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4. THE EUROPEAN UNION II: EMU & EASTERN ENLARGEMENT

4. THE EUROPEAN UNION II: EMU & EASTERN ENLARGEMENT 1. The Money Changers: TV programme excerpts 2. Pre-history of EMU 3. Who did it? 4. Why did they do it? 5. Why then (1989-91)? 6. EMU: Will it last? Three views 7. Conclusions on EMU

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4. THE EUROPEAN UNION II: EMU & EASTERN ENLARGEMENT

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  1. 4. THE EUROPEAN UNION II: EMU & EASTERN ENLARGEMENT 1. The Money Changers: TV programme excerpts 2. Pre-history of EMU 3. Who did it? 4. Why did they do it? 5. Why then (1989-91)? 6. EMU: Will it last? Three views 7. Conclusions on EMU 8. The Eastern enlargement: Process, issues, prospects 9. Overall conclusions

  2. 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).

  3. 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

  4. 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’!

  5. 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!

  6. 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.

  7. 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

  8. 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)

  9. 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

  10. 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

  11. 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?’)

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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.

  17. 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

  18. 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

  19. 8. EASTERN ENLARGEMENT: II. ISSUES • Financial costs (‘Agenda 2000’): • * Regional & agricultural policies • * Overall EU budget (conflict between net- • contributing & 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

  20. 8. EASTERN ENLARGEMENT: III. PROSPECTS • The incapacity of the EU to make radical, expenditure- • cutting 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

  21. 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

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