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4. THE EUROPEAN UNION II: EMU & EASTERN
ENLARGEMENT
1.
2.
3.
4.
5.
6.
7.
8.
The Money Changers: TV programme excerpts
Pre-history of EMU
Who did it?
Why did they do it?
Why then (1989-91)?
EMU: Will it last? Three views
Conclusions on EMU
The Eastern enlargement: Process, issues,
prospects
9. Overall conclusions
EUROPE’S PERILOUS FUTURE
AFTER THE COLD WAR
‘Bipolarity, an equal military balance & nuclear weapons
have fostered peace in Europe over the past 45 years …
The prospects for major crises & war in Europe are likely
to increase markedly if the Cold War ends & this scenario
[of the dissolution of the Warsaw Pact & the NATO]
unfolds … If the Cold War is truly behind us, the stability
of the past 45 years is not likely to be seen again in the
coming decades’
John Mearsheimer, ‘Back to the Future:
Instability in Europe after the Cold War’,
International Security 15:1 (Summer 1990).
2. PRE-HISTORY OF THE EMU
• Barre Plan 1968/69: response to currency instability
• EU heads of govt agree on EMU at The Hague 1969
• Werner Report 1970, approved by COM 1971
• Heads of govt Oct 1972 confirm goal of EMU by 1980
• EMS (European Monetary System) 1978/79
• EMU goal declared in Single European Act 1987
• Project launched at European Council 1988
3. EMU: WHO DID IT?
• The key actors have been France & Germany:
* France has always been the ‘motor’ of EMU
* Germany has been divided & ambivalent
(Bundesbank & public opinion against; FMs
& Chancellors for).
• Other member states appear to have been marginal:
* Britain could not derail EMU, but got an ‘opt-out’
* Most other member states for EMU - in some
cases at a price (Cohesion Funds!)
* Important Italian intervention on timetable
A CHILD OF THE FRANCO-GERMAN ‘COUPLE’!
4. EMU: WHY DID THEY DO IT?
•
Growing ‘monetarist’ consensus in the EU, but above all:
•
France wanted to break the Bundesbank’s domination
of European monetary policy & to tie Germany more
closely to Western Europe
•
German political leaders also wanted to tie Germany
as closely as possible to Western Europe - to reassure
Western allies while pursuing their Ostpolitik & to
avoid being diplomatically isolated
EMU IS PRIMARILY A POLITICAL PROJECT!
EMU: MITTERRAND’S MOTIVES
‘For a long time, I was opposed to a European
Central Bank … But France will have a stronger
influence on the European bank than it has today
on the Mark …
‘The Germans do not sit in the UN Security Council.
The Mark is their only diplomatic weapon’
To a meeting of Socialist ministers, January 1991,
Quoted in: Eric Aeschimann & Pascal Riche,
La guerre de sept ans (Paris: 1996), p. 91.
EMU: KOHL’S MOTIVE
‘Helmut Kohl said already in 1988 when he visited the
Central Bank Council [of the Bundesbank]: “On
monetary union, we must make a concession to France;
you have to accept this as you have to accept the
weather …” A former member of the Central Bank
Council commented: “We thought that, if need be,
he’d sell the Bundesbank for this purpose’
Dieter Balkhausen, Gutes Geld, Schlechte Politik
(Duesseldorf: 1992), p. 70
5. EMU: WHY THEN (1989-1991)?
• Despite 1988 decision, EMU could have suffered same
fate as previous attempts - no timetable or details …
• Decisive momentum supplied by German unification:
* FM Genscher’s support for EMU motivated by
Ostpolitik (East European policy) objectives
* Mitterrand demanded ‘proof’ that united Germany
would still be pro-European & West-oriented
* Kohl gave it so France would not oppose unification
• Kohl acceded to French pressure to set concrete
dates for IGC (1990) & EMU introduction (1999)
WHAT FRANCOIS MITTERRAND SAID TO PERSUADE
GERMANY TO GIVE UP THE DM: GERMAN VERSION
“… There has to be parallel progress in European
integration. If Western integration marks time, it
would fall behind. However, in this case things in
Europe would change fundamentally, and new alliances
would emerge. It wouldn’t even be excluded that we
would fall back into a situation where the same ideas
prevailed as in 1913. If German unification were to
occur in a Europe that really hadn’t progressed any
further, then the European partners, who’d be
faced in the future with 80 million Germans, would
look for new means of balancing Germany”
Hans-Dietrich Genscher, Erinnerungen, p. 678
WHAT MITTERRAND SAID TO PERSUADE
GERMANY TO GIVE UP THE DM:
FRENCH VERSION
‘The president … said to Genscher: “Either German
unity takes places after European unity, or you will
find yourselves faced with the Triple Alliance [France,
Great Britain, Russia], and that will end up in a war.
If German unity takes place after the European,
we will help you”’
Account of Mitterrand & Genscher’s
meeting of 30 November 1989, in: Jacques
Attali, Verbatim III 1988-1991, pp. 353-4
6. EMU: WILL IT LAST?
I. Benjamin Cohen
History suggests multinational currency unions survive if:
1. There is a hegemonic state (‘willing to keep arrangement
functioning effectively on terms agreeable to all’); &/or
2. States linked by a ‘well-developed set of institutions’; &/or
3. They share a ‘genuine sense of solidarity - of
community’
II. David McKay (see ‘A Bleak Future for the Euro?’)
POLITICS & ECONOMICS OF MONETARY UNIONS
‘Political factors must weight at least as heavily as
economic issues in the calculations of govts … There
must be a strong political incentive, driven by either
domestic politics or foreign policy, to persuade govts to
make the firm commitment that is demanded … That
certainly appears to be the lesson of history: … “Not a
single monetary union in the past came about because of
a recognition of economic benefits .. In all cases the
integration was driven by political objectives”’
Benjamin Cohen, The Geography of Money,
p. 84
WILL THE EMU LAST?
‘The failure of three previous attempts does
not give an abundance of reasons for
confidence. Europe continues to profess
its determination to share monetary
sovereignty. At the time of writing, however,
the jury remains out and we have no
final verdict’
Benjamin Cohen, The Geography of Money
(1998), p. 77
6. EMU: WILL IT LAST?
III. Michael Bordo & Lars Jonung
• It is important to distinguish between multinational
monetary unions (independent states having permanently
fixed exchange rates without a single central bank) &
national monetary unions (single central bank, with union
normally corresponding to boundaries of nation-state)
• NMUs are more durable than MMUs
• EMU, with its single central bank, corresponds more
closely to NMU than MMU, but has emerged
differently to most of the latter, because monetary
unification has preceded political
6. EMU: WILL IT LAST?
III. Bordo & Jonung (Contd.)
• It doesn’t matter that the EU is not an optimal currency
area - NMUs develop ‘as a result of the political process’
• EMU will be hit by major shocks, but NMUs typically
survive such events
• EMU will be a ‘flexible’ MU: mechanisms & institutions
will be created to deal pragmatically with defects
of the EMU as they currently exist
• EMU is based on will to political unity & will last
as long as members share common political goals
CAN THE EURO SURVIVE WITHOUT
A HEGEMON?
‘The political economy of the EMU will primarily be
determined by the major powers among the members
of the monetary union. If there should be tension
between, for example, Germany & France, this will
increase the risk for the EMU to become unstable.
the EMU requires one dominating player or a
strong coalition to function well’
Michael D. Bordo & Lars Jonung, ‘The future of
EMU: What does the history of monetary
Unions tell us?’ (unpublished paper, 1999),
p. 33.
7. CONCLUSIONS ON EMU
• The single currency is a long ‘story’ that has been
written mainly by France & Germany
• It is a primarily political project - about power over
economic policy in the EU & long-term foreign policy goals
• German unification accelerated it & made it more likely
• It is a risky project with few historical parallels … but:
* The EU has in any case no real historical parallels
* The political will behind EMU is very strong
* There is a long history of close cooperation
(‘institutional linkages’) between its members
8. EASTERN ENLARGEMENT: I. THE PROCESS
• EU has always been enlarging, but never have so many
& so many poor & mostly such small states wanted to
join simultaneously
• 13 states have applied for membership (Poland, Hungary,
Czech R, Slovenia, Estonia, Latvia, Cyprus, Lithuania,
Slovakia, Bulgaria, Romania, Malta & Turkey)
• EU is now negotiating entry terms with all except Turkey
acquis communautaire (no. increased after Kosovo War)
• Member states & EP must approve new entrants
8. EASTERN ENLARGEMENT: II. ISSUES
• Financial costs (‘Agenda 2000’):
* Regional & agricultural policies
* Overall EU budget (conflict between netcontributing & net-receiving member states)
• Immigration/free labour movement
• Reform of the EU institutions (DM process):
* Limit on no. of Commissioners
* More QMV in Council
* Redistribution of votes towards big states
• Applicants’ adoption of acquis communautaire
* Very expensive
8. EASTERN ENLARGEMENT: III. PROSPECTS
• The incapacity of the EU to make radical, expenditurecutting reforms is likely to delay enlargement (to 2005/6?)
• Enlargement is likely in any case to be staggered (even
current front-runners will probably not enter at same time)
• Much use may be made of transitional arrangements
(new entrants may be ‘partial members’ for some time)
• Several member states & Commission oppose enlargement
without prior institutional reforms to avert gridlock
• Failure to agree reforms at Nice Dec 2000 would
provoke crisis & jeopardize enlargement
9. OVERALL CONCLUSIONS
• Contrary to some predictions, the EU has not begun
to fall apart after the end of the Cold War; it has
so far reconciled closer integration with ‘widening’
• Eastern enlargement without major prior reforms would
incapacitate the EU
• Enlargement will probably accelerate moves towards
a ‘multi-speed’ EU with France & Germany at its core –
NB. Speeches by German foreign minister, French
president, May & June 2000!
• Strong FGR is guarantor of closely integrated EU