History and Theory of European Integration

1. History and Theory of European Integration Marina V. Larionova JEAN MONNET European Module

2. Lecture 7 From the European Community to the European Union (1989-1993) JEAN MONNET European Module

3. 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 JEAN MONNET European Module

4. 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. JEAN MONNET European Module

5. “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?” JEAN MONNET European Module

6. Jacques Delors “…economic and monetary union is a necessary step which will strengthen European integration and guarantee political dynamism” JEAN MONNET European Module

7. 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 JEAN MONNET European Module

8. April 1989 Delors’ report • EMU – an essential complement 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 JEAN MONNET European Module

9. June 1989 Madrid meeting of the European Council • 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 JEAN MONNET European Module

10. Thatcher’s opposition to EMU and vision of the EC future • 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.” • Reform of the ineffective Community practices and policies. • 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. • Community should lead the process of removing the barriers to trade in GATT. JEAN MONNET European Module

11. 1989 JEAN MONNET European Module

12. 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 JEAN MONNET European Module

13. December 1989 Strasbourg Council • Political challenges of German Unification • Thatcher’s fear of the united Germany resurgence and opposition • Thatcher’s support for EC eastern enlargement to prevent deepening • Mitterand’s concerns of Kohl’s haste and unilateralism • Delors’ endorsement of unification and position on deeper integration • IGC on EMU to be convened • Thatcher outvoted and isolated • Franco German leadership weakened JEAN MONNET European Module

14. German unification, EMU and European Political Union • Thacher’s 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 • Mitterrand’s 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” JEAN MONNET European Module

15. 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 JEAN MONNET European Module

16. 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 JEAN MONNET European Module

17. 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 former…there 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” JEAN MONNET European Module

18. Based on Delors’ report Stage 1: • 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 JEAN MONNET European Module

19. 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 JEAN MONNET European Module

20. October 1990 Rome European Council • Decision to launch EMU stage II on January 1, 1994 • Thatcher’s opposition / Sir Geoffrey Howe resignation • Leadership crisis in the Conservative Cabinet/ Thatcher’s resignation JEAN MONNET European Module

21. 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 JEAN MONNET European Module

22. Positions and scope for coalitions formation JEAN MONNET European Module

23. Germany • Happy with the status quo in economic terms • Need to reaffirm the country’s 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 JEAN MONNET European Module

24. 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 JEAN MONNET European Module

25. 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 JEAN MONNET European Module

26. 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 JEAN MONNET European Module

27. 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 JEAN MONNET European Module

28. European Parliament Committee on Institutional Affairs • Legislative co-decision • Right to initiate legislation JEAN MONNET European Module

29. Central Bankers • Negotiating the specific arrangements and details • Closely involved in strategy design and drafting the relevant articles JEAN MONNET European Module

30. Presidencies JEAN MONNET European Module

31. Luxemburg Presidency June 1991 European Council • Three pillar structure of the draft Treaty instead of the unitary structure • Supranational EC – EMU • Intergovernmental Cooperation on JEAN MONNET European Module

32. 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 JEAN MONNET European Module

33. 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 JEAN MONNET European Module

34. The Maastricht Treaty – Treaty on European UnionSeven sections/17 protocols/33 declarations“deepening 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 JEAN MONNET European Module

35. EMU “The most important part of the Treaty on European Union revision” JEAN MONNET European Module

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

37. 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 JEAN MONNET European Module

38. Stage I to launch on July 1 1990by 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) JEAN MONNET European Module

39. 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 JEAN MONNET European Module

40. 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 JEAN MONNET European Module

41. Off to an Embarrassing Start JEAN MONNET European Module

42. 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 JEAN MONNET European Module

43. 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 JEAN MONNET European Module

44. Ratifications JEAN MONNET European Module

45. Denmark start 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 JEAN MONNET European Module

46. Ireland apprehensive expectations June 1992 Irish referendum positive outcome (69.0 in favor to 31.0 against) JEAN MONNET European Module

47. France Mitterrand’s gamble September 22, 1992, French narrow yes vote (51.0 in favor against 48.95 against) Mitterrand’s 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 JEAN MONNET European Module

48. 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 JEAN MONNET European Module

49. 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 Treaty’s 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 JEAN MONNET European Module

50. June 1992 Lisbon European Council • Assessing the Danish blow • Commitment to press ahead with the Treaty ratification • 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 JEAN MONNET European Module