Table Of ContentThe Politics of Economic and Monetary Union
The Politics of Economic and
Monetary Union
Edited by
Petri Minkkinen
and
Heikki Patomaki
The Finnish Institute of International Affairs
SPRlNGER-SCIENCE+BUSINESS MEDIA, B.V.
A C.I.P. Catalogue record for this book is available from the Library of Congress
ISBN 978-1-4613-7788-7 ISBN 978-1-4615-6085-2 (eBook)
DOI 10.1007/978-1-4615-6085-2
Layout design: Vesa Tuukkanen
Printed on acid-tree paper
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© 1997 Springer Science+Business Media Dordrecht
Originally published by Kluwer Academic Publishers in 1997
Softcover reprint of the hardcover 1s t edition 1997
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The Politics of Economic and
Monetary Union
Contents
1. Introduction: The Politics of Economic and Monetary Union 7
by Petri Minkkinen & Heikki Patomiiki
2. The Political Aspects of Economic and Monetary Union: A View
from Brussels 19
by Paul Van den Bempt
3. The Independence of the European Central Bank: Implications for
Democratic Governance 55
by Teivo Teivainen
4. The Role of "Ideas" in Dutch, Danish and Swedish Economic Policy
in the 1980s and the Beginning of the 1990s 76
by Martin Marcussen
S. Identity Politics in the European Union: The Case of Economic and
Monetary Union (EMU) 105
by Daniela Engelmann, Hans-Joachim Knopf, Klaus Roscher &
Thomas Risse
6. Economic and Monetary Union and the Crisis of European Social
Contracts 133
by Anna Leander & Stefano Guzzini
7. EMU and the Legitimation Problems of the European Union 164
by Heikki Patomiiki
8. An Emu or an Ostrich? EMU and Neo-Liberal Economic Integra-
tion; Limits and Alternatives 207
by Stephen Gill
9. Conclusions: Dialectics of the Multi-faced EMU 232
Heikki Patomiiki
8. Index 242
3
Contributors
Paul Van den Bempt is a Senior Research Fellow with the Belgian Group for
European Policy Studies at the Trans European Policy Studies Association,
Bryssels, Belgium. He is also Honorary Director General at the European
Commission.
Daniela Engelman is a Research Associate at the Department of Administra
tive Sciences, University of Konstanz, Konstanz, Germany.
Stephen Gill is Professor of Political Science at the Department of Political
Science and York Centre for International and Security Studies (yCISS). York
University, Toronto, Canada.
Stefano Guzzini is Assistant Professor in Political Science at the Central Eu
ropean University, Budapest, Hungary.
Hans-Joachim Knopf is a Research Associate at the Department of Adminis
trative Sciences, University of Konstanz, Konstanz, Germany.
Anna Leander is Assistant Professor in Political Science at the Central Euro
pean University, Budapest, Hungary.
Martin Marcussen is a Research Fellow at the European Research Unit of the
Aalborg University, Aalborg, Denmark. Currently he is a Visiting Fellow at the
Department of Political and Social Sciences, European University Institute,
Florence, Italy.
Petri Minkkinen is a Researcher at the Finnish Institute of International M
fairs, Helsinki, Finland.
Heikki Patomiiki is a Senior Researcher at the Finnish Institute of Interna
tional Mfairs, Helsinki, Finland.
Thomas Risse is International Relations Chair at the European University
Institute, Florence, Italy. During the writing process of this volume he was
also Professor of Political Science at the University of Konstanz, Konstanz,
Germany.
Klaus Roscher is a Research Associate at the Department of Administrative
Sciences, University of Konstanz, Konstanz, Germany.
Teivo Teivainen is a researcher and lecturer at the Ibero-American Center,
University of Helsinki, Helsinki, Finland.
4
Preface
The research plan for The Politics ofE conomic and Monetary Union was developed
in January 1996, and at that time the participants were already invited for the
project. On that basis, the Ministry of Trade and Industry of Finland appro
priated a grant for this purpose. Since April 1996, Petri Minkkinen has worked
as a full-time researcher for the project, making all the practical arrangements
for the workshop of October 1996 in Helsinki, at the Finnish Institute of
International Mfairs, in the most efficient manner. He also prepared the back
ground paper for the workshop; the paper was published as a working paper of
UPI in July 1996. All the contributors were present at the workshop, except
the co-authors of Thomas Risse. In addition, Paavo Okko from the Institute
of European Studies participated as a discussant. These inspired discussions
set the guidelines for the further development of the papers, although the
papers have also benefitted from comments by outsiders. The language edit
ing was done by David Morris. Final texts were modified to their publishing
format with Page Maker software by Jaana Keho-Kosonen. During the months
that were particularly hectic for the editors, between October 1996 and Feb
ruary 1997, all the other papers were revised, too, many of them in a thorough
manner. The final editing was done in the summer of 1997. The result is an
up-to-date and compact, yet extensive book on the politics of Economic and
Monetary Union.
In Helsinki, 11 August 1997,
Heikki Patomiiki
5
Abbreviations
ACP Mrican, Caribbean and Pacific Countries
CDU/CSU Christian Democratic Union/Christian Social Union
CEEC Central and Eastern European country
CEEP European Centre of Public Enterprises
CIS Commonwealth ofIndependent States (ex-USSR)
CFSP Common Foreign and Security Policy
GDP Gross domestic product
EAGGF European Agricultural Guidance and Guarantee Fund
EBRD European Bank for Reconstruction and Development
ECOFIN Economic and Financial Council
ECB European Central Bank
ECJ European Court of Justice
EMI European Monetary Institute
EMS European Monetary System
EMU Economic and Monetary Union
ERDF European Regional Development Fund
ERM Exchange Rate Mechanism (part of the EMS)
EP European Parliament
ESCB European System of Central Banks
ESF European Social Fund
EU European Union
EUROSTAT Statistical Office of the European Community
ETUC European Trade Union Confederation
GATT General Agreement on Tariffs and Trade
GSP Generalised System of Preferences
IGC Intergovernmental Conference
IMF International Monetary Fund
MEP Member of the European Parliament
NATO North Atlantic Treaty Organisation
OEEC Organisation for European Economic Cooperation
OECD Organization for Economic Cooperation and Development
PHARE Poland-Hungary Assistance Economic Restructuring
QMV Qualified Majority Voting
SEA Single European Act
TEN Trans European Networks
TEU Treaty on European Union
TRIMS Trade related investment measures
UNICE Union of Industrial and Employer's Confederation of Europe
WEU Western Europe-'ln Union
WTO World Trade Orgall;~ation
6
Introduction:
The Politics of Economic
and Monetary Union
PETRI MINKKINEN AND HEIKKI PATOMAKI
EMU: pOlitical, not economic
The history of Economic and Monetary Union (EMU) can be traced back to
the Spaak Report in 1956. What is now called the first phase of EMU started,
in a sense, already in 1959 with the first measures for the common market,
although the acute and concrete need - as well as the more concrete plans -
for EMU did not emerge before the currency instability of the late 1960's. By
tracing the origins of EMU back to the 1950's, the introduction of the single
currency and an autonomous European Central Bank could easily be seen as
the natural end-point of a process of linear evolution of Western European
integration. One could see the final changeover to the single currency by
1 July 2002 as the completion of the common market project. Yet, the realisa
tion of EMU has been contingent on many things, not least on the enthusi
asm over the European projects in general, and its position and substance has
been, and continues to be, open to political contestations.
In fact, one could make the argument that EMU is much less an economic
project than a political one. One indication of this is the uncertainty with
which economists evaluate the project of creating a European monetary un
ion. For instance, Martin Feldstein has argued that the EU is not an optimal
currency area, that the euro will be a very uncertain and potentially unstable
currency, and that EMU could well reduce the scope and intensity of intra
European tradel. Even Milton Friedman, the influential monetarist econo
mist, is rather sceptical about EMU and its economic rationale. He thinks
that some European countries, while heading towards a common currency,
behave as if they were making preparations for a collective suicide. In Fried
2
man's view, the single currency will not be successful, first and foremost be
cause the European countries are too different. WIthin a single currency area,
for a national economy in recession, it would be impossible to use the tradi
tional monetary policy instrument; devaluation. Furthermore, the European
1 See Feldstein 1992.
2 Friedman 1996, 60. The suicidal character of EMU is suggested also by the title of this
interview. Note that earlier Friedman 1962 argued generally against the independence of
central banks on the grounds that it violates the principles of democratic governance. The
European Central Bank will be organisationally at least as independent as Bundesbank, but
even more insulated from the possibility of changes.
7
INTRODUCTION
Union lacks a genuine, shared political will to implement economic policies.3
Moreover, according to Friedman, the case of France indicates that growing
unemployment and the attempts to fulfil the convergence criteria of EMU
are interrelated. Friedman thinks that the European countries should there
fore be happy with the present state of affairs, in which countries can still
resort to particular economic policies required by their particular economic
situation.
It is possible that the opinions of Feldman and Friedman are not entirely
impartial, and this possibility illustrates one aspect of the politics of mon
etary union. Feldman's and Friedman's opinions - as well as the opinion of
many other USAmerican economists - may be biased in accordance with the
national interests of the US. Given the still widespread USAmerican concern
about the possible decline of the US position or hegemony in the interna
tional economic and political system4• it would be understandable that there
is some hesitation about support for a competitor for the US dollar in the
world economys. Yet, Friedman and other USAmerican economists are not
alone in their critique. There are economists who are critical of EMU also in
Europe. For instance, a big group of German economists have advised the
Community to abandon or at least to postpone EMU, because the economies
of most member countries need to converge further before they can follow a
European monetary policy that is as tightly anti-inflationary as that of the
Bundesbank. They also suspect that EMU might, in the longer run, create po
litical tensions that would jeopardise the overall goal of European integra
tion.6 Moreover, it is also noteworthy that according to the previous president
of the Bundesbank, Hans Schlesinger, there are no coherent and theoretically
3 Friedman, ibid, 59, argues that in Europe, the movement of people labour, goods and capital
is still restricted, and also the languages are different. Therefore, he thinks that the
political ieaders are not willing to sacrifice the interests of their countries. In Friedman's
view, the governments would not obey the demands of superior common interest, that is,
the European Central Bank and its decisions.
4 For the empirical inadequacy; metaphorically and mythologically structured origins; and
political effects of this concern, see Grunberg 1990.
5 The euro is also a direct threat to the value of the dollar: "A single European currency is
likely to cause a multibillion dollar adjustment in global central bank reserves, presenting
the biggest challenge to the dollar's dominance as a benchmark currency since World War
II, bankers and officials say." "Euro Threatens Dollar's Clout. European Central Banks
Could Sell Reserves", Internationol Herold Tribune, October 2, 1996.
6 "Economists Attack 'Soft' Criteria in Maastricht Treaty", Guardian, 12 June 1992.
8
MINKKINEN, PATOMAKI
satisfying economic justifications for the public debt limits of the conver
gence criteria7.
Of course, not all economists are against EMU - or even critical about its
substance. In a reply to some of these EMU critiques, four European econo
mists maintained that to stop the process leading to the completion of EMU
would be costly, first and foremost because of the credibility problems that
would be created by such a move in the capital markets8• The defenders of
EMU have also argued that devaluations have come to be perceived quite
rightly as ineffective for correcting economic shocks, and, moreover, that they
might in fact merely generate more inflation. In other words, the argument is
that the process should be seen as irreversible once it has been started, and
one should acknowledge that there are no means for national economic poli
cies anyway. Under these conditions, there is only one rational option left: to
continue the process and hope that all goes well. There is no alternative to
EMU. The defenders argue further that it is not at all clear which precise
dimension of political union could be considered as essential for the viability
of the single currency. Perhaps, from this point of view, there is then no need
for a proper political community to complement monetary union?
Now, independently of whether we believe that critics or the apologists of
the economics of EMU are right, we can see that economics does not provide
us any neutral, technical information about the costs and benefits of the
project, nor does it support EMU unequivocally. Rather, the discordant justi
fication of EMU that is stemming from economics is often based simply on a
necessitarian logic of lack of alternatives, according to which there might in
principle be better possible worlds, but given the constraints and the lack of
real options, this is the best thing, relatively speaking, we can get. So it seems
that the community of economists is almost as uncertain about the reasons
for EMU as is the EU-European citizenry.
7 However, Schlesinger's main worry seems to be that the convergence criteria are not tight
enough. Nonetheless, it is interesting how he grounds his argument also on the - in a
sense - arbitrary nature of the setting of criteria for public debt. Before the beginning of
the Maastricht negotiations the Commission had considered a toO per cent (of GNP)
debt limit as a precondition for the realisation of EMU. However, when the end of the
negotiations was approaching, the 60 per cent limit was marked down into the agreement,
because it happened to be the average debt level. Although the idea was probably to stop
the states from incurring further debts, from an economic theoretical point of view the
limit could have been something quite different as well. Schlesinger 1996; see also "Der
Zug fiir die Wiihrungsunion steht unter Dampf", Frankfurter Allgemeine Zeitung, 25
September 1996.
8 Paul de Grauwe, Daniel Gros, Alfred Steinherr and Niels Thygesen. All the following
comments are citations to Europe Documents, 8 July 1992, 1-4. Italics added.
9
