The Impact of Heterogeneity Costs on the European Integration Crisis

Academic Paper, 2017
15 Pages, Grade: 8.0


Table of Contents


2.The European Integration Crisis
2.1 The Functionalist Approach to European Integration

3.1 New populism and Euro-scepticism
3.2 Right-wing populism in north-western and central-eastern Europe
3.3 Left-wing populism in southern Europe

4.1 Globalisation losers
4.2 Globalisation winners
4.2.1 Corporate political responsibility

5.Social Legitimacy of supranational EU bodies








After the first half of the 20th century, Europe had already witnessed two world wars, which were the result of frequent conflicts among European neighbours. At that point in time, political leaders such as Konrad Adenauer, Jean Monnet and Robert Schuman envision a united and peaceful European Union (hereafter called EU). European integration begins timid in 1950 with the European Coal and Steel Agreement to permanently consolidate European countries economically and politically. In 1957, the Treaty of Rome creates the foundation for the European Economic Community to establish the European Customs Union. In 1993, at the time of its third enlargement, the European States Community is grown to 12 member states and signs the Maastricht Treaty, which leads to the creation of a common currency for most of the European member states. Finally, the single market with “four freedoms’ of: movement of goods, services, people and money” (Communication Department of the European Commission, n.d., History) is completed.

Today, the EU and its 28 member states face a European integration crisis (Kriesei, 2016, p.42). Among the main factors, causing this crisis, are the heterogeneity costs of European member countries, which are high due to the recent financial and refugee crises as well as negative Globalisation impact. Heterogeneity costs are derived from national fundamental differences, such as history, language and culture, which lead to different national preferences in law and public policy (Spolaore, 2013, p. 127). This paper aims to elaborate on the current European Integration crisi and its main influencing factor heterogeneity costs (see Appendix A for model).

First, the European Integration crisis will be illustrated through applying the functionalist integration theory and heterogeneity costs. Secondly, rising Euroscepticsm and Populism will be related to the national political history and the current refugee and financial crises. Thirdly, Globalisation and its European losers and winners will be analysed. Finally, the force of heterogeneity costs and on the social legitimacy of the EU will be evaluated.


2. The European Integration Crisis

As laid out in the introduction of this paper, the continuous European Integration until the today is a complicated endeavour. The ongoing tension between European supranational institutions, which oversee increasingly more policy functions, and national governments, which are fearing a loss of power, is salient in every step of the integration (Spolaore, 2013, p. 132).

2.1 The Functionalist Approach to European Integration

This conflict is reflected in one of the most influential political theories of European integration. The functionalist approach, based on Haas (1958, 1964), contributed in a meaningful way to the philosophy and exertion strategy of European integration leaders and the formation of the Euro (Spolaore, 2013, p. 133). Functionalism states that European integration is driven by cross-border elites or supranational entrepreneurs such as Jean Monnet, which pursue an economic integration to reach a political integration (Spolaore, 2013, p. 132). The general strategy entails the initial integration of narrow areas for instance the coal and steel area in 1950 which than leads to a chain-reaction of continuous integration of more areas, the latest one being the monetary union. The resulting economic and monetary union of a free market and a common currency will than create pressure for more integration in form of a political (federal) EU (Spolaore, 2014, p.136). An established functionalist argument for the success of this integration approach is the following: After the homogenisation of countries in form of a common currency, their economic power will align as well. Moreover, the economic and monetary unitization will discipline the economic questionable behaviour of single member states. After all, the member states merge into a common European culture, with similar values and policies to ensure macroeconomic security and continued existence of the EU (Spolaore, 2013, p. 136).

Recent history may have thought radical functionalist to question their theory. When the global financial crisis hit the southern European member countries severely, it became obvious that a single currency does not align economic power. As the refugee crisis with millions of people coming from the Middle East or Africa takes place, European values and culture still differs. Those recent events demonstrate the central problem of the chain-reaction theory: The fundamental expectation that continuous integration will work in every economic and political area. Surely, integration worked well in areas of “low-costs of heterogeneity” (Spolaore, 2013, p. 138) and high economies of scale, such as the trade area. Here, the elimination of trade barriers was in the mutual intention of all Europeans. The costs of giving up on national protection policies was outweighed through the benefits of mutual free trade (Spolaore, 2013, p.140). The recent events in which the European community was asked to bail out certain member countries or offer equal help to refugees might have shown where heterogeneous costs clearly outweigh their benefits. The case of Brexit and the surge of Eurosceptics can be interpreted as a harbinger that heterogeneity costs must be reduced. The functionalist development of European Integration combined with currently high heterogeneity costs for the European member states, could lead to a collapse of the whole European project.

3. Eurosceptics

The low turnout of 43 per cent on average in European elections in 2009 (Senior Nello, 2012, p.55) exemplifies the intensity of public discussion of European Integration at the time. However, in 2016 Hutter et al. find an overall rise in politicization of the European Integration process. Most strikingly, this increase is based on the rapid popularity growth of Eurosceptics, politicians which propose to profoundly rebuild or exit, from the EU. Facing different European crises with high heterogeneity costs, the argument over a nation’s EU membership poured from supranational into national parliaments (Kriesi, 2016, p.34).

3.1 New populism and Euro-scepticism

New populism and Euro-scepticism makes use of concerns such as immigration, treats them in isloation and offers simple-made solutions (Magone, 2011, p. 382). Left and right-wing populist share similar concerns, which are the antagonism to globalisation, the domestic elites as concept of the enemy and too many European foreigners which occupy jobs and jeopardise national security (The Economist, 2016, p.19). The Swedish free-market think-tank Timbro published an index of authoritarian populism and finds that on average every fifth European country share those standpoints (The Economist, 2016, p. 15). Moreover, the votes for populist parties have almost doubled since 2000 (see Appendix A for election results).

To understand why left-wing populism is particularly strong in southern European countries whereas right populists are successful in northern-west and central-eastern European countries, one must illuminate the recent history of political conflict in those regions. Over the last 60 years, the different parts of Europe have experienced different social and political transformations (Kriesei, 2016, p. 36).

3.2 Right-wing populism in north-western and central-eastern Europe

In the north-western part, internal structural forces created rising affluence, while external structural forces such as globalization created economic pressure on especially low-skilled workers. Because of European Integration and immigration, those structural developments underlined the fragility of the sovereignty of a single nation-state and its national culture. Many citizens, which are disadvantaged by globalization, perceive radical right populists as the voice of the working class which cares about their economic insecurities (Kriesei, 2016, p. 37), (The Economist, 2016, p.15). Central-eastern European countries had to cope with an unstructured pattern of political conflict, due to their Communist inheritance. The central elements of conflict in central-eastern European countries are cultural. Those cultural issues can be distinguished from north-western European issues in terms of the enemy. In central-eastern European countries the enemy are national ethnic minorities or international corporations which are combated through defensive nationalism from right-wing populists. Based on central-eastern European defensive nationalism, the refugee crisis nourished Euroscepticism and provoked Hungary, Poland, Slovakia and Czech Republic to initiate a cross-national border protection program (Kriesei, 2016, p.44).

3.3 Left-wing populism in southern Europe

In contrast, southern European countries such as Greece or Portugal experienced authoritarian regimes until the midst of 1970. Due to the legacy of southern-European regimes and other factors, radical right populism remained weak in southern European countries. However, the economic conflict due to the austerity programs as reaction to the Eurozone crisis in combination with the national political conflict about nepotism and corruption has served as a stepping stone for radical left populism (Kriesei, 2016, p.42).

4. Globalisation

4.1 Globalisation losers

In the view of many scholars, Globalisation creates forces which destroy political support for integration (The Economist, 2016, p.1). The cycle of globalisation is encouraged by declining cross-country trading costs. As an example, Britain has a trade deficit which increased from one per cent of its GDP in 2000 to seven per cent in 2016. This development is remarkable, as it stayed at one per cent for around half a century (The Economist, 2016, p.1). Inevitably, intensified global integration and labour outsourcing create increased inequality in European household incomes (The Economist, 2016, p.1). Here, critics argue that the EU is, up until today, not able to construct a system that protects the losers of Globalisation (De Grauwe, 2016, p. 1). Research by Darvas (2013) shows, how Brexit is likely to be a result of this missing supranational or national mechanism. According to his regression analysis, UK areas with higher income inequality and poverty had more “leave” voters (Darvas, 2016, p.9). Interestingly, the UK ranks among the highest places in the EU income inequality index, which is a clear indicator for exclusive economic society growth (Darvas, 2016, p.9).

Economic experts argue, that the culprit for a missing Globalisation safety net is the EU (De Grauwe, 2016, p.1). While the EU member states remain in power over their own social policy, the EU specifies European wide fiscal rules and imposes structural neo-liberal labour reforms. Hence, EU critics argue, the institution curtailed the capacity of its member states to set up a globalisation safety net, while it misses out on building such a mechanism at the supranational level (De Grauwe, 2016, p.1). This representation however, is not fully correct as the EU offers a “Globalisation Adjustment Fund”, which funds training and support for employees replaced by foreign competition (The Economist, 2016, p. 22). In sum, national inequality and poverty, reinforced by Globalisation and not shielded by politics, provide statistically proven motivation for protest votes in elections.

The Political Trilemma by Rodrik (2011, p.201) depicts how societies are not able to simultaneously be globally integrated, democratic and fully sovereign (see Appendix B). As they can only decide for two of the three, Rodrik anticipates in 1990 that due to progressing Globalisation, the sovereignty of nations will be abandoned (The Economist, 2016, p.68). However, as the Brexit vote exhibits, globally integration is likely to yield to nation state sovereignty.


Excerpt out of 15 pages


The Impact of Heterogeneity Costs on the European Integration Crisis
Maastricht University  (School of Business and Economics)
Bachelor Kurs Jahr 3
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ISBN (eBook)
Aus der Reihe: stipendiaten-wissen
European Integration Crisis
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Lisa Lambertz (Author), 2017, The Impact of Heterogeneity Costs on the European Integration Crisis, Munich, GRIN Verlag,


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