intergovernmentalism’s concept of
integration. It must be repeated that the measures concerning more coordination of and
surveillance of economic policies would be considered as means to avoid non-compliance. It can
therefore again be said that the nation states adapt in order to survive. Still these measures do not
seem to delegate so much power to the central institutions that the states are no longer masters
of the treaties. This is because nothing is mentioned that implies sovereignty to central EU
institutions.
Medium term reforms (18 months-5 years). (The Commission’s blueprint)
It will go too far to mention all of the reforms in scope in the medium-term so I have chosen some
of those that seem to relate to steps towards significantly more integration. In the medium term
matters seem to be planned which entail significantly more integration “Building on the
Convergence and Competitiveness Instrument, the fiscal capacity for the euro area should be
further enhanced. It should be autonomous and rely solely on own resources. It should provide
sufficient resources to support important structural reforms in a large economy under distress”117.
These reforms are quite interesting as they imply that an institution in the euro area should start
to rein in its own taxes or be provided very significant funds from member states to a degree so
that it can support a large economy in problems. Furthermore, a redemption fund has been
planned in order to address the reduction of public debt significantly exceeding the SGP criteria.
This would work under the same strict conditionality as the ESM118. The difference between this
and the ESM would of course be that the redemption fund would not be an intergovernmental
institution. Finally, in the medium term there is the matter of the issuance of Eurobills. These
117
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate. Executive Summary p 6-8 (internetpage) 118
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate p 28-29 (internetpage)
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would be short-term government debt with a maturity of up to 1 to 2 years, and rely on common
issuance by euro area Member States119.
Stage 3 (post 2014) Improving the resilience of EMU through the creation of a shock-
absorption function at the central level (Towards A genuine Economic and Monetary
Union)
This stage would mark the culmination of the process. Stage 3 would consist in: “Establishing a
well-defined and limited fiscal capacity to improve the absorption of country-specific economic
shocks, through an insurance system set up at the central level”120.
It is also mentioned that; “This stage could also build on an increasing degree of common decision-
making on national budgets and an enhanced coordination of economic policies, in particular in
the field of taxation and employment, building on the Member States' National Job Plans”121.
Concerning how the fiscal capacity should be funded, the following is mentioned in the report.
“These resources could take the form of national contributions, own resources, or a combination of
both”122.
Neofunctionalism
Regarding the Commission’s measures, they would all constitute a significant degree of
integration. They would entail the setting up of at least one new regional institution (an
autonomous fiscal institution). Furthermore, in these cases it can really be said that more parts of
the decision making process, than concerning the already initiated reforms, will be moved to a
new central organ. This is so since the medium term measures go far beyond benchmarking and
coordinating activities, and imply that an autonomous central institution should acquire its own
means by which to follow its objectives. Thereby, it is implied that a significant degree of political
activities should be transferred to a new centre. Since the measures relate to an autonomous
institution, which should rely on its own resources this implies that the measures meet that part of
Haas’s criteria for integration which states that a new centre will possess jurisdiction over member
states. This is because this means that somehow the member states (or their citizens) will be
119
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate p 29 (internetpage) 120
Van Rompuy Herman p 5 (internetpage) 121
Van Rompuy Herman p 5 (internetpage) 122
Van Rompuy Herman p 12 (internetpage)
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obliged to fund this institution which will thereby gain a certain measure of jurisdiction over the
member states finances. Concerning the measures suggested by the four presidents, these would
also constitute a significant degree of integration. These measures also go somewhat beyond
benchmarking and coordinating activities as they suggest a well-defined limited fiscal capacity.
Therefore, there definitely seems to be a significant role-expansion of existing institutions in
scope. It should however be noted that an autonomous instrument is not mentioned as it is by the
Commission. Furthermore, it is an open question in the four presidents’ report whether the fiscal
instrument should rely on its own resources. The emphasis is instead on an insurance system,
common decision-making, and coordination of economic policies building on national job plans.
Hence, this proposal is after all vaguer than the Commission’s concerning to what degree activities
should be shifted to a new centre, it will however be to a larger degree than concerning the stage
1 and 2 measures.
Liberal Intergovernmentalism
The proposed reforms of the Commission are to some degree explainable according to Liberal
Intergovernmentalism’s concept of integration. This is due to the argument about a redemption
fund, and a fiscal fund, which would be able to help states in distress (thereby increasing their
chances of survival). Furthermore, the Eurobills could increase the sustainability of public finances
for the sovereigns concerned. Even if the states will somehow have to provide funding for the
measures (and thereby loose some economic freedom as they will have to tie up money), it can
according to Liberal Intergovernmentalism be argued that the states by giving up some autonomy
acquire a larger financial security, which can help to ensure their survival. In these proposals are
however also a measure where states can no longer be said to be fully masters of the treaties. This
concerns an autonomous fiscal capacity. This measure conflicts with the view held by Liberal
Intergovernmentalists that states are masters of the treaties. Concerning the four presidents’
proposal, this can also be said in several ways to meet Liberal Intergovernmentalism’s
expectations of integration. A limited fiscal capacity to improve the absorption of country-specific
economic shocks, through an insurance system set up at the central level indicate an instrument
which is also capable of increasing the sustainability of public finances, and thereby ensuring the
survival of the states involved in the insurance system. This is also indicated in its purpose as
described in the document where it says: “the fiscal capacity's role should be to improve the
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overall economic resilience of the EMU and euro area countries”123. This in turn means that this is a
tool, which is applicable to euro area countries, and not to other member states. It can be argued
that since the fiscal capacity should be set up at the central level, national states can no longer be
considered to be fully masters of the treaties. Even if the emphasis is on an insurance system.
Thereby this suggestion goes beyond what Liberal Intergovernmentalist theory would expect from
integration.
Long term reforms (beyond 5 years) (The Commission’s blueprint)
In the longer term the measures that the EU should move towards, are very substantial in terms of
European integration. A full banking union is planned124. “ECB applying the single Rulebook and
the standards developed by EBA ensure a consistently high quality of supervision across the euro
area125”. A full fiscal and economic union is envisaged as the final stage in the EMU126. This would
imply “a political union with adequate pooling of sovereignty with a central budget as its own fiscal
capacity and a means of imposing budgetary and economic decisions on its members, under
specific and well-defined circumstances127”. It is however admitted in the blueprint that the size of
this central budget will depend on the depth of integration desired and on the willingness to enact
the accompanying political changes128.
Neofunctionalism
According to Neofunctionalism these measures would definitely constitute more European
integration. This means that the measures meet the requirements concerning the role-expansion
of existing institutions. This concerns a full banking union where the ECB´s role would be
expanded. Furthermore the EU moves towards a political and economic union with means of
imposing budgetary and economic decisions on its members, and an adequate pooling of
sovereignty. This implies a very large role-expansion for the EU institutions involved. Thereby
123
Van Rompuy Herman p 12 (internetpage) 124
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate p 30 (internetpage) 125
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate p 30 (internetpage) 126
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate p 31 (internetpage) 127
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate p 30 (internetpage) 128
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate p 30 (internetpage)
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these reforms meet that part of Haas’s definition of integration which says that political activities
move toward a new centre, whose institutions possess or demand jurisdiction over the pre-
existing national states (due to the wish that the union should be able to impose budgetary and
economic decisions on its members). The setting up of a political and economic union implies that
activities, to a very significant degree will shift toward a new centre. Furthermore, it can be said
that a political community, superimposed over the pre-existing ones will then be close to
materializing. Of course, it is too soon to judge whether Haas’s criteria regarding the transfer of
loyalties will be met too. That is a matter, which only the future can tell. Overall these measures
must according to Neofunctionalist theory be said to imply a very significant degree of integration.
Liberal Intergovernmentalism
According to Liberal Intergovernmentalism the long-term reforms can be said to contain elements
which are more fare reaching than this theory’s concept of integration. The statements about
“adequate pooling of sovereignty” and “means of imposing budgetary and economic decisions on
its members” definitely goes against the Liberal Intergovernmentalist view about states being
masters of the treaties, and the view of states being actors. If however, one is to look at some
more background information, then under some circumstances it can be argued that the above
reforms could partially be in line with Liberal Intergovernmentalist thinking. Firstly, it is stated
above regarding the measures concerning a political and economic union; that this can only be
imposed “under specific and well-defined circumstances”. This implies that it is only in certain issue
specific areas where the states will no longer be masters of the treaties since they will have to
define the issues that they choose to delegate to the EU before they do so. Therefore, this might
entail that states follow a strategy where issue-specific preferences about how to manage matters
of the globalization are followed. In this case, this would mean that states could choose only to
delegate authority to the union in cases where they deem it necessary due to the economic
environment. If one looks at some of the reasons provided in the blueprint for the fiscal and
economic union, it says “A common instrument dedicated to macroeconomic stabilisation could
provide an insurance system whereby risks of economic shocks are pooled across member states,
thereby reducing the fluctuations in national incomes. Second, it may help improve the conduct of
national fiscal policies throughout the cycle. In particular, it may encourage fiscal retrenchment
during economic booms, while providing additional room for maneuver for a supportive fiscal
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stance in downturns. Overall, a shared instrument could deliver net gains in stabilizing power, as
compared with current arrangements129” In this it is implied that what is at stake, is an instrument
that would have the capacity to generate an overall economic outcome collectively superior to
national actors, and to act in favor of compliance by encouraging fiscal retrenchment during
economic booms. Hence, even the long-terms reforms could be seen as means by which to adapt
the nation states to globalization In order for them to survive. Even, if in some issue specific areas,
they will no longer be masters of the treaties. Therefore, the long-term reforms can be explained
according to the Liberal Intergovernmentalist concept of the integration process. Although this
depends on how the circumstances regarding the political and economic union will be defined.
Conclusion on the planned reforms
Neofunctionalism
According to Neofunctionalism the short-term reforms in the Commission’s blueprint, and the
stage 1 and 2 measures in the four presidents’ proposal will mean further integration in line with
the reforms already agreed on. This overall entails the setting up of one new regional institution as
well as the role-expansion of other institutions. The short-term reforms overall moderately shift
activities towards a new political centre. Concerning the Commission’s medium term measures,
these can also be said to constitute the role-expansion of existing EU institutions. Furthermore,
these reforms can be argued to be more far-reaching, as they imply that, to a significant degree
activity should shift to a new centre, and that to some degree a new centre will demand some
jurisdiction over issue specific areas relating to finances. The four presidents’ stage 3 reforms also
seem to imply a significant role-expansion of an EU institution, but it is still a question whether
they will shift activities to a new centre to the same degree as the plans proposed by the
Commission. Finally, concerning the Commission’s long-term measures, these meet that part of
Haas’s criteria of integration, which says that a new centre possess or demand jurisdiction over
the pre-existing national states. The long-terms measures also entail a very significant role-
expansion for existing EU institutions, as activities to a large degree will shift toward a new centre
(the EU).
129
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate pp 31-32 (internetpage)
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Liberal Intergovernmentalism
All measures described in the Commission’s blueprint partly meet the theory’s basic concept of
integration but it must be noted that the medium and long-term measures go further than Liberal
Intergovernmentalims´s concept of integration. The states give up significant scope of decision
making to EU institutions, but the measures are partially aimed at increasing compliance among
member states, and to ensure that the member states are backed by a significant fiscal
mechanism. Thereby member states can by grating some power to institutions, adapt themselves
to volatile financial crisis circumstances, and survive in the face of globalization. Concerning issue
specific areas in the medium and long-term measures the member states will however no longer
be masters of the treaties. All measures described in the four presidents’ proposal also meet the
theory’s basic concept of integration but it must be noted that the stage 3 measures go beyond
Liberal Intergovernmentalims´s concept of integration. States give up significant scope of decision
making to EU institutions, but the measures are partially aimed at increasing compliance among
member states, and to ensure that the member states are backed by a significant fiscal
mechanism. Thereby member states can by grating some power to institutions, adapt themselves
to volatile financial crisis circumstances, and survive in the face of globalization. It is also implied in
the stage 3 measures that concerning the central fiscal authority member states will no longer be
masters of the treaties.
The concept of deep integration, and the measures mentioned in the
blueprint All the measures mentioned in the Commission’s blueprint, and in the four presidents’ proposal
constitute deep integration. The Commission’s short-term reforms and the four presidents’ stage
1 and 2 reforms have a focus on policy coordination and economic convergence, and
competitiveness. These reforms are therefore beyond the scope of rules on tariffs and
conventional non-tariff trade restrictions. The Commission’s medium term reforms have a focus
on strengthening the fiscal capacity for the euro area, and on the setting up of a redemption fund.
These measures are therefore also significantly beyond the scope of rules on tariffs and
conventional non-tariff trade restrictions. The four presidents’ stage 3 reforms also have a focus
on the setting up of a common fiscal mechanism, and coordination of common tax policies.
Therefore, these reforms definitely go beyond rules on tariffs and conventional non-tariff trade
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restrictions. Finally, the Commission’s long-term reforms with plans of a full banking union, and a
full fiscal and economic union, definitely go well beyond rules on tariffs and conventional non-
tariff trade restrictions. Instead, the reforms relate to rules that govern the entire economies of
nations, and hence constitute deep integration.
European integration, and the distinction between euro area
members and other EU members Most of the reforms so far initiated relate to euro area members whereas other EU member
states have not to the same degree been included in the measures. To sum up; It is only the
strengthened SGP, the European Semester, and the Macroeconomic Imbalance Procedure, which
also applies to non-euro area members, states, (Although the Macroeconomic Imbalance
Procedure and the strengthened SGP do have stricter enforcement for euro area states). The
TSCG is kept open so that non-euro area member states can join it if they wish to, however from
the outset it is only applicable to euro area member states. The Euro plus pact is likewise only
mandatory for euro area members, but several non-euro area members have joined it as well. This
is something, which I will elaborate on later. Concerning the Commission’s blueprint for future EU
reforms, it is acknowledged in this blueprint that the euro zone must be able to integrate quicker
than the EU at large. This opinion also seems to be reflected in the planned reforms, as most of
these; both short-term, medium-term as well as long-term, seem to relate to euro area member
states. Regarding the SSM (single supervisory mechanism) there is supposed to be a balance in the
decision making between euro area and non-euro area states. This implies that this supervisory
mechanism will also apply to non-euro area states. The ex ante reforms are supposed to be
compulsory for euro area member states but not for non-euro area members. The external
representation only applies to the euro area. Concerning the medium term reforms these are all
related specifically to euro area member states as the redemption fund takes its outset in
addressing the reduction of public debt significantly exceeding the SGP criteria130. The fiscal
capacity mentioned is meant only to be a capacity for the euro area, and likewise are the Eurobills
130
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate pp 29-30 (internetpage)
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intended only to be a new euro area sovereign instrument131. Regarding the long-term measures,
these relate to a banking union with oversight from the ECB, which in itself implies that the
reforms will relate to euro area countries. Concerning the full fiscal and economic union, this
union is described as the final stage in the EMU132. This in itself implies that it is only meant to be
for euro area member states as the final stage of the EMU (as I will outline in more detail later) is
not applicable to EU states, which are not members of the euro area. Concerning the proposals in
the four president´ report, the stage 3 proposals of this report also seem mostly to be applicable
to EU countries since the central insurance system, which is to guard against economic shocks, is
aimed at euro area members133. Furthermore, also the stage 2 measures are aimed at euro area
members134. From the above it is evident that the financial crisis has caused several reforms
concerning deeper integration which apply to euro area members but not to non-euro area
members. In the below section I will try to answer what these reforms actually mean for the EU
states which are not part of the euro area.
Three layers of countries Concerning the monetary politics of the EU there are three layers of countries. Euro area members
who use the Euro as their currency, non-euro area members who have independent currencies,
but whose currencies are pegged to the Euro (through the ERM II cooperation)135, and hence
countries who have independent currencies, and whose currencies are not part of the ERM II
cooperation. The ERM II cooperation entails that the participating countries have a fixed exchange
rate towards the Euro136. I will from now on use the phrase “pegged to the Euro” to describe this
fixed exchange rate. Before going any further into this, I will elaborate a bit on the concept of the
EMU (European economic and monetary union). All EU member states take part in the EMU. The
EMU is divided into three stages where the first stage contains the elements of: Complete
freedom for capital transactions; increased co-operation between central banks; Free use of the
ECU (European Currency Unit, forerunner of the Euro); Improvement of economic convergence.
131
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate pp 29-30 (internetpage) 132
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate p 31 (internetpage) 133
Van Rompuy Herman p 5 (internetpage) 134
Van Rompuy Herman p 9 (internetpage) 135
European Commission . Economic And Financial Affairs. What is ERM II? (internetpage) 136
European Commission . Economic And Financial Affairs. What is ERM II? (internetpage
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The second stage contains: Establishment of the European Monetary Institute (EMI); Ban on the
granting of central bank credit; increased co-ordination of monetary policies; Strengthening of
economic convergence; a Process leading to the independence of the national central banks, to be
completed at the latest by the date of establishment of the European System of Central Banks;
Preparatory work for Stage Three. Finally stage three is the introduction of the Euro itself, this
stage contains: Irrevocable fixing of conversion rates; Introduction of the euro; Conduct of the
single monetary policy by the European System of Central Banks; Entry into effect of the intra-EU
exchange rate mechanism (ERM II); Entry into force of the Stability and Growth Pact. In order to
adopt the Euro, non euro area member states must fulfill the following convergence criteria: Price
stability, to show inflation is controlled; Soundness and sustainability of public finances, through
limits on government borrowing and national debt to avoid excessive deficit; Exchange-rate
stability, through participation in the Exchange Rate Mechanism (ERM II) for at least two years
without strong deviations from the ERM II central rate; Long-term interest rates, to assess the
durability of the convergence achieved by fulfilling the other criteria137. As we shall see below,
there are currently two countries, which participate in the ERM II mechanism, and thereby have
their currencies pegged to the Euro.
There are as of 2014 18 EU countries which have adopted the Euro as their national currency138.
The two EU countries, which are participating under the ERM II agreement (The Exchange Rate
Mechanism) which means that their currencies are pegged to the Euro, are Denmark and
Lithuania139. Under this agreement, the national currencies in Denmark and Lithuania are allowed
to fluctuate by a maximum of ±2.25% for Denmark and ±15% for Lithuania in relation to the Euro.
This mechanism is set up in order to avoid that exchange rate fluctuation between the Euro and
other EU currencies disrupt economic stability within the single market. Furthermore, it helps non-
euro area countries to prepare themselves for participation in the euro area140.
In light of the above, it is interesting to look at what kind of impact the EU reforms have had on
the states, which are not in the euro area. This is in order to examine to which degree it can be
said that the reforms have meant more integration for these countries.
137
European Commission . Economic And Financial Affairs. Who can join and when? (internetpage) 138
European Commission . Economic And Financial Affairs. The Euro (internetpage) 139
European Commission . Economic And Financial Affairs. What is ERM II? (internetpage) 140
European Commission . Economic And Financial Affairs. What is ERM II? (internetpage)
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Countries whose currencies are pegged to the Euro
If one looks at how the reforms already initiated are affecting EU members in terms of integration,
it is clear that almost the same overall pattern is applicable to countries whose currencies are
pegged to the Euro, as it is for euro area countries. The countries have to fulfill the strengthened
SGP criteria they have to go through the Macroeconomic Imbalance Procedure, the European
Semester, and the Two-pack surveillance and coordination measures. Of course, the new financial
penalties that concerns breaches of the SGP and the Macroeconomic Imbalance Procedure do not
apply to these non-euro area members. The ESM and the TSCG is not applicable to non-euro area
countries (unless they should signal that they wish the TSCG to be applicable to them). What is
distinguishing about the countries, whose currencies are pegged to the Euro, is that they basically
can be said to have the same frames to maneuver within, as the euro area countries have. As
mentioned in the section on the three interlinked crises one of the main issues that crisis struck
euro area countries have, is that their currencies cannot depreciate. Countries whose currencies
are pegged to the Euro therefore have the same limitations as euro area countries, when it comes
to fight poor growth and sovereign debt (as they can not allow their currencies to depreciate in
value unless the Euro also does so). This mean that if these countries want to present sound
macroeconomic data, which is required according to the SGP, the Macroeconomic Imbalance
Procedure, the European Semester and the two-pack, they must follow a stricter path then, (as we
shall see later), countries whose currencies are not pegged to the Euro. This means that in order to
deliver appropriate economic data, these countries must ensure that necessary reforms of the
economy are made. I will argue that this entails that they are more likely to need to cooperate
with the Commission and the independent bodies in order to find solutions to macroeconomic
issues, and thereby to get approval of their macroeconomic policies. Furthermore, I will argue that
an increased coordination of economic policies in the euro area means that the countries whose
currencies are pegged to the Euro to a large degree must follow the same policies as the euro area
countries follow. This is due to the currency peg. For instance if the euro area countries set on a
course toward higher overall surpluses on their foreign accounts, the countries whose currencies
are pegged to the Euro will have to do the same. The reason is that if the Euro would start to
appreciate in value due to a large net inflow of money into the euro area, countries whose
currencies are pegged to the Euro would be forced to also have a substantial net inflow of money,
otherwise they would not be able to maintain the bond towards the Euro. When sound
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macroeconomic data is obtained in the euro area this will mean that countries whose currencies
are pegged to the Euro would have to reach equally sound macroeconomic data. Otherwise, it
might be difficult for them to keep the peg to the Euro. Concerning the reforms envisaged in the
Commission’s Blueprint, I will argue that especially the long-term aims of a full economic and fiscal
union will have a significant impact on the European integration with regard to the countries
whose currencies are pegged to the Euro. Even if such a union only was to be the final stage of the
EMU, and would thereby only apply to euro area countries, such a union would mean that the EU
institutions would really have the possibility to set a common macroeconomic agenda for the EU.
This in turn would mean that the countries whose currencies are pegged to the Euro would have
to follow the economic policies chosen by the EU institutions (if they want to keep the currency
peg). The reforms outlined in the four presidents’ proposal are less fare reaching, and would
therefore not have the same consequences for the Countries whose currencies are pegged to the
Euro. This is because the EU institutions according to this proposal would have less ability to set a
full economic agenda.
Countries whose currencies are not pegged to the Euro
Concerning EU member countries whose currencies are not pegged to the Euro, the policy
implications of the above-mentioned reforms are naturally quite different then they are for those
countries whose currencies are pegged to the Euro. This is because countries whose currencies are
not pegged to the Euro will still have the capability to act more independently in spite of the
reforms. These countries of course have the same exceptions in regards to financial sanctions as
other non-euro area countries, but, I will argue that the fact that they are able to let their
currencies fluctuate means that they also have de-facto independency from euro area policies.
This is in contrast to countries whose currencies are pegged to the Euro. First of all, countries
whose currencies are not pegged to the Euro can combat the financial crisis with more measures
as their currencies are allowed to depreciate. This gives them the advantage that they can boost
growth by making their goods cheaper, and thereby easier to sell, both inside, and outside of the
EU. This in turn has a positive impact on their sovereign debt, since they will more easily be able
to pay this off. Furthermore strengthening of the growth, and lessening of the sovereign debt also
means better times for the banking systems in these countries as the banks have more of a chance
to rein in loans again. Therefore, this gives these states an advantage of presenting better
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macroeconomic data, so that they do not have to liaise so much with the Commission or the
independent bodies about solutions to macroeconomic issues. Secondly, and very importantly, I
will argue that they do not have to follow an overall euro area policy direction. This is because
they can ignore fluctuations in their currencies towards the Euro. This in turn means that they can
act more independently in their financial policies in spite of a more integrated overall EU approach
to financial matters. For instance regarding the above-mentioned imagined situation where the EU
institutions would be able to set a macroeconomic course, which creates a substantially larger
surplus on the EU’s foreign account. In this situation, countries whose currencies are not pegged
to the Euro can allow themselves not to have the same increase in the net inflow of cash. This
would mean that in the long-term, they would not be able to sustain the same exchange rate
towards the Euro. This however would not be as much of a problem as they would have no formal
obligation to let their currencies hold a stable course towards the Euro. Hence, both the already
introduced reforms of the EU, as well as those reforms, which are outlined in the blueprint and the
four presidents’ report, would not have as much of an impact on the actual independency of these
countries policies, as the reforms would for countries whose currencies are pegged to the Euro.
The Euro plus pact is a good example of how the currency peg can be argued to impact how
differently countries whose currencies are pegged to the Euro relate to the euro area policies,
versus how countries which don’t have a currency peg relate to euro area policies . As we saw
above, of the non-euro area members Bulgaria, Denmark, Latvia, Lithuania, Poland, and
Romania joined the pact. Of these states, obviously Denmark and Lithuania have a peg to the Euro.
Furthermore Latvia’s currency was also pegged to the Euro in 2011 (it then joined the euro area in
2014). This means that all the countries that had a peg to the Euro in 2011 joined the Euro plus
pact. I will argue that states whose currencies are pegged to the Euro would have more
motivation to join the pact since they would anyway have a larger need to coordinate their
policies with the euro area, and need their economies to converge with those in the euro area.
The reason is, as mentioned above, that countries whose currencies are pegged to the Euro have
less room for independent maneuver if they want to keep a stable exchange rate towards the
Euro. For instance, if the competitiveness in Denmark should start to fall behind the euro areas
competitiveness (or if investors started to fear that this was happening), it could result in the
Danish currency being weakened towards the Euro, either through the loss of exports (which
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means less money flowing into Denmark) or through investors selling out of Danish Kroner (which
again means less money flowing into Denmark).
Non-euro area countries, and European integration
Neofunctionalism
According to Neofunctionalism it can be stated that the EU reforms which were initiated as an
answer to the financial crisis had a significantly deeper impact on countries which have currencies
that are pegged to the Euro than countries which do not have currencies that are pegged to the
Euro. This is due to the various reforms entailing a larger degree of role expansion for
supranational institutions towards these countries then towards countries whose currencies are
not pegged to the Euro. The Commission will via the various measures like the European Semester,
the Macroeconomic Imbalance Procedure, the Two-pack, and the Euro plus pact have a de facto
larger say towards countries whose currencies are pegged to the Euro. This is because these
countries have no other alternatives but to follow centrally coordinated EU policies if they want
their currencies to remain stable towards the Euro. Furthermore it can be argued that countries
whose currencies are pegged to the Euro to a larger degree than countries whose currencies are
not pegged to the Euro will have to shift their activities to a new political centre, and try to make
joint decisions (as they need more coordination with euro area economic policies). As mentioned
above the countries whose currencies are pegged to the Euro will be more impacted by the
reforms envisaged in the Commission’s blueprint. The full fiscal and economic union is from the
outset only for euro area members. It can be argued though, that countries whose currencies are
pegged to the Euro will have to follow the policies outlined centrally in such a full fiscal and
economic union. Thereby these countries will also be influenced by a degree of European
integration which de-facto can be argued to be in line with Haas’s definition of European
integration, where a new centre will possess jurisdiction over the existing national states. The
same cannot be said to be true for countries whose currencies are not pegged to the Euro. These
countries will not have to follow the centrally planned policies in the fiscal and economic union to
the same degree. Thereby these countries will not have central EU institutions which de facto
posses’ jurisdiction over them. The four presidents’ proposal is less far reaching, and this is the
proposal which sets the immediate course for the EU, as it has been agreed on by the Council.
Therefore, if this proposal is to be followed the EU institutions will have less room to set a full
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agenda for the economic policies in the union. Therefore, this will also mean that the countries
whose currencies are pegged to the Euro will be less impacted by a loss of autonomy, than they
would if the reforms in the Commission’s suggestion for medium and long-term reforms were to
be followed.
Liberal Intergovernmentalism
Countries whose currencies are pegged to the Euro will be more impacted by measures, which are
in line with Liberal Intergovernmentalism’s concept of integration. In some respects, they will even
be impacted by measures which go beyond this theory’s concept of integration. I will argue that
states whose currencies are pegged to the Euro will have to adapt more to globalization. The
reason is that these states to a larger degree will have to follow central policies from the EU than
what is the case for states whose currencies are not pegged to the Euro. The states whose
currencies are pegged to the Euro can, if the Commission’s medium and long-term plans, or the
four presidents’ stage 3 plans come true, no longer be said to be de-facto masters of the treaties.
This is because they will now de-facto have to follow policies from central institutions. Thereby for
this group of countries, the reforms will go well beyond what is normally expected by Liberal
Intergovernmentalism. Countries whose currencies are pegged to the Euro will not to the same
degree have to follow central EU policies, and hence it can be stated that these countries will still
remain masters of the treaties, and will not have to adapt so much to globalization.
The concept of deep integration and the three layers of countries It can be stated that as the EU’s reforms will impact euro area countries and the countries whose
currencies are pegged to the Euro more significantly, these countries will also be impacted more
by deep integration than those EU countries whose currencies are not pegged to the Euro. This is
so since the reforms already initiated, and the reforms included in the blueprint, all constitute
deep integration (as I previously established).
Possible obstacles to the EU’s integration As previously mentioned the Commission and the four presidents’ reports must be considered
biased sources concerning the reform prospects of the EU. The blueprint is an outline of how the
Commission wishes for the future to look like, and the proposal of the “our presidents is an outline
of how these wish for the EU’s future to look like. If one however looks at other sources, it is
evident that these wishes might not materialize. In an article in The Economist titled “The battle
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for euro-zone reforms, Angela all alone” it is described how the German chancellor Angela Merkel
has encountered sharp resistance from almost all other EU countries regarding the German
proposal that countries should sign binding contracts with European institutions on a program of
reforms, in exchange for additional economic help141. The reasons behind the rebuttal of the
German proposal are quite interesting, and can show something about one of the future ways for
European integration. Southern countries rejected the idea of yet more surveillance and reforms
imposed from Brussels, especially if the “solidarity mechanism” offered only smaller sums.
Northern European countries such as Finland and the Netherlands opposed the reforms out of
fear that the transfers might become permanent. Furthermore, many European leaders feared
that the unpopularity of the proposals would feed anti-establishment, anti-EU, and anti-immigrant
parties in the upcoming European elections. Very crucially, the article pinpoints that without the
fear of an acute crisis that might endanger the Euro; the other EU countries were much more
hesitant to approve the German proposal than what had been the case concerning previous
German proposals. In the past countries desperate for Germany’s financial backing quickly agreed
to two separate rounds of German treaty change proposals, which they almost unanimously felt
were unnecessary142. This change in behavior towards German proposals is explainable according
to Liberal Intergovernmentalist theory. As we saw in the section on the theories, it is the relative
bargaining power of states, which determine the outcome of bargainings. In relation to this, the
concept of asymmetrical interdependence is crucial. According to this concept, those actors who
are least in need of reaching a specific agreement may threaten the other actors with non-
cooperation. In the situation with Germanys proposal concerning the binding contracts, it can be
argued that since many countries are now in a situation where the pressure from the crisis is less
severe than it was a couple of years ago, these countries are more likely to threaten with non-
cooperation if an agreement does not suit them. This means that as the economic climate
recovers and the worst consequences of the crisis diminish the relative bargaining power of the
countries, which are worst, impacted by the crisis, will rise and this could act to slow down the
speed of EU integration reforms.
141
The Economist. (2013). Angela all alone, The battle for euro-zone reforms (internetpage) 142
The Economist. (2013). Angela all alone, The battle for euro-zone reforms (internetpage)
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Conclusion on possible obstacles to the EU integration The Economist offers an interesting viewpoint to the newly initiated EU reforms, implying that
these seem to have been possible due to asymmetrical interdependence. Germany has, due to its
relative bargaining power during the crisis been able to dictate a number of EU reforms that it
wanted. This might now be changing, as the worst parts of the crisis seem to be over. Thin in turn
means that many of the planned reforms might be more complicated to push through. This
demonstrates that the future EU development might not turn out like biased sources such as the
Commission or the four presidents envisage.
The reasons behind the reforms and European integration theory In the below section I will comment on which reasons according to the European integration
theories can be argued to lie behind the reforms which constitute the EU’s answer to the financial
crisis. In the two documents the Commission’s blueprint, and the four presidents’ proposal a
number of reasons are provided why the proposed reforms should be necessary. As the already
initiated reforms are mentioned as short-terms reforms in the blueprint, and as stage 1 measures
in the four presidents’ proposal, the reasons provided in these documents why the already
initiated reforms should be necessary will be the reasons that I will analyze on in this paper. Of
course, the blueprint, and the proposal of the four presidents’ are biased sources. These are both
authored by European institutions, and as we saw in the section on Social Constructivism, actors
involved with the EU institutions, be they governments, firms, or interest groups, will be impacted
by the norms of the institutions that they work with. Therefore, it must be anticipated that the
institutions that they work for influence the human agents behind these reports. Therefore, most
of the analytical work behind the two reports could have been done with a mindset, which was
biased towards certain explanations even before the work in the reports commenced, (more on
this in the specific section on Social Constructivism). It must probably also be anticipated that the
Commission’s report is even more biased in this matter than the four presidents’ report. The last
report is significantly influenced by the Council where obviously the human agents involved are
not influenced as much by EU institutions as it is the case with human agents in the Commission.
Both documents are however primary sources to the reforms. Therefore relying on these sources
provides a good overview of what has been considered as reasons for proposing such reforms.
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Neofunctionalist explanations behind the integration Regarding the reasons for European integration, especially one important concept should be
mentioned. This is the concept of spillover. This concept is implied in a phrase from the blueprint
where the Commission writes that the euro area must be able to integrate quicker and deeper
than the EU at large143. It is not specified in the sentence why. Neofunctuntionalist theory would
argue that this is due to the impact of spillover. The euro area economies are already more
integrated with a common currency, which as we saw in the section on the financial crisis means
that they can’t depreciate their currencies in order to increase growth, and improve their foreign
accounts. This in turn means that they cannot use these tools to combat the sovereign debt crisis,
the growth crisis, or the banking crisis. Therefore, Neofunctionalists would argue that the euro
area states would need to integrate their economies more, in order to mitigate the financial crisis.
This is in accordance with the Neofunctionalist view that once integration has started in one area
of the economy it will necessitate integration in other areas of the economy as well. Spillover is
also implied as a reason behind the reforms in the proposal of the four presidents. “The crisis has
revealed the high level of interdependence and spill-overs between euro area countries. It has
demonstrated that national budgetary policies are a matter of vital common interest. This points
to the need to move gradually towards an integrated budgetary framework ensuring both sound
national budgetary policies and greater resilience to economic shocks of the euro area as a
whole”144.
Another reason behind the reforms relating to spillover is regarding the coordination of national
economic policies beyond the budgetary area. It is mentioned in the blueprint that; “The
instrument was therefore too weak to counter the progressive opening of competitiveness gaps
and growth divergences between Member States. Little consideration was given to the euro area-
wide spillover effects of national measures. National economic policy-making paid insufficient
attention to the European context within which the economies operate145”. This again is an
argument, which is explainable according to Neofunctionalist thought. This is so since it expresses
the opinion that spillover effects were crucial in the need to implement coordination of
143
European Commission. A blueprint for a deep and genuine economic and monetary union Launching a European Debate. Executive Summary p 2 (internetpage) 144
Van Rompuy Herman p 8 (internetpage) 145
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate p 3 (internetpage)
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economies, (this has now already been initiated in the European Semester and the Two-pack). An
exemplification of these spillover effects can be found in the following paragraph “The inception of
EMU saw a sharp acceleration in the pace of financial integration. While this opened opportunities
for portfolio diversifications, it also accelerated the transmission of shocks across national borders.
Despite the increased market integration, the responsibility for prudential supervision and crisis
management remained predominantly at the national level. This asymmetry between integrated
financial markets on the one hand, and a financial stability architecture still nationally segmented
on the other, resulted in inadequate coordination among the relevant authorities at all stages of
the current crisis146”. Concerning the already agreed upon reforms this again points to the need for
the Two-pack and the European Semester. What the Commission says is that when financial
markets are integrated, so likewise do supervision and crisis management need to be.
Furthermore looking at the above-mentioned reason for a full scale fiscal and economic union ““A
common instrument dedicated to macroeconomic stabilisation could provide an insurance system
whereby risks of economic shocks are pooled across member states, thereby reducing the
fluctuations in national incomes. Second, it may help improve the conduct of national fiscal policies
throughout the cycle. In particular, it may encourage fiscal retrenchment during economic booms,
while providing additional room for manoeuvre for a supportive fiscal stance in downturns. Overall,
a shared instrument could deliver net gains in stabilizing power, as compared with current
arrangements147”. In defining European integration according to Liberal Intergovernmentalism, I
focused on the part of the argument that implies a larger degree of compliance. If however one
looks at the part of the argument about the instrument delivering net gains compared to current
arrangements then this is explainable according to Neofunctionalist theory, as this implies that
“the game” played between actors is not a zero-sum game but one in which common interests can
be upgraded. Furthermore, Neofunctionalist theory can also explain that a suggestion for an
instrument like this comes from the Commission since Neofunctionalist theory envisages that
supranational actors are effective at reaching these integrative decisions where negotiations are
not seen as zero-sum games. Therefore, a wish to upgrade common interests is also an
explanation behind the reforms.
146
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate p 3 (internetpage) 147
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate 31-32 (internetpage)
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A final Neofunctionalist reason behind the reform process, which should be mentioned, is the
matter that the Commission in the Blueprint takes a stand, which, if it materializes, can be said to
push ahead integration. A clear example of this is where it says; “While the EU has taken decisive
action to address those major challenges, EMU needs to be deepened further. This Blueprint for a
Deep and Genuine EMU describes the necessary elements and the steps towards a full banking,
economic, fiscal and political union”148. (The Commission states in a normative way that the EMU
needs to deepen further). This is explainable according to Neofunctionalism, which states that
regional integration can be pushed ahead by those employed by supranational institutions.
Liberal Intergovernmentalist reasons Before elaborating on what can be termed Liberal Intergovernmentalist reasons behind the EU
reforms, I would like to draw attention to one issue. This is that many of these reasons (mostly
relating to a need for compliance and a need to adapt the states in question to globalization have
already been implied in the above sections regarding my argumentation for how the various
reforms relate to Liberal Intergovernmentalism’s concept of integration. I will however below
mention some reasons which are explicitly stated in the sources and not implied in the reforms
themselves.
Secondly, I will draw attention to the issue that arguments regarding a lack of compliance as a
reason for reforms, are to be found in documents authored by EU institutions. According to
Liberal Intergovernmentalism it would be national states who would consider the need for
compliance as a reason for regional institutional building. It is logical that the four presidents’
report will underline compliance as a reason for further EU reforms. Van Rompuy who is the head
of the Council, which obviously represents the member states, after all headed this report. It is
however noteworthy that compliance reasons are also to be found in a document by the
Commission. This could of course have more reasons. Firstly, the Commission probably considers it
a relevant reason for reforms. Secondly if Liberal Intergovernmentalist assumptions about states
setting up institutions in order to secure compliance are correct, then for the Commission to
mention compliance as a reason could also be a way in which the Commission tries to enhance the
148
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate p 3 (internetpage
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chances of future reforms being accepted by the member states. Finally, it is also possible that the
report is partly influenced by other sources for instance lobby work by national governments.
The first source which I will introduce in this sub-section is however an article from the German
magazine Spiegel. In this article it is outlined how Germany wishes to push for the above-
mentioned binding contracts, something which should help to push through the planned EU
reforms. The reasons why Germany would do so are outlined in the article. “The goal is to achieve
extensive, communal control of national budgets, of public borrowing in the 28 EU capitals and of
national plans to boost competitiveness and implement social reforms. The hope is that these
measures will ensure the long-term stability of the euro and steer member states onto a common
economic and fiscal path. This would be the oft-invoked and ambitious political completion of
Europe's monetary union -- a huge achievement”149. This implies that it is an attempt by which to
ensure more control with the budgets of member states. In other words, this can be explained
according to Liberal Intergovernmentalist theory as a way in which to ensure compliance from
member states. It is furthermore also in accordance with Liberal Intergovernmentalist theory that
a nation state as Germany is pursuing these objectives.
Regarding strengthening of the SGP, reasons relating to compliance are also implied. The
blueprint mentions (as we saw above) that the build-up of vulnerabilities was partly due to an
insufficient observance of, and respect for the agreed rules underpinning EMU, as laid down in the
stability and growth pact150. The Commission implies that the reforms of the SGP were necessary,
as states did not comply with what was intended in the original bargainings. In order to avoid a
situation of non-compliance, the SGP needed strengthening, and the Macroeconomic Imbalance
Procedure was set up. Reasons which relate to compliance are also implied in the proposal by the
four presidents “The crisis has led to a strengthening of the EU economic governance framework.
Every year, integrated country-specific recommendations by the Council, based on a proposal by
the Commission, are addressed to all Member States. In addition, a Macroeconomic Imbalances
Procedure (MIP) has been put in place to detect and correct imbalances at an early stage”151.
Furthermore when one looks at the proposal for the full fiscal and economic union this seems to
149
Spiegel (2013) Angela´s Agenda: A Grand Controversial plan for Europe (internetpage) 150
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate p 2 (internetpage) 151
Van Rompuy Herman p 15 (internetpage)
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relate to a need for compliance, and is thereby explainable according to Liberal
Intergovernernmentalist theory. As we saw, the full fiscal and economic union should be able to
encourage fiscal retrenchment during economic booms. This is hence explainable as an instrument
whereby the national actors can ensure that the other national actors involved in the EMU show
compliance in terms of fiscal discipline.
Social Constructivism There are several reasons for the initiated reforms, which can be explained according to Social
Constructivism. This relates to examples where discourse/discourses in society, and in the EU can
be argued to define which reforms are being initiated/planned as a response to the financial crisis.
Firstly, the EU’s reforms in response to the financial crisis can be argued to be based on a
discourse which calls for a deeper integration due to spillover effects. What distinguishes this
reason from the reason regarding spillover effects in the section on Neofunctionalism is the
concept of the logic of appropriateness. According to Social Constructivism it can be expected that
actors will follow a logic of appropriateness instead of a logic of consequentialism (a logic of
consequentialism is what Neofunctionalism and Liberal Intergovernmentalism would expect actors
to follow). As we saw in the section on the theories, the logic of appropriateness implies that
human agents do what they consider the right thing. Therefore, according to Social
Constructivism, it can be argued that the human agents in the Commission or behind the four
presidents’ report who states that spillover necessitates reforms do this, as they due to their
involvement with EU institutions find it appropriate, and not because they are pursuing a given
interest. Therefore the already mentioned quote regarding the reasons for working towards a full
fiscal and economic union, can also be viewed as being based on a discourse which takes its outset
in the logic of appropriateness instead of the logic of consequentialism. “The inception of EMU
saw a sharp acceleration in the pace of financial integration. While this opened opportunities for
portfolio diversifications, it also accelerated the transmission of shocks across national borders.
Despite the increased market integration, the responsibility for prudential supervision and crisis
management remained predominantly at the national level. This asymmetry between integrated
financial markets on the one hand, and a financial stability architecture still nationally segmented
on the other, resulted in inadequate coordination among the relevant authorities at all stages of
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the current crisis152” It can be stated that the above could be argued to be signs of a discourse in
the Commission which says that spillover is an issue (integrated financial markets versus national
financial stability architechture), and therefore it is necessary to work towards a full fiscal and
economic union.
There are more examples of reasons behind the reforms, which can be explained from Social
Constructivist reasons. An example of such a discourse is where the blueprint mentions that the
build-up of vulnerabilities was partly due to an insufficient observance of and respect for the
agreed rules underpinning EMU as laid down in the stability and growth pact153. The same
meaning is implied in the document “Towards A genuine Economic and Monetary Union”. Here it
is mentioned how unsustainable economic policies pursued by some euro area countries in the
past and rigidities existing in their economies have negative repercussions for all members of the
EMU. This discourse could also be argued to possibly, have its outset in the logic of
appropriateness, instead of in the logic of consequentialism. By these statements the Commission,
and the four presidents’ report set a discourse, which basically states that non-compliance to the
previous stability and growth pact, and a reckless behavior by certain states is part of the reason
for the EU’s problems. Thereby all the various EU institutions involved in reports on the EU’s
future can be argued to have discourses, which relate to non-compliance issues in certain member
states. These discourses are being used to argue for several initiatives regarding monitoring and
information sharing in economic policy spheres.
The above are examples of how it according to Social Constructivism can be argued that the
human agents behind the EU institutions can be influenced by the logic of appropriateness, and
therefore will use normative language to obtain a communicative consensus about the
understanding of a situation. As we saw in the theoretical section regarding Social Constructivism,
actors involved with the EU institutions, be they governments, firms, or interest groups are
impacted by the norms of the institutions that they work with. This helps to constitute the
152
European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate p 3 (internetpage) European Commission. (2012). A blueprint for a deep and genuine economic and monetary union Launching a European Debate p 2 (internetpage)
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identities of the actors as members of a social community. As we saw in the theoretical section
Constructivists may join an intergovernmental reading about interstate negotiations as the central
way to understand integration or they may join Neofunctionalists in emphasizing spillover effects.
Therefore, if there is a discourse in the EU that says that spillover issues require further
integration, then Social Constructivism would argue that actors involved with the EU institutions
can be expected to argument for this, and thereby try to base their reforms on these arguments.
Likewise, if a discourse says that non-compliance is behind issues relating to the financial crisis
actors involved with the EU institutions could be expected to suggest stricter enforcement of for
instance the SGP.
Conclusion on the reasons behind the reforms To sum up, it can be said that there seems to be a variety of reasons, which can explain the
initiated EU reforms. Concerning the Neofunctionalist reasons, the most important reason seems
to be the spillover effect. This is implied to be mostly relevant concerning the euro area that
according to the information on the Commission’s webpage and in the blueprint needs to
integrate quicker and deeper than the EU at large. As mentioned previously, the EU reforms have
been mostly targeted at euro area countries. Another Neofunctionalist reason is the thinking that
“the game” played between actors is not a zero-sum game but one in which common interests can
be upgraded. This is particularly evident in the reasons provided for setting up the full fiscal and
economic union. A last reason which is explainable according to Neofunctionalist theory is that
regional institutions (in this case the Commission) can push ahead integration on own initiative.
This is exemplified in the Blueprint when the Commission states that the EMU needs to deepen
further. Concerning reasons, which are explainable according to Liberal Intergovernmentalist
theory, by far the most important reasons seem to relate to compliance, as most of the reforms
can be argued to relate to the setting up of a larger degree of compliance in the EU system. Finally,
Social Constructivism could offer explanations as to how the reforms have been shaped by
discourses, which take their outset in the logic of appropriateness instead of in the logic of
consequentialism. This relates to calls for a deeper integration due to spillover effects, and a
discourse regarding insufficient observance of and respect for the agreed rules underpinning EMU
as laid down in the stability and growth pact.
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Perspectives on the EU’s reforms In the below I will provide a perspective on how future EU integration might develop in the long
term. To begin with, I will put into perspective some general points concerning the future
development of the EU. Next I will analyze on how the expectations that the theories could be
argued to have about the EU’s answer to the financial crisis (The section on the financial crisis and
the EU integration theories) Compares to the findings in the analysis.
A matter that is interesting is the fact that the reforms initiated as a response to the financial crisis
seem to refute the criticism of Neofunctionalism which says that spillover is a fair weather project,
and which underlines that EU integration stagnated in the 70es when growth was sluggish. The
current reforms have been sparked by a financial crisis. This financial crisis means that the EU has
been in a period of sluggish growth. This has the implication that it can now be argued that
sluggish growth can actually trigger more EU integration instead of slowing EU integration. What
the exact difference is between the 70es when sluggish growth according to the above-mentioned
criticism put EU integration at a halt, and the present situation where the financial crisis seem to
have had the opposite impact is difficult to say. Perhaps it is significant that the EU economies are
now more intertwined than they previously were. This is because EU intratrade has increased154.
This could certainly be in line with Nefunctionalist theory concerning spillover. This therefore
might be a reason why the financial crisis seems to have pushed integration forward instead of
stopping it. Another matter could be the interdependence in the euro area, created by the
introduction of the Euro. This would be explainable according to both Neofunctionalism (Spillover
effects) and Liberal Intergovernmentalism (states set up institutions to cope with globalization). In
any case, based on the experiences from the previous financial crisis, sluggish economic growth
seems not to be able to stop European integration, at least not when the sluggish growth is
accompanied by a sovereign debt crisis, and a banking crisis. Therefore, it can be argued that
based on the findings in this paper, EU integration can move ahead even if the economy in Europe
should continue a sluggish development. The recent empirical findings, actually suggest that
sluggish growth can be an extra driver for integration.
154
Costel Irimia, Bogdan & Teofil Postolachi Andrei pp 105-106
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In the short-term it seems however that a slowly improving economic climate has created a
situation where the EU countries worst impacted by the crisis are less dependent on the other EU
countries. Thereby the asymmetrical interdependence can be said to be lessened. As previously
mentioned this means that it now seems more difficult for Germany to push through any reforms
that it might wish. Therefore, if the world economy, and thereby also the European economy
continue to improve, it can be argued that at least some of the countries which were impacted
worst by the crisis will be under less pressure to ascend to new reforms. This means that their
relative bargaining power will rise (according to Liberal Intergovernmentalist theory). Likewise, a
better economic climate could be argued to decrease the push for reforms coming from Germany.
As we saw in the section on the financial crisis, banks in Germany and France hold a large portion
of sovereign debt issued by some of the countries worst struck by the crisis. Hence if the
economies of these countries gradually improve, the risk of these countries defaulting on their
debt will decrease, and German and French banks, and by extension the German and French
economies, will no longer be dependent on EU financial reforms in order to survive. As the
blueprint regarding a full fiscal and economic union shows, far-reaching plans for the EU’s future
definitely exist. It can however be argued that due to the above mentioned change in relative
bargaining power, and lesser financial exposure for German and French banks, the immediate
impetus for further EU integration might lessen. Therefore it can be argued, that as the financial
crisis recedes, the integration process will move back on a slower course. This can therefore be
argued to lend support to that criticism of Liberal Intergovernmentalism, which says that national
preferences can shift due to for instance a major economic shock. In this case, an easing of the
financial crisis can have the impact that national preferences in the worst struck countries change.
This might again mean challenges to the implementation of the reform program laid out by the
EU. This could however also be expected according to Moravsick and Schimmelfennig´s comments
which says that when it comes to economic areas of society, national preferences can be more
volatile and less predictable.
A second point to consider in connection with perspectives on the EU’s future is that it is worth to
notice that the EU’s response to the financial crisis is a rebuttal of Hofmann´s criticism of
Neofunctionalism. As we previously saw he is stating that external events were a disintegrative
force, and that diverse responses from member states would create unbridgeable divisions and
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even ruptures. It can however be argued that the financial crisis which is partly external in nature,
as it first erupted in the USA (as we saw in the section on the financial crisis), so far has not
created unbridgeable divisions amongst the EU member states. Rather the impact of this external
event has so far united the member states to seek to implement further reforms. The significance
of this is that it means that a deeper EU integration can be obtained, in spite of external events
impacting EU policies.
A third point is that the empiric observation from the financial crisis shows us that the EU can
include countries with quite different economies, and still maintain a process, which leads to a
deeper integration. Thereby not said that this will be without its challenges, it probably will be
challenging as the current financial crisis has shown. The fact that the member states have
economies, which are differently structured, however does not mean that the process of
integration will come to a halt. This has the consequence that future EU enlargements should not
end up blocking that the EU continues its process towards deeper integration. This is significant
knowledge bearing in mind that of the current candidate countries, which are Iceland,
Montenegro, Serbia, The Former Yugoslav Republic of Macedonia, and Turkey155. Most of the
countries have economies which have quite different levels in terms of GDP per capita than the
current EU countries. The aim of the current reforms is to allow the EU to mitigate that structural
imbalances within the union (and especially the euro area) have negative impacts. The measure
against this has been a deeper integration, so the inclusion of the above candidate countries
should mean that the integration process in the EU would speed up in the future. This is because
including these countries might mean that even more emphasis will have to be put on avoiding
that structural imbalances are allowed to accumulate in certain EU countries. However, much will
depend on when, and if, these candidate countries will become members of the euro area. As we
saw previously, being in the euro area really tests the competitiveness of a member state.
It is an open question what differences will occur in the integration process for euro area
members, members whose currencies are pegged to the common currency, and members whose
currencies have no peg to the common currency. As we saw, it is quite different how deeply the
current and planned reforms have/and will impact countries whose currencies are pegged to the
155
European Union. How the EU works. Countries (internetpage)
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Euro and countries whose currencies are not pegged to the Euro. As we also saw it was
acknowledged in the blueprint for a fiscal and economic union, that the euro area must be able to
integrate quicker and deeper than the EU at large. Therefore, it can be expected that this
development will probably continue for the time to come. Those countries which do not have a
peg to the Euro will probably become continuously more distanced by new EU reforms. As the
independent think tank, “European policy centre” writes on its homepage “Britain’s relations with
the EU have reached a critical juncture. The current UK government is adopting increasingly
Eurosceptic positions, leading the UK to re-examine the merits of its EU membership. The mood in
Brussels, too, has changed. Impatience is growing with the UK’s aloofness from the integration
process amid fears that London may block crucial developments in eurozone governance156.”
Therefore it seems to be possible that a country such as the UK and maybe other member states
with no peg to the Euro will get even more distanced from core integration reforms, and some will
maybe end up with agreements like the one that Switzerland has with the EU.
Perspectives on the theories and the EU reforms In the below I will analyze how the expectations that the theories could be argued to have about
the EU’s answer to the financial crisis (The section on the financial crisis and the EU integration
theories), Compares to the findings in the analysis.
Neofunctionalism
It can be said that the expectations that the EU will use a deeper integration as a means to avoid
future crisis is met. Indeed reforms with the purpose of having more supranational involvement
have been set up in order to prevent macroeconomic imbalances from occurring. These are the
Macroeconomic Imbalance Procedure, the Two-pack, and the European Semester. Furthermore
reforms are planned which aims at a full fiscal and economic union, as well as a full banking union.
Thereby it must be said that these reforms indicate that integration is furthered by functional
interdependencies between whole economies, and their productive sectors. This indeed gives
credence to the expectations of spillover effects leading to more reforms. Therefore, the answer
to the crisis with the three intertwined issues of public debt, low growth and a banking crisis,
consists of reforms which entail a deeper integration.
156
European Policy Centre. Britain and the EU (internetpage)
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Considering Neofunctionalism’s claim that negotiations are not zero-sum games, but rather that
the involved actors can find agreements, which benefit all, this seem to find support in the empiric
findings. At least the intentions of several of the reforms are to benefit all the actors involved. An
example of this concerns the reasons provided in the blueprint for a full fiscal and economic union.
It states; “Overall, a shared instrument could deliver net gains in stabilizing power, as compared
with current arrangements. Such a statement signifies that the intention is to avoid a zero-sum
game by creating reforms which will overall deliver more net gains than the current arrangements.
Overall, it can be stated that the assumptions I asserted that Neofunctionalism would have about
the impact of the financial crisis on the EU can be argued to be verified by the empirical findings of
this paper.
Liberal Intergovernmentalism
It can be said that many of my arguments concerning the expectations of Liberal
Intergovernmentalism in terms of the financial crisis impact on EU reforms are also met. Many of
the reforms have the intentions of maximizing compliance by eliminating uncertainty. Examples of
this concerns the European Semester, the Macroeconomic Imbalance Procedure, and the Euro
plus pact. By allowing the Commission to get more involved in scrutinizing the financial data of the
member states, and providing input to the process, non-compliance and uncertainty about the
financial direction of the EU’s member states is decreasing.
Concerning the expectations that those states, which were struck most by the crisis, would have to
grant the most concessions, this seems to have happened (at least initially). The article in The
Economist supports this. These states are however now being wearier of reforms as the pressure
of the financial crisis has started to ease. It can therefore be argued that while the financial crisis
was at its worst, these states concerted to reforms which where spearheaded by Germany. This
was because they had a larger dependence on the outcome than Germany did (their survival, as
states were in question).
Social Contructivism
According to the expectations of Social Constructivism, it can be argued that the expectations
seem to find support in the analysis. This means that the solutions to the crisis will be dependent
on the dominant discourse/discourses in society and in the EU. As we previously saw this was
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firstly regarding a discourse, which imply that spillover was a main issue behind the EU’s problems,
and therefore calls for further integration to solve these issues. Secondly, there was a discourse,
which related to insufficient compliance. This was regarding insufficient observance of and respect
for the agreed rules underpinning EMU as laid down in the stability and growth pact. These are
therefore examples of how different discourses can help to frame the solutions (reforms) chosen.
In this case, it is evident that both Neofunctionalist and Liberal Intergovernmentalist discourses
helped to define the reforms. The above also shows how the discourses used internally by EU
institutions can be expected to form the basis for further integration. This is so since both of the
above examples have been taken from the Commission’s blueprint. It can therefore be said that
an EU institution by its use of language is helping to frame the issues and solutions connected with
the financial crisis.
Conclusion on perspectives on the EU’s reforms It seems that the EU is on a path towards a deeper integration. According to the empirical findings
not even changes to the economic situation in the EU should stop the integration process, even
though an end to the financial crisis might slow down the reform process. External events should
not necessarily either be able to stop the integration process. In the current situation external
events actually only seem to have reinforced the integration process. Even the possible
acceptance of the current EU candidate countries should not be able to stop the integration
process. The admittance of these countries will maybe even help to boost the long-term
integration process. It is however a possibility for the future that an EU in several layers will
develop. This entails that EU member countries whose currencies are not pegged to the Euro
might be less and less integrated in core EU policies, compared to euro area members. This in turn
means that certain countries such as the UK might in the end turn out to choose another path with
a more loose cooperation with the EU.
Based on the above, it can furthermore be concluded that according to the logic of both
Neofunctionalism and Liberal Intergovernmentalism the EU integration process should be
expected to move ahead in the coming years. The expectations I made in the theoretical section
concerning how these theories would expect the EU to react in the face of the financial crisis,
seem to be mostly correct. Social Constructivism on the other hand, might help to explain why the
EU seems to base their reforms on various discourses.
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Conclusion In my introduction I posed the following problem statement: Has the financial crisis caused a
deeper EU integration, and if so, how can this integration be explained?
I furthermore stated that in order to answer the part of the problem statement which says: Has
the financial crisis caused a deeper EU integration? I would need to answer a number of sub
questions.
The first of these sub questions sounds: Have reforms which the EU has already initiated caused a
deeper EU integration?
The EU has already initiated a number of reforms which according to Neofunctionalism constitute
integration. This concerns the role expansion of existing EU institutions (the Commission and the
ECJ), as well as the setting up of a new European institution (the ESM). This integration is overall
relatively modest, as activities are only moderately transferred to a new centre. According to
Liberal Intergovernmentalism it can also be argued that the EU’s crisis measures which have been
implemented so far are explainable according to the theory’s concept of the integration process.
By ensuring compliance to previous political bargains, the member states can be argued to adapt
to current pressures from globalization, so that the states might have a better chance to survive in
the long term. Concerning the ECJ´s role, this is however so far reaching that the states, in the
relevant issue specific areas, are no longer masters of the treaties. The reforms already initiated
relate to deep integration. This is evident from the fact that all the measures in the reforms go
beyond rules on tariffs and conventional non-tariff trade restrictions, and instead relate to rules
that govern the entire economies of nations.
The second of the sub questions sounds: Will reforms which the EU has planned as a consequence
of the financial crisis cause a deeper EU integration?
There are two weighty proposals for how the EU should move on with further reforms. A proposal
from 4 heads of EU institutions, the so called four presidents and from the Commission. It should
be noted that the proposal of the four presidents forms the basis of the immediate EU reform
course, however the Commission’s proposal will form part of a debate regarding further future
reforms. Both proposals meet Neofunctionalism’s criteria for integration. In the medium, and
especially the long-term, the proposal of the Commission seems to be more far reaching, as it is
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more firm in its aspirations to shift national activities to a new centre. Furthermore the medium
and long-term measures entail that certain measures of jurisdiction is moved to a central
authority. Concerning the reforms proposed by the four presidents, these do not go as far, even
though they also imply the setting up of a new regional institution, and the role-expansion of
existing institutions. They propose that in the medium-term a significant degree of activities shift
to a new centre (although not to the same degree as in the Commission’s proposal). According to
Liberal Intergovernmentalism both the Commission’s as well as the four presidents’ proposal are
explainable according to the theory’s concept of integration. The proposals can be argued to
ensure compliance and the financial soundness of the states involved. Thereby the measures can
be argued to serve to ensure the survival of the involved states by adapting them to globalization.
In the long term both proposals include measures which are so far reaching, that states in certain
issue specific areas will no longer be masters of the treaties. All of the measures in the two
proposals can be said to constitute deep integration as they go beyond rules on tariffs and
conventional non-tariff trade restrictions, instead they relate to rules that govern the entire
economies of nations.
The third of the sub questions sounds: Will any possible reforms mean deeper integration for
certain EU member states than for others?
The already initiated reforms, and the planned reforms will to the largest degree impact euro area
states. According to Neofunctionalism it can however be argued that member states whose
currencies are pegged to the Euro will also feel a large impact from the reforms. This is so, since
for these states the various reforms will entail a large degree of role expansion for the
supranational EU institutions. The reason is that they will have to follow the EU’s lead on
economic policies in order for their currencies to remain stable and pegged to the Euro.
Concerning member states whose currencies are not pegged to the Euro, these will not to the
same degree have to follow the lead of the EU institutions, and the role expansion of the EU
institutions will therefore not be so significant for the these countries. According to
Neofunctionalism it can therefore be argued that the EU reforms will not entail so much
integration for these states as for those whose currencies are pegged to the Euro. According to
Liberal Intergovernmentalism it can be argued that states whose currencies are pegged to the
Euro face more integration than those whose currencies are not pegged to the Euro. This is so
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since they will have to adapt more to globalization, as they will have to follow central policies from
the EU more than what is the case for states whose currencies are not pegged to the Euro.
Furthermore concerning both the Commission’s and the four presidents’ long-term measures it
can be argued that if these measures come true states whose currencies are pegged to the Euro
will in certain issue specific areas no longer be masters of the treaties. Concerning the concept of
deep integration, it can be stated, that as euro area countries and the countries whose currencies
are pegged to the Euro will be impacted more significantly by the EU’s reforms, these countries
will also be impacted more by deep integration than those EU states whose currencies are not
pegged to the Euro.
Concerning possible obstacles to the integration it should be noted that a non-EU institutional
source suggests that there are indications that the integration caused by the financial crisis might
slow down as the financial crisis recedes. This is due to a situation where the states most impacted
by the financial crisis become less dependent on the other states. Thereby the asymmetrical
interdependence in the EU is changing.
Concerning the reasons behind the above reforms it can be argued that according to
Nefunctionalism the main reason is spillover, furthermore an EU institution argue that common
interests can be upgraded by reforms. A final reason explainable according to Neofunctionalist
theory is that a regional institution, in this case the Commission, seems to push ahead integration.
According to Liberal Intergovernmentalist thinking the reasons behind the reforms can be
explained as a way in which the involved states can ensure compliance from other states, and a
way in which they can adapt to globalization. Social Constructivism is able to offer explanations as
to how the reforms could be argued to have been shaped by various discourses in the EU
institutions. These discourses can be argued to be based on the logic of appropriateness instead of
the logic of consequentialism. This relates to a discourse, which calls for a deeper integration due
to spillover effects, and a discourse regarding insufficient observance of, and respect for previous
bargaining’s.
As an answer to the problem statement: Has the financial crisis caused a deeper EU integration,
and if so, how can this integration be explained?
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Overall, the following can be concluded. The financial crisis has so far lead the EU to initiate, and
plan a number of reforms which will mean a deeper EU integration. The already initiated reforms
are though overall not very far-reaching in terms of integration. The planned reforms in the
medium and longer-term will also entail deeper integration, of a significantly more far-reaching
nature. This integration applies primarily to Euro zone members, and states whose currencies are
pegged to the Euro, while they only to a lesser extent apply to states whose currencies are not
pegged to the Euro. If the crisis continues to recede this might make the integration, slow down
due to a change in the asymmetrical interdependence in the EU. The reasons behind the reforms
relate to spillover, a desire to upgrade common interests, and the wish to ensure compliance
amongst the various actors involved in the EU. Finally, discourses in the EU institutions has helped
to push ahead the integration.
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