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.
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
Research Objectives and Core Themes
This paper examines the origins of the Stability and Growth Pact (SGP) using Andrew Moravcsik’s theory of Liberal Intergovernmentalism, specifically analyzing how national preferences, interstate bargaining, and institutional choices between Germany and France shaped the final agreement to ensure fiscal stability within the European Economic and Monetary Union.
- Application of Liberal Intergovernmentalism to EU integration processes.
- National preference formation in Germany and France regarding fiscal policy.
- The role of the German Central Bank as a dominant domestic actor.
- Interstate bargaining dynamics and package deals in EU negotiations.
- The delegation of sovereignty to supranational institutions for credible commitment.
Excerpt from the Book
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. 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. Without any affirmation of the Central Bank to the new European currency the participation on the third stage of the EMU would have hardly been possible (Heipertz 2005: 68).
Summary of Chapters
1. Introduction: Outlines the necessity of the Stability and Growth Pact for the realization of the European Economic and Monetary Union and introduces the research focus on Germany and France.
2. Liberal Intergovernmentalism by Andrew Moravcsik: Explains the theoretical framework based on national preference formation, interstate bargaining, and institutional choice as a means to understand European integration.
3. The Genesis of the Stability and Growth Pact: Analyzes the political process behind the SGP, focusing on the specific national interests of Germany and France and the subsequent negotiations.
3.1 National preference formation of Germany and France: Details how domestic pressures, particularly from the German Central Bank, drove the demand for strict fiscal rules.
3.2 Bargaining process and institutional choice: Examines how the SGP was shaped by package deals and the transfer of monitoring sovereignty to European institutions.
4. Conclusion: Synthesizes the findings, confirming that the SGP reflected German preferences due to its strong bargaining position, though noting the pact's later failures.
5. Bibliography: Lists the sources and academic literature consulted for this analysis.
Keywords
Liberal Intergovernmentalism, Stability and Growth Pact, European Economic and Monetary Union, European Integration, Germany, France, Andrew Moravcsik, National Preference Formation, Interstate Bargaining, Fiscal Policy, German Central Bank, Sovereignty, Institutions, Economic Integration, Maastricht Treaty.
Frequently Asked Questions
What is the primary objective of this research paper?
The paper aims to explain the genesis of the Stability and Growth Pact (SGP) by applying the theoretical framework of Liberal Intergovernmentalism to the negotiations between Germany and France.
Which theoretical lens is used to analyze the European integration process?
The analysis is based on Liberal Intergovernmentalism as formulated by Andrew Moravcsik, which views states as rational actors driven by national preferences and interstate bargaining.
How does Liberal Intergovernmentalism explain the formation of national preferences?
It posits that national preferences are not monolithic but result from domestic struggles where powerful social actors and interest groups exert influence on their government.
What role did the German Central Bank play in the SGP negotiations?
As a highly influential social actor with a focus on price stability, the German Central Bank significantly pressured the German government to secure a strict stability pact as a prerequisite for entering the final stage of the EMU.
How were institutional choices made during the bargaining process?
Institutions were chosen as instruments to facilitate cooperation and reduce transaction costs, ultimately resulting in the delegation of monitoring and sanctioning powers to the European Commission and the Council.
Why was Germany in a stronger bargaining position than France?
Germany held a credible threat to abstain from the final stage of the EMU, which would have rendered the entire currency project impossible, thereby forcing France to concede to many of the German demands.
What were the main economic interests that influenced the French position?
While France also desired fiscal security, it advocated for a less strict arrangement compared to Germany, preferring a model that allowed for more discretionary power for the Council.
What is the author’s conclusion regarding the long-term success of the SGP?
The author concludes that while the SGP was successful in enabling the final stage of the EMU, it failed to meet its own requirements in practice and proved to be heavily reflective of specific German interests.
- Quote paper
- Sandra Martin (Author), 2014, The Genesis of the Stability and Growth Pact, Munich, GRIN Verlag, https://www.grin.com/document/344510
