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One Money, Two Markets? EMU at Twenty and European Financial Market Integration; David Howarth, Lucia Quaglia; Journal of European Integration: Economic and Monetary Union at Twenty: A stocktaking of a tumultuous second decade; 2020-04-02; Vol. 42 (3); pp. 433-448
Abstract by the authors:This contribution combines neo-functionalism and historical institutionalism to understand the implications of differentiated integration in Economic and Monetary Union (EMU) and Banking Union (BU) for the single market in financial services in the European Union (EU). From the 1980s, the relaunch of the Single Market and monetary integration in the EU were presented by the supporters of EMU as mutually reinforcing, as in the logic of the Commission’s Report ‘One Market, One Money’. Initially, EMU appeared to reinforce financial integration, especially in the Euro Area banking sector, even though EMU was a case of differentiated integration in the EU. Subsequently, the incomplete EMU triggered the sovereign debt crisis, which undermined financial market integration and was addressed through the establishment of BU, which reinforced differentiated integration. Both EMU and BU have negative implications for the ‘singleness’ of the single market in financial services, potentially resulting in ‘One Money, Two Markets’.
Abstract by the authors:While during the first decade the common currency helped stabilise the Italian economy by overcoming political constraints that blocked debt reduction, during its second decade the euro has rather served to destabilise the country politically and economically. The combination of a single currency and a single market in financial services turned into an engine of massive macroeconomic imbalances that came to a head in a typical sudden stop in the years following 2009. While Italy had steered clear of the financial imbalances of the southern periphery during the first decade of EMU, its debt legacy problem, despite continuous primary surpluses, made it a target for financial contagion during the second. The EU’s recipe of austerity and structural reform exacerbated the problem thus reversing the long-term trend of falling debt to GDP ratios and handing an electoral victory to populist Euro-sceptics by a public that increasingly came to see the EU as a threat to prosperity and social inclusion.
Abstract by the author:EMU structural asymmetries contributed directly to both procyclical debt-fuelled growth pre-crisis and sharply recessionary adjustment post-crisis. Greece’s fiscal and debt crisis represented an ‘orthodox’ national failure inside EMU, yet the underlying reason for the Euro-Area financial crisis was external imbalances generated by EMU asymmetries. Exclusive reliance on internal devaluation, lack of a Euro-Area countercyclical response, and financial fragmentation, all accentuated the cost of asymmetric adjustment to crisis. The asymmetric EMU institutional framework also necessitated a greater reliance on intergovernmental activism to engineer ad hoc interventions, at the expense of both the Community method and democratic procedure. Financial markets mispriced sovereign risk, failing to counterbalance EMU asymmetries. The Greek crisis prompted the Euro Area to develop stronger policies and institutions and to eschew an extreme existential challenge. EMU is stronger at 20, yet with persisting asymmetries, old and new, and insufficiently equipped to face the next major crisis.
Abstract by the author: In spite of expectations to the contrary, Economic and Monetary Union (EMU) did not serve as a leaven for political union during the euro’s second decade. Reforms to Euro Area governance enacted in this period, though significant, stopped well short of the degree of economic and political integration associated with this project. EU policy-makers nonetheless showed a new willingness to talk about political union, albeit in ways that stretched the meaning of this previously taboo term. Such talk, which was driven by financial market pressure and political positioning between member states at the height of the Euro Crisis, had limited bearing on Euro Area governance. But it may have been a factor in the United Kingdom’s referendum vote to leave the EU. A lesson for EU policy-makers is that they should use the term political union more sparingly if at all.
Abstract by the authors: With the Lisbon Treaty, the European Parliament (EP) obtained codecision rights in economic governance for the first time. Soon afterwards, the outbreak of the eurozone crisis required a reform of the Economic and Monetary Union (EMU). When negotiating EMU reform, the EP sought to push its rights beyond the Lisbon provisions, so as to obtain an informal institutional change to its benefit. How and under which conditions did the EP extend its informal powers successfully – and when did it fail? By focusing on two crucial strategies – delaying and arena-linking – we compare instances of EMU reform where the EP succeeded in reaching an informal empowerment to cases where it failed. We find that the urgency of decision-making and its distributional consequences influence the EP’s chances of success. While urgency plays a crucial role in times of crisis, distributional consequences come to bear in policies where core state powers are at stake.
Abstract by the authors: This contribution discusses the two main asymmetries of European Economic and Monetary Union (EMU) as they developed over the past two decades since the launch of the Single Currency. From the outset, EMU involved asymmetric degrees of integration in the area of ‘economic’ union (less centralised governance) versus ‘monetary’ union (more supranational governance). With the outbreak of the Sovereign Debt Crisis in 2010, the regime-shaping relevance of a second asymmetry emerged: one roughly between the member states of the Euro Area ‘core’ and those in the ‘periphery’. Each of the two asymmetries have created a range of challenges — institutional, policy and political — that undermine the stability and sustainability of the EMU project.
Abstract by the author: As set forth in the Maastricht Treaty, the objective of establishing the Economic and Monetary Union (EMU) was based mainly on the need to achieve nominal convergence. However, the global economic and financial crisis has since proved that the EMU architecture is not solid enough. Therefore, EU institutions and member states have developed and started to implement plans for the completion of the EMU. The main focus of these plans up to 2025 is on institutional and regulatory reform. However, more attention should be paid to other types of convergence: real convergence, social convergence, financial convergence, cyclical convergence and structural convergence. This would lead to sustainable and strong all-round convergence in the EMU. This article outlines recommendations for the completion and sustainable maintenance of the EMU, concentrating on social, financial and cyclical convergence.
Abstract by the authors: This article examines the extent to which economic or political factors shaped government preferences in the reform of the Economic Monetary Union. A multilevel analysis of European Union member governments’ preferences on 40 EMU reform issues negotiated between 2010 and 2015 suggests that countries’ financial sector exposure has significant explanatory power. Seeking to minimize the risk of costly bailouts, countries with highly exposed financial sectors were more likely to support solutions involving high degrees of European integration. In contrast, political factors had no systematic impact. These findings help to enhance our understanding of preference formation in the European Union and the viability of future EMU reform.
Abstract by the authors: Collaborative leadership has stood at the heart of European politics since its inception. Yet EU scholars have only recently started to examine the concept and mainly from an institutional perspective. This article conceptualises the phenomenon of collaborative leadership from an actor-centered perspective. It explores a central condition for successful collaborative leadership identified in the literature: the existence of shared beliefs among the leaders involved. To do this, the article focuses on four events in the history of European Economic and Monetary Union. Using the method of cognitive mapping, the study establishes the extent of congruence in the beliefs on European integration and fiscal and monetary policy of the four leadership trios overseeing these events. On the basis of a survey of leading experts in the field, the article reveals that the level of cognitive proximity in leaders’ beliefs aligns with the perceived success with which the trios exerted collaborative leadership.
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