History and Theory of European Integration

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History and Theory of European Integration

• Marina V. Larionova

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Lecture 7

• From the European Community to the European
  Union
• (1989-1993)

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Contents

• The relation between the disintegration of the
  USSR, German unification and the acceleration
  processes in integration
• The Treaty on the European Union (the IGCs and
  the Maastricht summit, 1992)
• Structure and the three pillars of the EU
• Ratification hurdles

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Recommended Readings

• Dinan Desmond (1999) Ever Closer Union. An
  Introduction to European Integration. Second
  edition. The European Union Series. Palgrave.
  Chapter 6, chapter 13
• L.Tsoukalis. The Economic and Monetary Union
  The Primacy of High Politics (1996). The European
  Union. Readings on the Theory and Practice of
  European Integration, Nelsen B.F. and Alexander C
  G. Stubb (eds.), Palgrave, 1998
• Thatcher M. A Family of Nations (1988). The
  European Union. Readings on the Theory and
  Practice of European Integration, Nelsen B.F. and
  Alexander C G. Stubb (eds.), Palgrave, 1998
• Delors J. A Necessary Union (1989). The European
  Union. Readings on the Theory and Practice of
  European Integration, Nelsen B.F. and Alexander C
  G. Stubb (eds.), Palgrave, 1998.

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• Completing, deepening and widening
• On the agenda again?
• The pace of change is gathering momentum
• Will the Community prove equal to the challenges
  of the future?

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Jacques Delors

• economic and monetary union is a necessary
  step which will strengthen European integration
  and guarantee political dynamism

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June 1988 Hanover Council

• Helmut Kohl / Karl Otto Pohl
• Francois Mitterand / Eduard Balladur
• Margaret Thacher / Nigel Lawson and Geoffrey
  Howe
• Committee to study and propose concrete stages
  leading to EMU

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April 1989 Delors report

• EMU an essential complement (condition) to the
  Single market success
• Monetary union will be acceptable and feasible
  only if there is parallel progress towards
  increased convergence of our economies so that
  policies are more consistent and harnessed to an
  agreed objective.
• National economic policies would have to be
  placed in an agreed macroeconomic frame work and
  be subject to binding rules and procedures
• Irrevocably fixed exchange rates between
  national currencies and, finally, a single
  currency
• European Monetary Institute
• European Central Bank
• IGC to consider changes to the Treaty of Rome

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June 1989 European Council Madrid meeting

• The report endorsed
• Stage one to be launched on July, 1, 1990
• Free movement of capital
• Membership of the Exchange Rate Mechanism
• IGC to be convened once stage 1 underway

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Thatchers opposition to EMU and vision of the EC
future

1. Willing and active cooperation between
   independent sovereign states without suppressing
   nationhood and concentrating power at the center
   of a European conglomerate Working more closely
   together does not require power to be centralized
   in Brussels or decisions to be taken by an
   appointed bureaucracy.
2. Reform of the ineffective Community practices and
   policies.
3. Community policies should encourage enterprise
   through getting rid of barriers and making it
   possible for companies to operate on a Europe
   wide scale. Action to free markets, widen choice,
   reduce government intervention.
4. Community should lead the process of removing the
   barriers to trade in GATT.

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• 1989

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November 1989

• Fall of the Berlin Wall
• Extraordinary summit in Paris
• Helmut Kohl programme for German and European
  Unification
• EC and CSCE the two pillars of a united Germany
  
• Architecture of Germany to be fitted into the
  future architecture of Europe as a whole

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December 1989 Strasbourg Council

• Political challenges of German Unification
• Thatchers fear of the united Germany resurgence
  and opposition
• Thatchers support for EC eastern enlargement to
  prevent deepening
• Mitterands concerns of Kohls haste and
  unilateralism
• Delors endorsement of unification and advocacy
  of deeper integration
• IGC on EMU to be convened
• Thatcher outvoted and isolated
• Franco German leadership weakened

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German unification, EMU and European Political
Union

• Thatchers persistent distrust of German
  unification and EMU
• Delors speech to the EP calling for a more
  effective procedure for Foreign Policy
  Cooperation
• Belgian formal proposal for EPU
• Gianni de Michelis call to launch a IGC on EPU
• German elections of March 1990 in East Germany
• Mitterrands political swing after Christian
  Democrats March victory
• Kohl-Mitterand April letter to the EC President
  to transform relations among the member states
  into a European Union

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April 1990 Dublin European Council meeting

• Preparation for the IGC on EMU
• Decision on the IGC on EPU postponed
• Decision that former GDR to be incorporated into
  EC on reunification

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June 1990 Dublin EC agreement on two parallel
IGCs to be launched by Rome summit

• EPU
• Stronger democratic legitimacy
• More efficient institutions
• Coherence of economic, monetary and political
  action
• Extending Community competencies
• Strengthening subsidiarity
• Common Foreign and Security policy

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August 1990 Commission Communication One
Market, One Money

• A single currency is the natural complement
  of a single market. The full potential of the
  latter is not achieved without the formerthere
  is a need for economic and monetary union in part
  to consolidate the potential gains from
  completing the internal market, without which
  there would be risks of weakening the present
  momentum of the 1992 progress

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Based on Delors Report

• Stage 1 (to start no later than July 1, 1990)
• free capital movement in the EC and closer
  monetary and macroeconomic cooperation between
  member states and their central banks
• Stage II
• Launch of ESCB to monitor and coordinate national
  monetary policies
• stronger supervisory powers of the EP and EC
• progressive narrowing of fluctuations margins
  within the ERM
• Stage III
• establishment of irrevocably fixed exchange
  rates parities
• granting of full monetary policy authority to EC
  institutions

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October, 3, 1990 Germany Unification Treaty
effective

• Acquis communautaire to apply in former GDR
  states
• Alignment of policies and practices in line with
  the Community
• Observers from former FDR states incorporated
  into EP
• QMV in other institutions unchanged!!!
• High costs of transition and unification

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October 1990 Rome European Council

• Decision to launch EMU stage II on January 1,
  1994
• Thatchers opposition / Sir Geoffrey Howe
  resignation
• Leadership crisis in the Conservative Cabinet /
  Thatchers resignation

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IGCs From Rome to Maastricht (December 1990
December 1991)

• EMU was seen as the main instrument of
  strengthening of the EC, which was linked
  directly to German unification and the creation
  of a new political and economic order in the
  East
• Driving forces
• European Commission
• The French Government
• Procedure
• Intergovernmental
• Multilevel
• Congruent

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Positions and scope for coalitions formation
Germany

• Happy with the status quo in economic terms
• Need to reaffirm the countrys commitment to
  European unification in the wake of unification
• Linking EPU and EMU
• EMU objectives determined by Karl Otto Pohl
• Gradual approach
• Need for economic convergence
• Indivisibility of the monetary policy
• ECB
• Price stability objective
• Multi speed approach
• EU of a federal type
• More powerful EP
• Bundesrat pressing for subsidiarity

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Positions and scope for coalitions formation
France

• Keen on EMU
• Advocating a strict timetable for the single
  currency
• ECB early in Stage II
• EPU to tie Germany to the EC partners
• Stronger European Council versus EP and
  Commission

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Positions and scope for coalitions formation
Britain

• Opposed to single currency
• Western Europe is not an optimum currency area
  where the gains from a common currency can
  outweigh the losses resulting from the
  abandonment of the exchange rate as a policy
  instrument for correcting external imbalances
• Protested against the federal goal equating
  federalism with excessive power centralization in
  Brussels
• Denouncing the federal goal of the Luxembourg
  draft treaty
• Minimalist on the CFSP
• Advocating subsidiarity principle as a means to
  limiting the EC competencies

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Positions and scope for coalitions formation
Italy

• EU of a federal type
• Supportive of the EPU
• Keen on the EMU
• concerned with the multi speech approach
• advocating gradual and lengthy transition

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Positions and scope for coalitions formation
Commission

• Advocated ECB at the EMU stage II beginning
• Supported informal multi speed and opt out option
• Advocating an EMU timetable
• Calling for closer cooperation on Security and
  Defense
• More power for the Commission in international
  trade relations and policy implementation
• Defense of the Commission exclusive right to
  initiate legislation
• Fight against the Council right to amend the
  Commission proposals by QMV instead of unanimity
• Unitary structure of the Treaty

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European Parliament Committee on Institutional
Affairs

• Legislative co-decision
• Right to initiate legislation
• Central Bankers
• Negotiating the specific arrangements and details
• Closely involved in strategy design and drafting
  the relevant articles

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• Presidencies

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Luxemburg Presidency June 1991 European Council

• Three pillared structure of the draft Treaty
  instead of the unitary structure
• Supranational EC EMU
• Intergovernmental Cooperation on

Foreign and Security Policy second pillar Capped by the European Council
Justice and Home Affairs third pillar Capped by the European Council
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• Provisions for EMU
• Stage II to be short
• Coordination of national monetary policies by the
  Committee of the Central Banks governors
• Informal acceptance of two speed monetary union
• Possibility of an opt out from stage III

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The Netherlands Presidency The Maastricht
Council, December, 1991

• The unitary structure of the Dutch draft
  reflecting commitment to federalism and deeper
  integration
• EMU
• Explicit provisions for two speed system
• Exclusion of the lagging member states from
  decision making on stage III
• Black Monday of September 30, 1991, at the
  foreign ministers meeting

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The Maastricht Treaty Treaty on European Union
Seven sections/17 protocols/33
declarationsdeepening and narrowing

• Temple structure of the Treaty
• Extension of Community competencies
• EP enhanced legislative powers
• Social policy provisions separated in Protocol
• EMU as a means by which the Union will promote
  economic and social progress which is balanced
  and sustainable Article 2
• multi speed tendencies reinforced

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EMU The most important part of the Treaty on
European Union revision

• Back loaded approach
• A long transitional period
• Only minor changes in the early stages
• Transfer of power from national to European level
  delayed

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EMU A typical Community compromise

• The French securing a clear commitment
• The Germans delay of the date and convergence
  criteria
• The British an opt out roots of a variable
  geometry in the Community
• Single currency to be launched in the beginning
  of Stage III with a deadline of January, 1, 1999
• the irrevocable fixing of exchange rates
  leading to the introduction of a single currency,
  the ECU, and a single monetary policy and
  exchange rate policy Article 32

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Stage I launched on July 1 1990 by decision of
the Madrid Council June 1989

• Removal of exchange controls
• Inclusion of currencies in the narrow band of the
  ERM
• No new institutions
• Measures to encourage convergence criteria
• high degree of price stability average rate of
  inflation not exceeding by more than 1,5 percent
  that of the three best performing member states
• budgetary discipline
• excess of expenditure over revenue within 3
  percent of GDP
• total government debt not exceeding 60 percent of
  GDP
• currency stability observance of the normal
  fluctuation margins within the ERM for at least
  two years without currency devolution
• interest rates convergence long term interest
  rate should not exceed by more than 2 percent the
  average interest rates in the three best
  performing member states (7.8)

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Stage II began on 1 January 1994

• European Monetary Institute set up to start
  technical preparation for Stage III
• EC QMV decision on satisfying the convergence
  criteria
• EC decision in consultation with the EP on
  transition to Stage III
• December 1995 Madrid Council a turning point in
  EMU fortunes
• adopting 1 January 1999 as Stage III starting
  date
• EURO decision
• June 1997 Amsterdam Council
• Growth and Stability Pact
• ERM II
• May 1998 Brussels Council
• decision on ECB
• decision on the Euro zone member participants
• row between Chirac and Kohl over the Wim
  Duisenberg Jean Claude Trichet swap
• June 1998 ECB set up in Frankfurt

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Stage III January, 1, 1999

• Irrevocably fixed rates for euro substituting
  the national currencies
• European System of Central Banks with a primary
  objective of maintaining price stability
• January 2002 start of the Euro circulation

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Off to an Embarrassing Start September 1992 ERM
crisis

• Steady growth of the mark and Bundesbank high
  interest rates
• Removal of exchange controls and free movement of
  money
• Devaluations in Italy, Portugal, Spain
• Pressure on the frank
• Black Wednesday of September 16 - pound
  sterling pull out

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• October 1992 OECD Financial Market Trends
• Rather than casting doubts on the prospect of
  monetary unification, recent events should
  strengthen the EC members resolve to conclude
  EMU as quickly as possible.
• August 1993 emergency meeting of the Finance
  Ministers
• Decision to expand the ERM band from 2, 5 to 15
  percent of the parity with the mark

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Ratifications DenmarkStart of a protracted
crisis

• June 1992 Danish referendum negative result (50.7
  against to 49.3 in favor)
• May 1993 second referendum 56.7 percent vote in
  favor
• After December 1992 Edinburgh Council decisions
  on opt outs for Denmark
• Opt out from EMU stage III
• Opt out from CFSP where defense implications are
  inherent

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Ratifications Ireland apprehensive expectations

• June 1992 Irish referendum positive outcome
• (69.0 in favor to 31.0 against)

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Ratifications France Mitterrands gamble

• September 22, 1992, French narrow yes vote
  (51.0 in favor against 48.95 against)
• Mitterrands risky decision for a referendum
  instead of an easily obtainable three fifth in
  the Parliament
• Gamble on comfortable majority to breathe life
  into the Treaty
• EC policy failure in the Balkans
• Economic slump and rise of unemployment in France
• Bundesbank high interest rates
• EMS crisis

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Ratifications Britain

• Major - hostage to labor opposition and
  conservative Euroskeptics
• August 1993 narrow ratification
• Britain and Italy dropping out of EMU in
  September 1992
• Delay of ratification until the second Danish
  referendum

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Ratifications Germany legal claim of the Treaty
unconstitutionality

• December 1992 Bundesrat and Bundestag majority
  voting in favor
• October 1993 Karlruhe judgement
• Federal Constitutional Court ruling on the
  Treatys constitutionality
• Two points of substance
• Compatibility of the Treaty provisions for
  transfer of power with the Grundgesetz in the HJA
  and CFSP
• Compromise of the democratic guarantees in EMU by
  transfer of power from the national to European
  level

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June 1992 Lisbon European Council

• Assessing the Danish blow
• Commitment to press ahead with the Treaty
  ratifications
• Extension of Delors term
• Discussion of the Commission report on
  subsidiarity
• in areas which do not fall within its exclusive
  competence the Community shall take action only
  if and insofar as the objectives of the proposed
  action cannot be sufficiently achieved by the
  Member States, either at central level or at
  regional and local level, but can rather, by
  reason of the scale or effects of the proposed
  action, be better achieved by the Community
• Article 5 of the Maastricht Traty

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October 1992 special Birmingham Council

• decisions must be taken as closely as possible
  to the citizens. Greater unity can be achieved
  without excessive centralization. It is for each
  member state to decide how its powers should be
  exercised domestically.
• The Community can only act where member states
  have given it power to do so in the treaties.
  Action at the Community level should happen only
  when proper and necessary
• Subsidiarity or nearness is essential if the
  Community is to develop with the support of its
  citizens.

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December 1992 Edinburgh Council

• Measures to promote transparency
• Principles of subsidiarity, proportianlity,
  conferral
• Guidelines for their application
• Call for an inter institutional agreement on its
  application

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• Subsidiarity
• the essence of federalism
• or
• a vital safeguard of national sovereignty?

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Critique

• Not sufficiently precise in point of substance or
  intent
• Is limited to preventing the move of union
  institutions into new areas but not returning
  powers already covered by the Treaties
• Gives no guidance on how the assessment of
  whether the objectives are better achieved by the
  Community should be made

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Draft Constitutional Treaty

• TITLE III UNION COMPETENCES

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Article 9 Fundamental principles

1. The limits of Union competences are governed by
   the principle of conferral. The use of Union
   competences is governed by the principles of
   subsidiarity and proportionality.
2. Under the principle of conferral, the Union shall
   act within the limits of the competences
   conferred upon it by the Member States in the
   Constitution to attain the objectives set out in
   the Constitution. Competences not conferred upon
   the Union in the Constitution remain with the
   Member States.

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Article 9 Fundamental principles

• Under the principle of subsidiarity, in areas
  which do not fall within its exclusive competence
  the Union shall act only if and insofar as the
  objectives of the intended action cannot be
  sufficiently achieved by the Member States,
  either at central level or at regional and local
  level, but can rather, by reason of the scale or
  effects of the proposed action, be better
  achieved at Union level.
• The Union Institutions shall apply the
  principle of subsidiarity as laid down in the
  Protocol on the application of the principles of
  subsidiarity and proportionality, annexed to the
  Constitution. National Parliaments shall ensure
  compliance with that principle in accordance with
  the procedure set out in the Protocol.
• Under the principle of proportionality, the
  content and form of Union action shall not exceed
  what is necessary to achieve the objectives of
  the Constitution. The Institutions shall apply
  the principle of proportionality as laid down in
  the Protocol referred to in paragraph 3.

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Lecture 8 The Ever Enlarging European Union
(1993-1999)

• The Eftan enlargements and its implications.
• From Maastricht to Amsterdam, from the TEU to the
  Amsterdam treaty, issues and outcomes.

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Readings for the lecture

• Dinan Desmond (1999) Ever Closer Union. An
  Introduction to European Integration. Second
  edition. The European Union Series. Palgrave.
  Chapter 7, chapter 13, chapter 16
• Dinan Desmond (1999) Treaty Change in the
  European Union the Amsterdam Experience.
  Developments in the European Union, Cram L.,
  Dinan D. and Neill Nugent (eds), Macmillan press
  Ltd., 1999
• L.Tsoukalis. The Economic and Monetary Union
  The Primacy of High Politics (1996). The European
  Union. Readings on the Theory and Practice of
  European Integration, Nelsen B.F. and Alexander C
  G. Stubb (eds.), Palgrave, 1998.

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Seminar 4 Methods and Significance of Treaty
Changes

• Bargaining, interests and compromises in
  negotiating the TEU
• The subsidiarity principle, the meaning and
  application
• The Amsterdam Treaty negotiations and outcomes
• New provisions
• Two presentations and a discussion

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Additional suggested reading

• Dinan Desmond Treaty Change in the European
  Union The Amsterdam experience in Developments
  in the European Union (1999) edited by Laura
  Cram, Desmond Dinan and Neill Nugent, Macmillan
  press ltd.

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• Thank you!