EMU and the Process of European Integration: Southern Europe’s Economic Challenges and the Need for Revisiting EMU’s Institutional Framework

Abstract

The EU has been experiencing over the last few years an unprecedented crisis that really touches on its core characteristics and values. The EMU project was structured on political foundations and expectations, bearing, however, immense socio-economic impact. The main aims of this paper is to identify the main driving forces that influence the future development of the Economic and Monetary Union and to examine the present situation that the EU faces, the priorities of the ECB and the challenges that EU’s Southern member-states face.

Moreover, the paper contemplates four realistic scenarios of the future development of the EMU and how each one of them may influence EU’s final destination and EMU’s Institutional Framework.

Finally, the paper takes note of the challenges that the EU will face in the immediate future both on the institutional/political level as well on the core-periphery relations level.

Paper presented at the 10th N.E.W.S. Conference- Global University network, held by Megatrend University from 10th to 14th September 2013

Appendices

Annexes

1.1 Annex 1: Theorizing EU Integration

Federalism

It draws its theoretical basis to the writings of Coudenhove-Kallergi¹³ and Alterio Spinelli.¹⁴ Its aim was to make a new post-war start on a radically different basis from the Europe of national states. It aimed to achieve a complete break from the old order of nation states, and to create a federation of European states. Its guiding principle is the study of federal systems in designing an adequate European modus opreandi putting institutions first.

Functionalism

It was particularly associated with the writings of David Mitrany.¹⁵ It was a theory of how to achieve world peace, rather than a theory of regional integration. It took a very different approach to the question from the European federalists, who wanted to subordinate national governments to an overarching federal authority.

He opposed the idea of a single world government or the creation of regional federations, believing that this would simply reproduce national rivalries on a larger scale. Instead, he proposed the creation of a whole series of separate international functional agencies, each having authority over one specific area of human life. His scheme was to take individual technical tasks out of the control of governments and to hand them over to these functional agencies. He believed that governments would be prepared to surrender control because they would not feel threatened by the loss of sovereignty over, say, health care or the co-ordination of railway timetables, and they would be able to appreciate the advantages of such tasks being performed at the regional or world level.

Transactionalism

It is founded on Karl Deutsch’s theoretical constructions.¹⁶ It refers to the build up of security communities (Ferdinand Tönnies: “Gemeinschaft”) as entities where the component governments either retain their separate legal identities or form an institutional fusion. Its main hypothesis is founded on the existence of a sense of community among states that serves as a critical link on the level of communication between them.

Neofunctionalism

This theory draws on the works of Mitrany and Monnet in particular. The main figures in this school of thought are Haas (1968), Leon Lindberg (1963, 1966), and Philippe Schmitter (1970).¹⁷

Neofunctionalism sought to explain how and why the states voluntarily interact closely with their neighbours blurring the boundaries of their sovereignty while acquiring new techniques for resolving conflict between themselves. Neofunctionalists were pluralists in the sense that they argued that the international activities of states were the outcome of a pluralistic political process in which government decisions were influenced by pressures from various interest groups and bureaucratic actors.

Using the concepts that were later called ‘transnationalism’ and ‘transgovernmentalism’, neofunctionalists expected nationally based interest groups to make contact with similar groups in other countries (transnationalism) and departments of state to forge links with their counterparts in other states, unregulated by their respective foreign offices (transgovernmentalism).

The advocate integration in areas of “low politics” which are at the same time “strategic economic sectors” under the auspices of a high authority to promote the integration process. According to their theoretical framework, the integration of particular economic sectors across nations would create functional pressures thus gradual entangling the national economies. Deepening economic integration will create the need for further European institutionalization as social interests would put faith to the new supranational center. Political integration and supranational institutionalization would result as side-effects of economic integration.

Intergovernmentalism

In response to the neofunctionalist analysis of European integration, a counter-argument was put forward by Stanley Hoffmann (1964, 1966).¹⁸ This argument drew heavily on realist assumptions about the central role of the government of states in the international arena.

European integration should be seen in a global context. This is characterized by an international system ruled by anarchy (in the sense of the absence of a global regulating authority of international relations), composed of the states (sovereign entities that are formally and functionally equal). The key variable is the distribution of capabilities and power across states. Anarchy can produce order, but cooperation between states is always limited by the nation state’s strive to survival. Rational states seek to maximize the possibilities for their survival. Interests and actions of the most powerful states constitute the nature of the international system creating patterns/norms and shaping its limits.

This framework conditions the European Union as well, despite the existence of supranational structure of authority. As a result, European Integration progresses only as long as national interests coincide. Only then governments accept further integration in technical functional sectors and low policy areas. Integration fails to spread to areas of high politics that touch on the core of nation state sovereignty (be it national security, defence or other that challenge the nation state’s existence).

Liberal Integrovernmentalism came to enrich this school of thought rounding up some of its approaches based on A. Moravcik’s work.¹⁹ This theory claimed that Theories of European integration had to be supplemented by more general theories of national responses to international interdependence. It was sustained that the unitary approach to state behaviour failed to explain the transfer to authority to supranational institutions. Moravcik focused on domestic politics and how they influence governments in international negotiations, as the latter try to balance between economic interests in the domestic arena and national interests in the international arena.

Social Constructivism

This school of thought draws on the works of Alexander Wendt Antje Wiener, Thomas Diez, Thomas Risse and Peter Katzenstein.²⁰ Constructivists hold the view that the building blocks of international reality are not only material but also ideational. Ideas matter and have normative as well as instrumental dimensions, that they express not only individual but also collective intentionality. Moreover, the meaning and significance of ideas are not independent of time and place.

In turn, other factors shape the international system as well such as the social interaction of states on the inter-national system, national norms on international politics, the impact of European norms on changes in domestic politics, the type of governance and their impact (cooperation of states, federal state, Economic Community, network) on political actors in Europe.

Annex 2: Tables

Table 2.1 Real GDP and consumer prices in major global economies

Table 2.2 Real GDP and consumer prices in major European economies

Professor Eleftherios Thalassinos Project leader (Greece)

Ph.D. in Quantitative Methods, University of Illinois Chicago, 1983 M.B.A., in International Business, De-Paul University Chicago, 1979 B.A., in Economics University of Athens, 1976 Editor and Founder European Research Studies Journal since 1998 a refereed international publication accepted by JEL indexed in EconLit, SSRN Library, the American Economic Association, RePec Wharton School, Copernicus, EUAgenda and Thompson Index (under evaluation) while it is distributed by EBSCO Publishing, MA USA.; Chair Jean Monnet; Former Jean Monnet Module; Chairman International Conference on Applied Business and Economics (2007-2008-2009-2010-2011-2012-2013); Chairman International Conference on Applied Economics, 1996, 1993; Editorial board member: The Global Journal of Optimization, and the International Journal of Computational Economics and Econometrics; International Advisory Board Member: Public Administration and Regional Studies Journal; former Department Chairman (1998–2000, 2002–2004, 2004–2006) and Director of Graduate Studies (2003–2005, 2005–2008, 2009–Present Time); Elected Member of the University of Piraeus Board of Directors-External Relations; 2013: Doctor Honorius Cauca, Danubius University of Galati; Visiting Professor on numerous foreign and local institutions such as Hellenic Open University, University of Craiova, Universite Paris X, University of Finance and Administration (Prague), Danubius University of Galati, University of Nis; Director of Numerous Projects the most recent being Director of Jean Monnet Multilateral Research Project on the Political Economy of the EMU (www.jeanmonnet-emu.eu); Director of Jean Monnet Centre of Excellence on Shipping, Trade and Transport (www.jmce-piraeus.eu); Director of several other local and international projects (Please see attached CV in the relevant email) Relevant Publications: • Thalassinos E., Stamatopoulos Th., Thalassinos P. (2014), “The European Sovereign Debt Crisis and the Role of Credit Swaps”, Chapter book in The WSPC Handbook of Futures Markets (eds) W. T. Ziemba and A. G. Malliaris, World Scientific handbook in Financial Economic Series Vol. 5, forthcoming • Thalassinos E., Liapis K., Thalassinos J. (2013), “The Role of the Rating Companies in the Recent Financial Crisis in the Balkan and Black Sea Area”, Book Chapter in A. Karasavvoglou and P. Polychronidou (eds.), Economic Crisis in Europe and the Balkans, Contributions to Economics, 2013, Springer International Publishing, Switzerland • Thalassinos E., Thalassinos P. (2013), “CDS and Financial Crisis in Europe”, 39th Annual Conference Eastern Economic Association, Session F16, 911, May, 2013, New York, NY, USA • Thalassinos E., Dafnos G. (2013), EMU and the Process of European Integration: Southern Europe’s Economic Challenges and the Need for Revisiting EMU’s Institutional Framework, Megatrend Review 2013, vol. 10, iss. 4, pp. 59–82 • Thalassinos E. (2012) “Country Risk and Financial Crisis”, Kirkareli University, Economic Papers Edition • Thalassinos E. (2008) Trends and Developments in the European Financial Sector, European Financial and Accounting Journal, Vol. 3 Relevant Projects: • Director, Jean Monnet Centre of Excellence on Shipping, Trade and Transport (www.jmce-piraeus.eu) • Director, European Research Studies Group on the Political Economy of the EMU (www.jeanmonnet-emu.eu)