Small States and the Governance of the Economic and Monetary Union
Since the outbreak of the eurozone crisis, Germany has taken centre stage in the European Union (EU). While this has led to a mushrooming literature on the role of Germany in the Economic and Monetary Union (EMU), the role of smaller eurozone members such as Belgium or the Baltic states has remained largely unexplored. Since its last federal elections, however, Germany’s position has been weakened. At the same time, eight northern EU countries calling themselves the “New Hanseatic League” have repeatedly announced their own common position on the governance and future of EMU. Yet, although even subgroups of small states would have enough voting weight to block any decision related to EMU, we still lack knowledge about their ideas and interests, how they form their preferences, and how they pursue them in EMU decision-making. Therefore, the panel examines small states’ traits, strategies and significance in the eurozone: What role for small states in the governance of EMU? In exploring this question, the panel also allows us to assess the room for manoeuvre of small eurozone states standing in the shadow of German hegemony. Hence, our answers have important implications for future EMU reform: Can small eurozone states block, shape, or even enable future reform steps, or are they entirely dependent on the preferences of their bigger neighbours?
Presentations of the Symposium
Belgium and the Art of the Compromise
As an original member of Economic and Monetary Union, European integration has long served as an important component of the Belgian political economy, serving as both a constraint to its complicated domestic political system as well as an opportunity for the country to transcend its relatively small size. This contribution examines Belgium’s preferences in the first two decades of EMU and the strategies it has chosen in their pursuit. Its interests have straddled those of France (as a highly indebted state) and Germany (as a member of the hard core of the euro area and a member of the former D-mark zone). This intersection of interests has placed Belgium in the position of acting as an honest broker, using a strategy of ‘co-shaping’ to build coalitions needed to achieve its policy objectives. The paper contrasts Belgium’s interests and strategies in euro area governance, both before and after the euro crisis. It has exhibited remarkable continuity and has maintained its traditional role of forging compromises among the at-times disparate interests of the euro area.
The Remarkable Cases of the Baltic States
The second decade of Economic and Monetary Union (EMU) that started off with the financial crisis and quickly morphed into the sovereign debt crisis had diverging effects on EU members. Those in the euro area were to some extent protected from exchange rate volatility but those with large debt were experiencing difficulties refinancing their debts. The financial crisis and the sovereign debt crisis altered the meaning of being part of the euro area. Faced with an immediate collapse of their economies the Baltic States were advised by the International Monetary Fund (IMF) to float their currencies. Instead, these countries went against the IMF suggestions and chose to speed up their commitment to join the euro. Why? This paper suggests that the main reason for this decision needs to be found in domestic politics of these three Baltic states focusing on the role of government and opposition and that of the central bank and its monetary board, the various specific domestic institutional factors such as the constitutional structure of the country and the legal provisions (including some sectoral interests), media, and public opinion, and finally the role of the international actors (European Union actors and the international actors such as the IMF).
Constrained but not Powerless: The Politics of Conditionality in Portugal (2008-2019)
In this paper, I explore the constraints on Portuguese executives during the bailout program, and I shed light on the policy-makers’ discretion and motivations to revert, or alternatively to keep, policies that had been taken under conditionality. I make two central arguments. First, I argue that executives are capable of extracting policy benefits from a bailout both during and after the process. While conditionality constrains governments, it does not leave them powerless and it sometimes enables them to pass policies that they personally favoured but were previously unable to pass. Also, governments are able to reverse the reforms adopted during the bailout when the programme comes to an end, but they do so very selectively, in cases where it is most electorally rewarding and least costly. Second, I expect that the leverage of governments - and their capacity to extract advantages from the bailout during and after the process - is principally shaped by two variables: the governments’ partisan composition and the bargaining context. To test my proposals, I rely on process-tracing and on the coding of all-important policies adopted under conditionality.
The New Hanseatic League: Flexible Coalition-building and the Pending Completion of EMU
Since the outbreak of the eurozone crisis, fiscally conservative countries (“creditor states”) have largely relied on Germany when it came to the governance and reform of the Economic and Monetary Union (EMU). Yet, in recent times Germany has been weakened domestically, and France under President Macron has demanded more risk-sharing in EMU (- claims that are likely to be reinforced in reaction to the “yellow vests” movement). How do smaller “creditor states” react to this challenge? Drawing on hegemonic stability theory, the paper argues that free-riding on Germany’s quasi-hegemony has become less rewarding for these states. Therefore, they build new alliances to voice their preferences, such as the recently formed “New Hanseatic League” (Netherlands, Denmark, Sweden, Finland, Estonia, Latvia, Lithuania, Ireland). Paradoxically, Germany profits from this development, as the “New Hanseatic League” serves as a credible commitment to avoid making concessions to France. Based on semi-structured interviews conducted with high-ranking officials in the EU institutions and member state capitals, the paper shows that the divide between “creditor states” and “debtor states” is no longer sufficient to describe the preference constellation in EMU. Instead, issue-specific subgroups emerge, putting forward diverging views on the need for further integration against the background of differing national banking systems, eventual Brexit and the retreat of the US as reliable partner for Europe. In conclusion, the paper discusses the extent to which the recalibrated role of smaller states will influence future EMU reform including the pending completion of the Banking Union’s “third pillar”.