The Genesis of the Stability and Growth Pact

Aanalyzed on the basis of the Liberal Intergovernmentalism

Term Paper, 2014
10 Pages


Table of Contents

1. Introduction

2. Liberal Intergovernmentalism by Andrew Moravcsik

3. The Genesis of the Stability and Growth Pact
3.1 National preference formation of Germany and France
3.2 Bargaining process and institutional choice

4. Conclusion

5. Bibliography

1. Introduction

The implementation of the European Economic and Monetary Union (EMU), with a common European currency was one of the most far-reaching integration-steps of the European Integration. The EMU was enacted in 1992 with the Treaty of Maastricht and envisaged its implementation in three stages. Thereby the member states should gradually transfer competences and controlling tools to the European level and further the coordination of their monetary and economic policies. The purpose of the EMU was a uniform monetary policy for all member states, whereas the fiscal policies remain at the national level. With the approach of the third stage the integration process got into stumble und the project of a common European currency threatened to fail. Only after the ratification of an additional agreement - the Stability and Growth Pact - all of the European member states agreed to enter into the last stage of the EMU. Without this stability pact the implementation of the EMU would have been remained unfinished. This pact was not intended in the Maastricht Treaty, but constitutes an amendment to it. Wherefrom did the demand for this additional agreement come and how were the negotiations taking place? The genesis of the Stability and Growth Pact (SGP) will be analyzed in this paper. Thereby I concentrate on the two countries Germany and France. These were the dominant actors, who influenced and determined the development of the pact. The theoretical frame for the analysis is the Liberal Intergovernmentalism by Andrew Moravcsik. This integration theory focuses on “grand bargains“ between nation states to explain the steps of the process of the European Integration. In the following chapters I will firstly carve out the relevant aspects of Moravcsik´s theory. Afterwards the theory is applied to explain the genesis of the SGP.

2. The Liberal Intergovernmentalism by Andrew Moravcsik

With the Liberal Intergovernmentalism (LI) Andrew Moravcsik formulates a theoretical framework to explain the process and dynamics of the European integration. The LI belongs to the rational approach in the international relations and is based on the methodological individualism. Contrary to other Integration theories, for example Neofunctionalism, Moravcsik refuses the idea that the integration process takes place autonomously and independently of national interests. Rather the LI focuses on individual action and explains outcomes through the interest and preferences of certain actors (Moravcsik 1993: 480). Thereby the LI assumes that actors act as utility maximizer, whereby they include the behavior of others in their calculation. Admittedly actors don’t hold complete information, but only possess bounded rationality (Moravcsik 1998: 23).

As the development of European integration is shaped by treaties between nation states, the LI considers those as the central actors. Whether interstate cooperation takes place or not depends on the interdependence of state-preferences. If national preferences converge, incentives for cooperation emerge. Diverging preferences, in contrast, reduce the likelihood of interstate negotiations (Moravcsik 1997: 520f.). According to Moravcsik, especially economic interests determine the foreign policy of a state. To analyze the process of the European Integration Moravcsik (1998:20) proposes “that international negotiation be disaggregated into a causal sequence of three stages: national preference formation, interstate bargaining, and institutional choice”. For each stage the LI applies a particular theory.

At first stage of his model Moravcsik uses a liberal theory to explain the national preference building. The state is not seen as a unitary actor but reflects the specific power relation of different social actors and groups. These actors try to enforce their preferences against others and influence the national policy in their interest. Which social actor succeeds depends on his power resources and on the political system (Moravcsik 1997: 518). Generally governments consider and implement those preferences, by which the chance of their reelection increases. National preferences are therefore not constant but are subject to the changing preferences of the most important social actors. Furthermore national preferences differ from state to state and with regard to the particular issues. To identify the most powerful and influential actors in the domestic preference-building process, Moravcsik reverts to the theory of interest groups by Mancur Olsen. According to this theory the influence of a group increases with diminishing number of group members. Small groups possess a relative homogenous group-interest and can clearly define their preferences. Thereby they can concentrate their Lobbying on the specific issue and can exert stronger pressure on politicians than big groups, who`s interests are discordant (Olsen 1997). With the ending of the national preference formation the bargaining process begins. The LI follows a realistic approach to explain the second stage of the model. Here the preferences of states are counted as constant and domestic actors have no possibility to influence or change the national preferences anymore. Instead of social actors, nation-states or rather national governments are the dominant actors. These act as unitary actors at the international level, which try to enforce their preferences and thereby shape the integration-process. Thus solely sovereign governments decide on further steps of the European integration. Besides to the national preferences the outcome of the bargaining process is dependent from the relative bargaining power of a state. If a state is dependent on cooperation, because cooperation leads to a more efficient outcome than a unilateral strategy, the state is rather willing to make concessions, whereby it´s bargaining power decreases. A strong preference for cooperation leads to a relatively weak position in negotiations. Thus the relative strongest bargaining powers hold these governments, which are least reliant on cooperation. These governments can threaten convincingly to block the negotiations by their veto and thereby obtain concessions from their bargain partners. The outcomes of interstate-bargaining are therefore mostly the least common denominator. Cooperation which goes beyond is only reached by package deals (Moravcsik 1998: 22-65). According to the LI, supranational actors play only a marginal role in the interstate bargaining process. Merely the commission can function as an intermediator to impede that negotiation fail through a veto from a member state. To explain the third stage of its model the LI leans on the regime theory, which sees Institutions as instruments to avoid unintended consequences and facilitate cooperation. They are considered as a necessary condition for a credible commitment of all member states. Through delegation or pooling of sovereignty transaction costs for cooperation decreases because uncertainty of the future behavior of the bargain partners will be reduced. Hence, the control and sanction of misbehavior of the member states does lies in the hands of a supranational institution. An actual sanction of opportunistic behavior becomes more probably, whereby the pressure on the national governments to comply with the rules increases (Moravcsik/Nicolaidis 1999:76).

With the LI Moriavcsik formulates a theory to explain the European Integration on the basis of national preference building, interstate bargaining and institutional choice. The theory focuses on the grand bargains, in which the nation states try to enforce the national preference, which was built in an intrastate process before. If cooperation takes place and states reach an agreement they delegate sovereignty to international institutions to make their commitment more credible. This theory is now applied to analyze the genesis of the SGP. Thereby I concentrate on the two countries by which the emergence of the pact was mainly determined: Germany and France.

3. The Genesis of the Stability and Growth Pact

The SGP results from an initiative from the German finance Minister Theo Waigel. The outcome of the intergovernmental negotiations can be seen a compromise between the “stability pact for Europe”, which was preferred by Germany and the “government èconomique”, which was preferred by France.\1 Below I will analyze the genesis of the SGP. For this purpose I will initially carve out which national preferences where built in Germany and France. Afterwards the relative bargaining power of the actors and the negotiation process will be analyzed. In the last step I will explain the choice of the institutional design of the pact.

3.1 National preference formation of Germany and France

Before the entry in the third stage and thereby the final realization of the EMU demands for additional rules to secure stable and sound fiscal policy arose in Germany. The initiative from Germany´s finance minister Theo Waigel envisaged stricter rules and additional restrictions for national budgetary policies of the member states.2 Without such a pact, Germany was not willing to take part in the last stage of the EMU (Heipertz 2005; Stark 2001). How this preference was built will be analyzed below on the basis of the first stage of the LI.

In the German public existed a major rejection towards the coming implementation of the common European currency (Commission of European Communities 1995). The national currency, the Deutsche Mark, was not only a symbol of the economic boom after 1945, but also stood for price stability, an issue for which the Germans were sensitized after two Hyperinflations (Stark 2001: 83f.). The skepticism was intensified through the position of the German Central Bank. The German Bank regarded the fiscal rules of the Maastricht treaty as insufficient and called for a broader set of rules to avert unsound budgetary policies of the European member states (Börsenzeitung 31.01.1995; 12.04.1995). Because of the Central Bank´s high reputation in public, its position was crucial for the acceptance of the EMU in the German population.


1 The SGP is a comprehensive body of secondary legislation which concretizes the fiscal convergence criteria of the Maastricht treaty. The basic components are the two enactments No. 1466/97 and No. 1467/97 and a resolution of the European Council. The first enactment contains regulations for monitoring the budgetary policies and norms for the coordination of the economic policy of the member states. The second enactment accelerates and specifies the procedure of excessive deficit (Official Journal of the European Communities 1997).

2 From the German point of view, the existing convergence criteria (defined in article 121 EC Treaty) were not sufficient. The compliance of the criteria was indeed the pre-condition for the entry in the third stage of the EMU, but there was no mechanism or institution, which guaranteed the compliance with the rules, after the entry. Rather there was an incentive to free-ride, because the negative effects of unsound budgetary policy of one member state could be shifted on the rest of the participating states of the EMU.

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The Genesis of the Stability and Growth Pact
Aanalyzed on the basis of the Liberal Intergovernmentalism
University of Bamberg
European Integration
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ISBN (eBook)
ISBN (Book)
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582 KB
European Integration, Stability and Growth Pact, Liberal Intergovernmentalism, LI, SGP, European Union
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Sandra Martin (Author), 2014, The Genesis of the Stability and Growth Pact, Munich, GRIN Verlag,


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