EU politics and policy Hoorcolleges

Hoorcollege 1: European Union Politics and Policy

Content lecture:

- What is the European Union?

- Why integrate?
- Why differentiate integration?
- Why disintegrate?

What is the European Union?

Let’s identify the UPO = Unidentified Political object

Identifying the European Union:

- A nation?
- A State?
- A federation?
- A confederation?
- An international organization? (A body set up to promote cooperation between or
among states,

Know the different organizations above. What is the difference.

But what is the European Union? It has a lot of characteristics of all kinds of organizations
but it depends on where you look to identify the organization.

What is it?
The EU as a political system: Multi-level governance

Government <-> Governance

EU government = idea that EU institutions constitute a level of authority above that of the
member states, and that they have powers to make laws and drive the political agenda.

EU governance = Arrangement in which laws and policies are made and implemented as a
result of interactions among a complex variety of actors, including member state
governments, EU institutions, interest groups and other sources of influence.
 - It is about governance, not government
- Refers to a particular kind of relationship that is not hierarchically ordered
- A negotiated order and not defined by formalized legal framework
- A political game

Multi-level governance (OP laptop plaatje toevoegen)

Why integrate?
Why did European countries decide to integrate many of their policies and transfer powers
to European institutions?

Reasons for start integration

- World war I and II: no more war in Europe!

- 1929: economic crisis

Result:

- 1947: Marschallplan
- 1950: Schumanplan
- 1952: Treaty of Paris (Coal and Steel)
- 1958: Treaty of Rome (start Economic integration)
- 1987: single European Act (completion internal market)
- 1993: Treaty of Maastricht (Euro)
- 1999-2009: Treaties of Amsterdam-Nice-Lisbon

Know the process, not the dates, so know that the begin was with Coal and Steel and that
this whole process was slow and It took a long time to get all the countries together.

Result:

- 500 million inhabitants

- 27 member states

- 24 languages

- European institutions: European Commission, European Parliament, Council of Ministers, European

Council, European Court of Justice

- Integration/cooperation on many policy fields, but a patchwork…

Differentiated integration

Differentiated integration: move forward with some member states, give opt-outs to other
member states.

Sweden-Denmark-(United Kingdom)

What is the reason to start with differentiated integration?

Reasons for differentiated integration?

- Public opinion: from permissive consensus to constraining dissensus.

- More countries joining the EU, more diversity between policy and politics of
countries within the EU, more need for differentiation.

 One-size-fits-all policy solutions do not work anymore

Is differentiated integration enough to keep the European Union ‘unified in diversity’?

Are there reasons for member states to leave the union?

Why disintegrate??
Brexit

The idea of Brexit was to take back control.

- Take back control: borders and migration

- Full single market access but no free movement of people
- Referendum day= independence day = To make

Referendum outcome:

Nigel Farage: ‘a victory for ‘the real people, for the ordinary people, for the decent people’ Jean

Claude Juncker: ‘Brexit is not an amicable divorce, but the relationship had not been a deep love
affair anyway

Explaining continuing integration Theories:

Neo-functionalism (Ernst B. Haas)

Some elements:

Regional integration: Political actors in several distinct national settings are persuaded to
shift their loyalties, expectations, and political activities

Functionalism (David Mitrany):

 - Liberal intergovernmentalism
- Historical

Why disintegrate?

- Take back control: borders and migration

- Single market yes; free movement of people no

- Less bureaucracy, no spending money on EU projects a member state is ‘not benefitting from’

- Reconnecting with ‘the people’

…but the EU is resilient…

A history of crises:

- World War I and II, Cold War

- Various financial, monetary and economic crises

- Inefficient and expensive policies (e.g. CAP)

- War in Yugoslavia, Ukraine crisis

- European Convention, failed referenda

- Demographic crisis

- Refugee crisis

- Brexit

- Climate Change

- Rise of Eurosceptic political parties in member states

Hoorcollege 2: Interactions between EU institutions: The Council and the
European Parliament.

Plan for today

- Positioning the Council of Ministers and the European Parliament (EP) in the multi-level EU system

- Council of Ministers: Competences, actors and composition

- EP: Competences, actors and Composition

- Interactions EP and Council of ministers: the Ordinary Legislative procedure

- The rise of trialogues (Informal meetings between the European parliament) and first
reading agreements

- Do national parliaments strike back?

Explaining continuing integration

GUIDLINE TO UNDERSTAND THE COURSE:

Research question: How can we explain the process of integration between European countries since
WO II?

- Theories from the academic literature

- Answers to this research question on the basis of theories?
- Formulate expectations on the basis of theories
- Test expectations with empirical result

A deductive approach (VIA LAPTOP PLAATJE TOEVOEGEN)

Explaining continuing integration

Theories:

- Liberal intergovernmentalism (TODAY)

- Neo-functionalism (NEXT WEEK)

- Historical institutionalism (LECUTURE 4)

Positioning the Council and EP (FOTO TOEVOEGEN VIA LAPTOP)

What is the Council of Ministers?

What does the Council of Ministers do?

Positioning the Council and EP in the multi-level EU system (FOTO TOEVOEGEN VIA
LAPTOP)

The Council of Ministers

- Consists of ministers from the member states

- The Council represents interests of the member states

- Rotating presidency of the Council: arranges and chairs meetings, agenda-setter, broker

- The Council plays a major role in the legislative process

- Organizationally, there are various Council formations and preparatory bodies

When we compare the Council of Ministers with institutions at the national level, which
national institution comes closest to the role and function of the council of ministers at the
EU level?

Answer:

- A cabinet of ministers in a national government

- A senate (Upper House, eerste kamer) in a bicameral system, representing ‘regional’
interests
- A ministry with civil servants (e.g. ministry of finance, ministry of agriculture)

The Council formations

- Legally: a unitary body

- Sectoral Councils increased through the years: - in 1994: 23

- Reforms, formations reduced to 10

The Council formations and yearly meetings

1. General Affairs and External Relations 13

2. Economic and Financial Affairs 11

3. Agriculture and Fisheries 11

4. Justice and Home Affairs 6

5. Transport, Telecommunications and Energy 6

6. Competitiveness 5

7. Employment, Social Policy, Health/Consumer Affairs 4

8. Environment 4

9. Education, Youth and Culture 3

What is remarkable here? Depending on the insensitivity of the legislate.

The Council of Ministers as a legislator

- Pre-Lisbon Treaty:

-the Council co-legislated with the European Parliament in about 80 per cent of treaty areas

- the Council legislated alone (only consulting the Parliament) in a number of important areas

- Post Lisbon Treaty: most areas are subject to colegislation by the European Parliament and Council.
A few exceptions, for example in foreign policy remain

Decision making in the Council

- By unanimity:

Only highly sensitive issues: tax, social policy, defence, foreign policy and treaty revision

- By Qualified majority (QMV):

Internal market, transport, environment, justice and home affairs

Voting in the council: QMV

- Nice: triple majority voting system – phased out by 2014

- The Lisbon treaty double majority voting system:

-At least 65% of the population

-55% of the member states (at least 15 Member States)

-Blocking minority of at least four Member States, representing 35% of the population of the EU
Which theory fits best with the Council of Ministers? And why?

Theories:

- Liberal intergovernmentalism

- Neo-functionalism

- Historical institutionalism

Why?

Answer: Is about national interest and about countries.. it is about copulation, so Germany has more
power, because of her population than a smaller country. Countries decide themselves in there
interest to decide to go further with European integration. So it is between countries and it is not
above member states.

Liberal Intergovernmentalism:

- Integration is result of negotiations by member states (“deals” between governments)

- Integration is determined by ‘national’ interests: coalition of larger member states is key in

explaining outcomes (Germany, France)

Expectations

Research question: How can we explain the process of integration between European countries since
WO II?

Liberal intergovernmentalism:

- Expectation I: EU structure and policy is the result of bargaining between EU member states

- Expectation II: European integration only proceeds when in line with national interests of the
member states

→ key role for Council of Ministers/European Council, especially the larger member states in the
Council.

Positioning the Council and EP in the multi-level EU system (FOTO MAKEN OP LAPTOP)

The Council’s preparatory bodies (FOTO MAKEN OP LAPTOP)

Positioning the Council and EP in the multi-level EU system (FOTO MAKEN LAPTOP)

Example Essay exam question

Many citizens in the European Union do not view the European Parliament as a legitimate
representative body in the multi-level political system of the European Union.

Explain which functions parliaments have in a functioning representative democratic system at the
national level and discuss to what extent the European Parliament does not fulfill these functions.

Answer: Very often in the questions of the exam are the words “to what extent” this means
that you need to look at both sides. So you need to look at the functions of the parliament
(national) and what the functions of the EP are. And compare the differences. So the real
answer is that the people of a country know which sort of parties there are on national level
but on international level you vote for a country and not a party so within the country there
are a lot of flavors and parties that you don’t have a vote for. So it is more an indirect vote.
The people of a country has a less of a connection with the EP because of this and the fact
that we don’t exactly know what is going on in the EP.

What does a parliament do, in theory?

Functions of parliaments:

1. Production of legislation

2. Controlling the executive (e.g. the national government/cabinet)

3. Representing interests in society

4. Communicative function: explaining decisions in plenary debates (Norton 1993, Raunio 2011;
Cooper 2012; Auel 2013)

Does the European Parliament perform all these functions?

The functions of the EP

- Production of legislation: approving the budget and expenditure

- Controlling the executive: approving the Commission as a whole (more on this next week)

- Production of legislation: legislative function

- Procedures:

• Co-decision or ‘ordinary legislative procedure’

• Consultation (e.g. measures on social security)

• Assent (e.g. enlargement, financial framework

The functions of the EP

Other functions?

- Representing interests in society? Do you feel represented by the European Parliament?

- And what about the communicative function of the parliament? Do you follow plenary debates of
the European Parliament?

Positioning the Council and EP in the multi-level EU system (FOTO MAKEN OP LAPTOP)

4. Interactions EP and Council of ministers: the Ordinary Legislative procedure

Positioning the Council and EP in the multi-level EU system (FOTO MAKEN OP LAPTOP)

Interactions: Ordinary legislative procedure

Functioning:

- The Commission has right of initiative

- Council reacts

- Parliament has the possibility to

• amend the proposal of the Council

• reject the final proposal of the Council

Goals ordinary legislative procedure:

» All institutions play a role, no one is dominant

» Procedure in steps ensures decision is made

- Two types of EU legislation

• Regulation: immediately enforceable as law in all member states simultaneously

• Directive: requires member states to achieve a particular result without dictating the means
of achieving that result (needs to be transposed into national law)
Example exam question

Provide a short definition of each of the following terms in no more than 6 lines.

- Regulation: directly enforceable.

- The Councils of Ministers preparatory bodies: Working parties and that there is

- The ordinary legislative procedure: procedure EP and all countries all play a role of the legislative

Answer: KIJK COLLEGE TERUG VOOR ANTWOORD

Interactions: Ordinary legislative procedure

Examples EU legislation:

- Protection of animals used for scientific purposes

- Industrial emissions

- Internal market for services

- Data retention directive

- Registration, evaluation and authorisation of chemicals

- Use of energy from renewable sources

- Illegally staying third-country nationals

- Internal market for postal services

- Waste

- Air quality

Interactions: Ordinary legislative procedure

- Phase 1: policy preparation

- Phase 2: EU level decision making process

- Phase 3: Implementation policy at member state level

Interactions: Ordinary legislative procedure (FOTO MAKEN LAPTOP)

Interactions EP and Council of ministers: the Ordinary Legislative procedure

- The rise of trialogues and first reading agreements (Wordt hieronder verder op ingegaan!)

- Do national parliaments strike back?

...but why?

More agreements in first reading:

• Faster decision making process

» Efficient?

» Effective?

• Informal negotiations between EP and Council on highly sensitive dossiers (trialogues)

» Less transparent: behind closed doors

» Few participants from each institution .

- Example: data retention directive (2005)

• Retention of internet ‘traffic data’ to fight terrorism

• Political sensitive: privacy citizens, costs internet providers ...but why?

▪ Fast decision making process (trialogues in first reading): 6 months

▪ Limited debates, behind closed doors

▪ Legislation difficult to work with for internet providers

▪ Ireland and Slovakia to Court of Justice

▪ In tension with constitution in Ireland and Germany

▪ 2014: directive declared invalid by Court of Justice (disproportional)

Result: the EP as a ‘normal parliament’

- Lisbon Treaty (2009):

Extension of the ordinary legislative procedure:

→More work for EP

→More informal agreements in first reading (trialogues) between Council and EP to cope

→Less transparent decision-making

→EP as a ‘normal parliament’ (Roederer-Rynning and Greenwood 2017: 744)

Interactions EP and Council of ministers: the Ordinary Legislative procedure

- The rise of trialogues and first reading agreements

- Do national parliaments strike back? (wordt hieronder verder op ingegaan!)

Do national parliaments strike back?

How can national parliaments influence decision making at the EU level?

Lisbon treaty: subsidiarity checks by national parliaments

- Each legislative proposal is checked by national parliaments on compliance with principle of

subsidiarity

- Legislation necessary at national level or EU level?

- National parliaments send reasoned opinion to European Commission on subsidiarity breach

Lisbon treaty: subsidiarity checks by national parliaments

- Each national parliament has two votes

- Yellow card: 1/3 of the votes of national parliaments who sent in a reasoned opinion; Commission
reviews its proposal

- Orange card: majority of the votes of national parliaments who sent in a reasoned opinion;
Commission reviews its proposal and sends reasoned opinion to European Parliament (vote) and
Council (vote)
Lisbon treaty (verdrag van Lissabon): subsidiarity checks by national parliaments

- 2016: yellow card for amendment to posting of workers directive

– Commission: no breach of principle of subsidiarity, proposal maintained

- 2013: yellow card proposal for a regulation on the European Public Prosecutor’s office

- Commission: no breach of principle of subsidiarity, proposal maintained

- 2012: yellow card Commission proposal for a regulation on the exercise of the right to take
collective action (right to strike)

- Commission: no breach of principle of subsidiarity, proposal withdrawn

Lisbon tools: disappointing experience for national parliaments

- Other instruments:

- More contact with other national parliaments to exchange information on EU decision

making (e.g. inter-parliamentary conferences, COSAC)

- More contact with European Commission via the ‘political dialogue’

- Hold own national government accountable for decisions made in the Council, by

- Scrutiny reserve

- National rapporteurs for specific dossiers

- Access to Council documents

Do national parliaments strike back?

Answer: not really, because

- Limited incentive to pay attention to EU affairs: no votes, no office, no direct policy-influence

- Marginal involvement of Eurosceptic parties at national level in parliament

- Trialogues are opaque, secluded and informal → difficult to follow for national parliaments
Hoorcollege week 3:

Interactions between EU institutions: The European Commission and the

European Court of Justice

Last week: EP and Council

Research question:

- How can we explain the process of integration between European countries since WO II?
- Which steps do we need to take to answer this question?

Last week: the role of the Council

Research question: How can we explain the process of integration between European countries since
WO II?

Liberal intergovernmentalism:

- Expectation I: EU structure and policy is the result of bargaining between EU member states

- Expectation II: European integration only proceeds when in line with national interests of the
member states -> key role for Council of Ministers/European Council, especially the larger member
states in the Council.

This week: Commission and Court

Theories:

- Liberal intergovernmentalism

- Neo-functionalism

- Historical institutionalism

Question: “Which theoretical perspective is most suitable to explain the role of the Commission and
the Court in European integration?”

Answer: Neo-Functionalism

Keywords of Neo-functionalism:

1. Spillover
2. Cooperation growing through functional links
3. Political actors need to encourage more integration
4. Technocratic
5. Regional Integration
Plan for today
1. Positioning the European Commission and the European Court of Justice in the multi-level EU
system

2. The European Commission: Competences, actors and composition

3. Interactions Commission-EP

4. The European Court of Justice: Competences, actors and Composition

5. Interactions European Court of Justice-other EU institutions/member states

1. Positioning the European Commission and the European Court of Justice in

the multi-level EU system
Positioning the European Commission and the European Court of Justice

(Foto van slide halen)

2. The European Commission: Competences, actors and composition -

Interactions Commission-EP
The Commission

Composition:

- 27 Commissioners (one for each member state + Commission president)

- To represent the interests of the EU
- European Council appoints all Commissioners (one nominated by each member state)
- Vote of approval entire Commission by EP

Interaction EP-Commission

- Hearings of proposed Commissioners by EP before approval

Development of the Commission

2010: a “normal” executive (Wille 2013)?

-The Commission as a ‘government’

-Increasing role of the President of the Commission

- Reject candidates nominated by national governments

- Final say on portfolios
Spitzenkandidaten

- Selection of President of the Commission via EP elections (non-binding, not formal)

- Every party family nominated ‘spitzenkandidate’

- Biggest party  spitzenkandidate would get job

- Result:

• ‘election’ Jean-Claude Juncker

• 2019: no election Manfred Weber (EPP biggest party), European Council appoints Ursula von der
Leyen

The Commission

A core executive

- The college of commissioners: each Commissioner has a portfolio

- Principle of collegiality
- Commissioners assisted by Cabinets
- Commissioner’s Cabinets: link with the Directorate General (DGs)

The Commission

A bureaucracy

- DGs = ‘EU ministries’

- Total staff: 32 966 Commission officials (staff figures accessible at:
http://ec.europa.eu/civil_service/about/figures/index_ en.htm
- Competitively recruited staff and seconded officials from national governments (the
‘concours’)

The Commission

A core executive and a bureaucracy

Functions:

- (a)Agenda setting role

- (b)External negotiator
- (c) Guardian of the treaties/acquis
 (a) Agenda setting role
The Commission, agenda setting

Develops and proposes new policies and legislation under the ordinary legislative procedure

- Exclusive right of initiative (except in CFSP)

Leads coordination of national economic policies (See lecture on Economic and Monetary Union)

(Not only agenda-setting, own legislation: Has exclusive competences on competition policy)

(b) External negotiator

The Commission, external negotiator

- Negotiates enlargement

- Negotiates and manages trade agreements (tarriff amendments, customs and trade provisions)

(C) Guardian of the treaties/acquis

The Commission, guardian of the treaties

- When necessary by taking EU member states to the European Court of Justice

- Guards implementation of EU legislation/Treaties  comitology (see p. 170 McCormick 2020)

- Makes scoreboards related to various EU objectives (internal market scoreboard, innovation

scoreboard

Understanding the European Commission

Research question: How can we explain the process of integration between European countries since
WO II?

Theories from the academic literature

Answers to this research question on the basis of theories?

Formulate expectations on the basis of theories

Test expectations with empirical results

Neo-functionalism
- Functional spill-over: policy areas are not isolated but related. Integration in one domain leads to
the need for integration in a second functionally related area.

- Political spill-over: effective problem-solving arrangement invented in one area, will be applied to
another area

 Question: can you give an example of a spillover in the EU context?

Integration is result of spill-over (e.g. Coal and Steel  transport; Coal and Steel  atomic energy;
Internal market  Monetary Union)

- Spill-over points at interdependency of economic or political issues

- Commission and European Court of Justice play central roles: these institutions can push to increase
integration (triggering spill-overs), even if this does not correspond with the interests of individual
member states

Expectations
Research question: How can we explain the process of integration between European countries since
WO II?

Neofunctionalism:

- Expectation I: integration is a gradual process

- Expectation II: integration finally leads to complete absorption of all national tasks by the EU

- Expectation III: European Commission is one of the drivers of integration, together with the ECJ

3. The European Court of Justice: Competences, actors and Composition

The European Court of Justice

The EU courts are:

- European Court of Justice (ECJ)

- European General Court (was Court of First Instance)

- European Civil Service Tribunal (2004)

And are not:

- The European Court of Human rights

- The International Court of Justice

- The International Criminal Court

- Not really a court: the European Court of Auditors

The European Court of Justice

The European Court of Justice (1951)

- In Luxembourg

- Interpretation and application of Treaty provisions and rules following from Treaties

- ECJ hears appeals from the EGC

The European General Court (1987)

- To relieve the ECJ of less-important cases

- EGC hears appeals from Civil Service Tribunal

The European Court of Justice

- The ECJ is a supranational court and has jurisdiction in all areas falling within the scope of the
Treaties, over the jurisdiction of the national courts

- The courts are the judicial branch of the EU and play a central role in policy- and law-making

- ECJ is a powerful advocate of European integration through direct effect and judicial activism  neo-
functionalism

The European Court of Justice

Direct effect

- European citizens may rely directly on Community provisions before their national courts

- Community law is binding on member states

- Member states must internalize community law within their domestic legal systems

- Community law cannot be overridden by domestic law, not even by national constitutions =
supremacy of EU law

Judicial activism: decisions of the court with political effects

Internal Market

- 1979: ECJ ‘ Cassis de Dijon’ decision opened the way to ‘mutual recognition’ which was adopted in
White Paper (1985)

 Mutual recognition
Mutual recognition

‘The Member State of destination of a product must allow the placing of a product lawfully
manufactured and/or marketed in another Member State […], provided that this product provides an
equivalent level of protection of the various legitimate interest involved’. (ECJ)

Advantage compared to harmonization?

The European Court of Justice

Judicial activism (=decisions of the court with political effects), in favor or against?

- What are the benefits of an active European Court of Justice?

- What are the drawbacks of an active European Court of Justice?

Discuss for a couple of minutes with your neighbour whether you are in favor or against judicial
activism by the ECJ

Week 4: From the internal market to EMU and the economic crisis
(2020 – 2021)

Plan for today

1. The Internal Market
2. From Internal Market to Economic and Monetary Union
3. What is EMU?
4. Other (EU) solutions to the crisis?

1. Internal Market
- Background
- History
- Main concepts
- Perspective on Internal Market
-Economic
-European institutions
-Current issues
Internal Market
Background (IM/single market):

- Creation of common market in EU

- Commonly agreed set of principles and ideas
- Liberal market ideology

History:

- Treaty of Rome (1957): envisaged a common market

- 1968: Customs duties and tariffs largely removed
- 1985: Commission White Paper for the ‘completion of the internal market’ – ‘the
1992 programme’
- 1986: the single European Act

Main concepts:

- Harmonisation: national laws which may have an equivalent effect to trade barriers
were in need of ‘harmonisation’
- 1979: ECJ ‘Çassis de Dijon’ decision opened the way to ‘mutual recognition’ which
was adopted in White Paper (1985)

Internal market today:

- Four freedoms: goods, services, capital and labour

- Harmonisation and mutual recognition
- Competition policy: control of mergers, dominant position
- The common external tariff

Significance of four freedoms:

- Generate rights for citizens

- Extended to areas without clear link to free trade (examples?)

…Data retention directive…

- Anti-terrorism
- Privacy citizens
- Internet providers: unfair competition, distortion of market mechanism (single
market argument)
Significance of four freedoms:

- Can be challenged on the basis of public policy, e.g. abortion, Swedish alcohol
monopoly, ‘wiet pas’ (soft drugs ID)

Perspectives on internal Market

- Economic
- European Institutions
- Current Issues

Economic perspective (estimates!)

- The benefits of free trade were calculated in the Checchini report expecting 4.5% rise
in GDP and 1.8 million new jobs
- According to post-1993 estimates, the internal market created 2.5 million jobs and
877 billion Euro additional prosperity

Economic perspective: The internal market is based on economic theory

- Ricardo: theory of comparative advantage

- Stage in economic integration (template)

Stages of economic integration:

1. Free trade area (FTA): visible restrictions of trade

2. Customs Union (CU): FTA + external trade regime
3. Internal commodity market (ITU): CU + free movement of goods
4. Common Market (CM): ITU + free movement of services, capital and labour
5. Monetary Union (MU): CM + a common currency
6. Economic Union (EU): MU + a common economic policy

Where is the European Union now?

European institutions:

- Internal market decision making: classic community method

Characteristics?
 - Classic Community method:

- Central role of the European Commission

- And European Court of Justice (e.g. ‘Cassis de Dijon’ case)

- European Council/Council: deciding to complete the internal market

- European Parliament is fully involved (ordinary legislative procedure)

- Perspectives on Internal Market

- Economic

- European institutions

- Current issues

Ireland-UK-EU

EU rules are not enforced in Northern Ireland Ports by UK

Result: products can travel from Northern Ireland (UK) to Ireland (=EU)without control

Products which do not comply with EU law end up on EU internal market, integrity internal
market compromised

 European Commission threatens to suspend the Brexit trade deal.

2. From Internal Market to Economic and Monetary Union

Example exam question:

Some observers view the development from a Common Market to a Monetary Union as an
example of a functional spillover.

a) Explain why these observers are correct. Link your answer to neofuctionalism.

b) Explain why these observers are wrong. Link your answer to liberal
intergovernmentalism.

 You could also link the internal market to the Monetary Union with a historical
institutionalist perspective.
Historical institutionalism

- Actors founding the European Community at moment ‘t’ are unlikely to understand
the long-term implications of that founding act

- The preferences of actors at ‘t+n’ will have to operate in a context defined by choices
made by (other) actors at ‘t’

- Emphasis on unexpected consequences of choices made by rational actors

- Path dependencies

- Attention for critical junctures (= a major event)

Expectations

Research question: How can we explain the process of integration between European
countries since WO II?

Historical institutionalism:

- Expectation I: EU structure and policy is the result of choices made by actors whom
are not perfectly knowledgeable about the consequences of these choices

 Internal market: spillovers from Coal and Steel to Transport to single market
 EMU: spillover from single market to EMU

- Expectation II: Integration is a path dependent process, often set in motion by a

critical juncture

 Internal market, critical junctures = second world war,

 EMU, critical junctures = fall of the Berlin Wall/Uniting Europe

From Internal Market to EMU

Stages of economic integration:

4. Common Market (CM): ITU + free movement of services, capital and labour

5. Monetary Union (MU): CM + a common currency

6. Economic Union (EU): MU + a common economic policy

- EMU: an asymmetric Union

- Well developed monetary union: complete transfer of policy making to

European Central Bank

- Economic union: decisions made by national governments

(positive and negative integration)

- Optimum Currency Area (OCA):

• Group of countries with similar economies and well integrated

No OCA = monetary union should not be formed, countries should keep their exchange rate
mechanism to adjust their economy

- In reality no OCA, but still EMU

- Large differences in economic situations between Eurozone countries

- What effect has the economic crisis?

- Financial crisis, effect:

- high interest rate on loans for weak Eurozone countries, low interest rates for
stronger Eurozone countries

- difficult to finance debt weak countries

- countries have no instruments to stimulate economy in EMU/increase

competitiveness

3. What is EMU?
Components:

- Single monetary policy

- Influencing money supply, credit institutions, interest rate

- Single monetary authority

- European System of Central Banks

- ECB

- Eurogroup

- Single currency

- Reduce transaction costs

- Coordinated macroeconomic policies

- Euro as low-inflation currency

 - Rules on public debts and budgetary deficits (stability and growth
pact)

Stability and Growth Pact

- Components:

- Preventive arm: multilateral budgetary surveillance

• Financial situation member states monitored

- Corrective arm: excessive deficit procedure

- Excessive deficit procedure:

- Commission recommendation

- Council decides deficit exists (‘early warning’)

- Member state needs to reduce its deficit (3% of GDP)

- “No compliance: financial sanctions”

To sum up

- Still no Optimum Currency Area:

- Eurozone countries do not have similar economies but are integrated

- EMU: still an asymmetric Union

- Well developed monetary union, no complete political/economic union

4. Other (EU) solutions to the crisis?

Monetary financing

Mario Draghi (ECB president):

“Within our mandate the ECB is ready to do whatever it takes to preserve the euro and
believe me: it will be enough”.

(= Unlimited ECB purchases of sovereign bonds of weaker eurozone countries)

A solution?

Maybe not: moral hazard (no incentive countries to restructure), higher inflation Eurozone
Eurobonds

= government bonds issued in Euros jointly by the Eurozone countries

Advantage:

- weaker eurozone countries pay less interest for borrowing money  no bankruptcy

Disadvantage:

- stronger Eurozone countries pay higher interest rates for borrowing money

- Weaker Eurozone countries can continue borrowing money without restructuring

(moral hozard)

Eurobonds: weaker eurozone countries pay less interest for borrowing money…

…But need to restructure (European semester):

• Budget deficit below 3% of GDP

• Public debt not above 50% GDP

• Prevent macro-economic distortions

• Monitored by European Commission + ECJ (fines)

Corona bonds

- Eurobonds never made it

- Pandemic: idea of common debt was revived by Spain, Italy, France, Belgium,
Luxembourg, Ireland, Portugal, Greece and Slovenia

- Frugal four: Germany, The Netherlands, Austria, Finland/ Denmark, the Netherlands,
Sweden, Austria.

- July 2020: 750 billion, 2021-2023 (Next Generation EU)

Next Generation EU

- Rule of law conditionality

- Goals: tackling economic and social impact of pandemic; green transition, digital
transformation, sustainable and inclusive groth and jobs, health, education

- Member states need to submit national Recovery and Resilience Plans, European
Council approves The Netherlands only member states that did not yet submit a
plan
Summary lecture

- From Internal Market to Economic and Monetary Union (EMU)

- What is EMU?

- Solutions to the crisis