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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

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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)

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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.

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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)

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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

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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

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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




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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 pp 49-50 19

Wiener Antje & Diez Thomas pp 46-50

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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





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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 pp 68-69 29



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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





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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






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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 pp 144 -145 44



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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 148-149

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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




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

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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 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 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 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 Stability Mechanism. About us (internetpage)

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32

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 p 1 (internetpage) 83

European Stability Mechanism. Home (internetpage) 84

European Stability Mechanism. Home (internetpage)

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33

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)

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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. Stability and Growth Pact (internetpage) 89


European Commission . Economic And Financial Affairs. Stability and Growth Pact (internetpage)

http://ec.europa.eu/economy_finance/economic_governance/macroeconomic_imbalance_procedure/index_en.htm

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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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36

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.


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

Exam Number: 541517

37

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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38


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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39

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.


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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40

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.


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.


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


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.


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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43

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.


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)

http://ec.europa.eu/economy_finance/crisis/

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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 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.


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




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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.


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






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.


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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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 . 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.


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


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 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

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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



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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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74

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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75

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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76

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.


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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77

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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78

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

Exam Number: 541517

79

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

Exam Number: 541517

80

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?

Exam Number: 541517

81

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.

Exam Number: 541517

82

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