Changing The Debate On Europe

Global Policy Volume 3 . Issue Supplement 1 .
December 2012
Lord Ralf Dahrendorf (19292009)

1958 to 1969 1967 to 1970 1968 to 1969 1969 to 1970 1970 to 1974 1974 to 1984 1976 to 1979 1984 to 1986 1987 to 1997 1993 2005 to 2009 Professor of Sociology at the Universities of Hamburg, Tbingen and Konstanz Chairman of the Deutsche Gesellschaft fr Soziologie Member of the Parliament of Baden-Wrttemberg Member of the German parliament for the Freie Demokratische Partei (FDP) and Parliamentary Secretary of State in the Ministry of Foreign Affairs, Berlin Commissioner for External Trade (European Commission under President Franco Maria Malfatti) and Commissioner for Science (President Francois-Xavier Ortoli) Director of the London School of Economics and Political Science (LSE), London Commissioner of the Royal Commission on Legal Services (Benson Commission) Professor of Social Science, Konstanz University Warden of St Antonys College at the University of Oxford and later Pro-Rector Appointment as life peer named Baron Dahrendorf of Clare Market of the City of Westminster Research Professor at the Social Science Research Center in Berlin (WZB)
Global Policy (2012) 3:Suppl. 1 doi: 10.1111/1758-5899.12037
2012 London School of Economics and Political Science and John Wiley & Sons Ltd.
Global Policy Volume 3 . Supplement 1 . December 2012
Introduction: A Moment for European Sturm und Drang?

Damian Chalmers
Survey Article
London School of Economics and Political Science

In a 2003 article Lord Dahrendorf made three striking observations about democracy in Europe (Dahrendorf, 2003, p. 101). The rst was that the European Union was increasingly occupying the space of technical cooperation while national democracies were reinforcing their hegemony over issues of emotion and affect. The boundary between the technical and the emotional might move signicantly over time so that money might become a matter for international technical cooperation and cease to be a strong national symbol. Dahrendorf lamented this dichotomy. He noted that it was associated with a world in which the technisation of important issues made them less susceptible to common sense and less comprehensible to ordinary people. Secondly, independently of this, Europe had generated a peculiar cleavage. It had become associated with a utopia for the centre left. The centre right was increasingly identied with scepticism towards the European Union and in some cases it replaced the Soviet Union, as the political enemy around which the Centre Right organised itself. Thirdly, Dahrendorf was concerned about the quality of democracy in the European Union. For him, democracy was a political process that placed checks and balances on political power, allowed all citizens voice and brought about signicant nonviolent change in our societies. He saw the European Union as an organisation in which administrative power was insufciently checked and in which it was difcult to conceive of popular voice at a supranational level except through street demonstrations or the media (Dahrendorf, 2003, p. 107). Since 2009 this has, of course, ceased to be characteristic of the Union. Conict and instability within political institutions and popular protest on the streets have become leitmotivs of the European Union. Alongside this, the demarcation between the technical and emotional, unstable at the best of times, has broken down. The arcane language of inter-bank lending rates, mutualisation of risk, annual structural balances, troika meetings and European stability mechanism processes has become not merely the object of protest and anger but the obsession of blogs and newspaper front pages across the Union. It is to be wondered what Dahrendorf would make of this. He saw popular protest as desirable and necessary; a sign that people realised something was wrong and were sufciently engaged to exercise voice about it, often at some risk. However, the direction of all this protest is very unclear. The turmoil may, indeed, lead to the political creativity, vibrant debate, curbs on power and mutual engagement that Dahrendorf and others saw as productive consequences of conict. They saw this, however, as a consequence of bounded processes in which the terms of engagement prevented its abuse and in which there was a certain level of clarity about what lay at the heart of the conict. The meaning of these features in the current crisis is unclear. Conicts have uidly spilled from one arena to the other and the central refrain has been anger and protest rather than clear political agendas. If one concern is that this might lead to extremism or authoritarianism, another is that nothing will be left unchanged. There might be disruption and political change but the central dynamos leading to the current predicament remain fundamentally untouched. This issue looks at three of these: the processes that have led to the Union being a space for technical cooperation rather than vigorous political contestation, the resilience of the characterisation of Europe as a utopia and nally, Europes need to build a common and democratic social space. Three elements are identied as contributing to the rst of these. The rst is the presence of a politically attractive consensus, noted in Schelkle and Hassels article about economic policy-making, which emphasises the pre-eminence of monetary policy, in particular the setting of short-term interest rates by independent central banks, to anticipate and correct shocks in the economic cycle. The authors ask why this model has remained so popular notwithstanding its treatment of the foundations of microeconomics as an empty space and its tendency to neglect asset or debt bubbles. Their conclusion is that by pressurising policymakers to make labour market reforms to respond to the pressure from interest rate policy, it leads to a preference for cheap labour over higher unemployment: an electorally attractive idea for both centre left and centre right political parties.
Global Policy (2012) 3:Suppl.1 doi: 10.1111/1758-5899.12009
Damian Chalmers
However, it might be observed that pan-Union political parties do not exist and the levels of political contestation in Union institutions are limited. How did this consensus, therefore, enter the Unions policy space? The second feature of the Union institution settlement accounts for this policy diffusion. Schwarzers article points out how, even during the period of intense legislative activity and political engagement during the crisis, the Union institutional settlement has been marked by incrementalism. This incrementalism is present in the policies put forward: be it the increased commitment to the principles of the excessive decit procedure or the commitment to labour market reform, rst present in the EU programme on exicurity and now in the Euro-Plus Pact. In all cases there is a sense of permeation rather than the debate of ideas. This is also present with institutional reform. Schwarzer claims there has been a move towards greater intergovernmentalism as a result of the crisis. Yet, in all cases, it has developed around and latched itself onto pre-existing structures. She concludes that this incrementalism is insufcient to generate the reforms necessary for the current challenges. This brings us on to the third characteristic of Union policy-making, leadership. Strong leadership could, after all, break this mould. In their study of the backgrounds of prime ministers, economic ministers and central bankers since 1973, Hallerberg and Wehner discover that these are signicantly more likely to have a legal background in EU states than in other OECD states. There is only a strong shift to leaders with an economic background at moments of economic crisis. They do not speculate about the implications of this. However, if the qualities associated with lawyers include training in adversarial argument, mastering briefs and public communication, they also include an interest in rules. And the conduct of economic policy through the development and application of rules is very much what the Union is about! Furthermore, there is little evidence that the shift to economists during moments of crisis is borne of a desire to generate a paradigm shift in economic policy-making: rather, it is associated with the careful deployment of existing economic models undeected by political opposition. There is a good chance that Dahrendorf would have been critical of all three of these dynamics. Troublingly, the rst two, at least, have been reinforced by the crisis. The European Union still retains the power, however, to be the receptacle for normative re-imagination. In her contribution, Kaldor argues that many of the concerns about loss of sovereignty or centralisation of administrative power are misplaced. The Union, for her, is a new form of political authority different from that of the nation-state that could be a model for global governance more generally. To make this point, she analyses
the Common Security and Defence Policy through the prism of the human security template, and argues that this led the European intervention in Libya to be different in quality from that if NATO had taken the lead. Risses piece considers the extent of the hold of this vision on policymakers. He notes that foreign policy is much more Europeanised than many realise and that this Europeanisation rests strongly on the language of human rights and democracy. However, below the surface, he notes deep challenges, and it is unclear how strongly this language informs policymaking. Risse notes that, on the one hand, it is used in areas such as defence at the levels of the Europeanisation of elites. He also notes, in his study of attitudes to Turkish membership of the Union, that there are deep disagreements about how widely it is to be deployed. This is taken further in the two pieces by Arne Westad and Michael Cox, respectively, on this issue, which look at the two central partners, the USA and the Union, and the two central competitors in foreign policy, the USA and China. Cox notes that if resort to the language of common values and ideas of the West may have allowed European states to be some of the more reliable allies of the USA, it has insufcient hold alone to deal with a relationship which is fast changing simply by dint of Europe moving from being a predominant partner in US foreign policy to its becoming an important part of a wider jigsaw. By contrast, Westad observes that there is a sense of the growing importance of Sino-European relations in both Europe and China. If, in China, this is marked in part by the Union being seen as a counterweight to the USA, Westad observes a deep failure on the Union to develop or communicate a clear policy on China. He observes that, paradoxically, the central determinant for relations between the European Union and China likely to be how United States foreign policy develops. Beyond policy-making within the European Union and the Union as a global actor, a third dimension attracted Dahrendorfs attention: the complex relation between Europe and its citizens. In their piece, Anheier and Falkenhain observe that a number of mechanisms (both bottom-up and top-down) has been developed to make people cross borders and identify as Europeans. They nd, however, that most of these mechanisms have a social bias and neglect large parts of the population, most notably the new precariat and less educated people. This issue suggests that, both within its own territory and more broadly in the world, if the Union retains its ability to be associated with a sense of vision, it has a limited capacity, for all that, to think the unthinkable, as Dahrendorf would have urged, and revisit received wisdom. It is both ironic and a tragedy that it is the
Global Policy (2012) 3:Suppl.1
European Sturm und Drang
machinations and failures of global nance that have led the Union to a position at the December European Council, where it will have to make hard choices about what sort of Europe it wants for its citizens and to be projected more widely. Dahrendorf would have urged ambitious, fractious and creative debate where nothing is treated as untouchable and where a premium is placed on popular engagement. We shall wait and see if that happens.
Reference
Dahrendorf, R. (2003) Making Sense of the EU: The Challenge for Democracy, Journal of Democracy, 14 (4), pp. 101114.
Author Information
R. Damian Chalmers is Professor of European Union Law of the London School of Economics and Political Science, London, UK.
Setting the Stage: Lord Ralf Dahrendorf and the European Project
Survey Article
The 1970s: We need a second Europe!
After a brief period in the German Parliament, serving as State Secretary in the Foreign Ofce, Dahrendorf became Commissioner for External Relations and Trade in the European Commission in 1970. In 1971 he published two articles in Die Zeit under the nom de plume Wieland Europa. In these two articles he blamed the rst Europe, that is, the achievements of the European Community (EC), for being a project concerned with butter, sugar, sh and meat. Dahrendorf criticized an unsupportable discrepancy between rhetoric and reality (Dahrendorf, 1996) and blamed the institutions for their lack of accountability. He called for a second and more political Europe to overcome the problems created by the rst. He suggested the regular consultations of foreign ministers and habit-forming co-operation in as many areas of policy-making as appropriate (Dahrendorf, 1990, p. 127). Dahrendorf also advocated differentiated integration: Some of this might well be la carte, so that members of the Community can pick and choose whether they want to participate (Dahrendorf, 1990, p. 127). The
Helmut K. Anheier
Dean and Professor, Hertie School of Governance
Gesa-Stefanie Brincker
Project Manager, Hertie School of Governance
Lord Ralf Dahrendorf was convinced of the fundamental responsibility of intellectuals to doubt all received wisdom, to wonder at that is taken for granted, to question all authority, and to pose all those questions that otherwise no-one else dares to ask (Dahrendorf, 1963). With the Dahrendorf Symposium series we want to honor his legacy the legacy of a political intellectual who was an intellectual politician at the same time. He never took Europe and the European Union (EU) for granted. Over the course of nearly ve decades he repeatedly and publicly raised often uncomfortable questions about Europe; its achievements, potential and weaknesses; but especially, he fought for Europe as a democratic project, as a project of citizens continuously seeking a better Europe. two articles provoked controversy; Dahrendorfs pseudonym did not remain secret for long. His harsh judgment (he later called it realism) almost caused his dismissal by a motion of censure in the European Parliament. Two years later, in 1973, in his book Pldoyer fr die Europische Union he proposed, among other recommendations, making the European Commission an institution answerable directly to an elected European Parliament.
The 1980s: Quelques lueurs despoir dans un ciel sombre

In the early 1980s, as director of the London School of Economics (19741984), against the background of the Winter of Discontent and Thatcherism, Dahrendorf drew a very critical picture of the development of the EC, depicting it as a grouping of partly unwilling members, without objective, working in an intransparent chaos of institutions, in which an elected Parliament acted without functions and competencies (Dahrendorf, 1983, p. 190). He raised the fundamental question why visions are included in ofcial documents although we know that these remain visions because nobody knows how we can get rid of the paralyzed Europe of today? (Dahrendorf, 1983, p. 190). At the same time he presented the common market as a success story. According to Dahrendorf, the European Economic Community (EEC) had the potential to become an economic engine for developments in the world, or at least for OECD countries. The collapse of the economic world order in the 1970s called on the EEC to respond to global challenges. He pointed to the European monetary system as an arduous substitute in need of institutional strengthening in a post-Bretton Woods world order. Dahrendorf, however, also raised the question whether Europes momentum of the 1950s and 1960s had exhausted itself: LEurope reste-t-elle jamais un subjonctif, dans le meilleur des cas un optatif? (Dahrendorf, 1982, p. 348).
Setting the Stage
The early 1990s: The European Revolution of 1989

As Warden of St Anthonys College in Oxford (1987 1997), Dahrendorf celebrated his 60th birthday in May 1989 when the Iron Curtain started to fall. In his book Reections on the Revolution in Europe he rejected the dominant reading that the countries of Central and Eastern Europe had chosen capitalism over communism; instead, he claimed they aspired to return to Europe and to build an open society in which there are 100 different ways forward to freedom and a handful on offer at any one time (Dahrendorf, 1990, p. 109). Dahrendorf was convinced that the EC and its members had a central responsibility for the future development of Central and Eastern Europe. The exceptional events of 1989 delighted him and encouraged him to formulate his vision. On the one hand, he saw Europe as a village built around a solid house called the EC (Dahrendorf, 1990, p. 136), a house that is not exclusionary or one bloc divided from others, but a project that unites citizens. On the other hand, his vision of Europe went far beyond the continents borders: [My vision of Europe] will forever be the Kantian project of a world civil society with truly international institutions to guide and to sustain it (Dahrendorf, 1990, p. 129). The democratic Europe of citizen democracies was his model.
charge that the EU betrayed its very own democratic principles. The EU itself would fail any application for membership if it wished to join the Union. The EU lacked both the demos and a political class bridging Brussels and member states. How is democracy in Europe possible? he was asked. Considering the European institutions that negotiate behind closed doors as an insult for democracy (Dahrendorf, 2002, p. 35) he stated that institutional reform preserving the status quo would not solve the systemic problem of the EU; neither would any constitutional treaty not based on popular demand. He called on the EU to focus on liberal, not statist principles when building a European demos. In 2009, shortly before he died, Dahrendorf assessed the economic and nancial crisis as the result of debt-leveraged capitalism (Pumpkapitalismus). He argued that the crisis could also give rise to a change in Europes economic-political culture. Concretely, he called for a responsible capitalism (Dahrendorf, 2009, p. 9) marked by medium-term and long-term thinking on the part of its leaders.
Challenges and tensions

Looking back and looking forth, it is remarkable how valid Lord Dahrendorfs criticism, and how relevant his suggestions for Europes future remain. His reections about the EU capture some of the fundamental challenges concerning its architecture, performance and communication. Dahrendorf repeatedly rejected the argument that Europe would develop automatically and inevitably by some functional logic towards a political Union. History does not work that way (Dahrendorf, 1989, p. 8), he stated. Instead he argued that concrete, pragmatic and political steps are needed to move the EU forward albeit democratically legitimated steps. He rejected the idea of Europes nalit but rather saw it as an ongoing political battle between federalists and confederalists (Dahrendorf, 1973). As any vision of Europe from generations past may ring hollow to those that follow he was convinced that every generation has to reinvent Europe. Concerns about the Europe of citizens were centrestage in Dahrendorfs reections. Dahrendorf asked himself how to reconcile citizenship and the EU, how to make democracy and freedom in a post-national context work (Garton Ash, 2009). He argued that in absence of direct democracy, forms of deliberative democracy, as part of an emerging European civil society, are a second best option. Europe is part of the West, as a normative concept that stands for human rights, the rule of law and checks and balances (Winkler, 2010). The EU should play an appropriate role in the world, if possible, in conjunction with the USA. In the absence of global rules and agreements, the European Project serves an important model for others. These challenges involve tensions, some of which become even more blatant in the current
The late 1990s: European reform is imperative if the EU is to survive

In 1993 Dahrendorf was appointed life peer, Baron Dahrendorf of Clare Market in the City of Westminster a prominent location on the LSE site. With his earlier critiques still valid, he concentrated on concrete reform steps that would make the EU more relevant for its citizens and the world. He recommended including an updated European Convention on Human Rights in EU treaties as a way to increase citizens identication with Europe, to strengthen the democratic accountability of the European Commission and to make social cohesion among citizens a crucial objective for the future. Finally, he called on the EU to include the new democracies of Central and Eastern Europe. Enlargement to the east is a vital responsibility of a democratic EU, he noted (Dahrendorf, 1996, p. 1). If this endeavor were to fail, the EU would lose its appeal to attract non-members.
The 2000s: How is democracy in Europe possible?

In January 2005 Dahrendorf was appointed a Research Professor at the Social Science Research Center in Berlin. Over the next few years his critique of the EUs democratic weakness became more severe, culminating in his
Helmut K. Anheier and Gesa-Stefanie Brincker
nancial and Euro crisis: The desire to construct a stable EU that serves as a model for post-national cooperation seems, for instance, hardly compatible with the need for a continuous reinvention of Europe from the inside. Moreover, an emerging European civil society actively engaged in shaping the European project is not backed by broader societal support. By contrast, the majority of citizens are indifferent to the EU and how it operates. Finally, there is a discrepancy between the principle of democracy and the reality that EU institutions remain too remote from the citizens. Dahrendorfs legacy and challenge to us is to come to terms with these tensions in the changed context of the crisis-prone early 21st century.
References
Garton Ash, T. (2009) On Liberty. The Dahrendorf Questions. Oxford: Medical Informatics Unit, NDCLS, University of Oxford. Dahrendorf, R. (1963) Der Intellektuelle und die Gesellschaft, Die Zeit, 29 March. Dahrendorf, R. (1973) Pldoyer fr die Europische Union. Munich and Zurich: Piper. Dahrendorf, R. (1982) Quelques Lueurs Despoir dans un Ciel Sombre, in A. Miguel de and Dahrendorf, R (eds) La crise en Europe. Paris: Fayard. Dahrendorf, R. (1983) Die Chancen der Krise: ber die Zukunft des Liberalismus. Stuttgart: Deutsche Verlagsanstalt. Dahrendorf, R. (1989) The Future of Europe, in Dahrendorf, R., Hoskyns, J., Curzon Price, V., Roberts, B., Wood, G.E., Davis, E. and Sealy, L.S., (eds) Whose Europe? Competing Visions for 1992. London: Institute of Economic Affairs. Dahrendorf, R. (1990) Reections on the Revolution in Europe: In a Letter Intended to Have Been Sent to a Gentleman in Warsaw. London: Chatto & Windus. Dahrendorf, R. (1996) Why Europe Matters: A Personal View, Report, 20 September 1996. London: Centre for European Reform. Dahrendorf, R. (2002) Die Krisen der Demokratie. Ein Gesprch mit Antonio Polito. Munich: Beck. Dahrendorf, R. (2009) Nach der Krise: Zurck zur protestantischen Ethik?, Merkur, 720 (May). Winkler, Heinrich (2010) Greatness and Limits of the West: Reections on an Uncompleted Project, Lecture on 7 October 2010, London School of Economics and Political Science.
The 2011 Dahrendorf Symposium

Following these thoughts, the inaugural Dahrendorf Symposium focused on the ambiguity of positive and negative meta-narratives for debating the future of the European integration project. The Symposium and its core themes engaged with central issues of the European debate in the eld of politics, economics and sociology as well as with ideological and global questions. The Hertie School of Governance, the London School of Economics and Political Science and Stiftung Mercator jointly organized the Dahrendorf Symposium 2011 at the Berlin-Brandenburg Academy of Sciences and Humanities on 910 November 2011. They brought together leading academics, policymakers and the media from across Europe and beyond. The inaugural symposium took as its theme Changing the Debate on Europe: Moving Beyond Conventional Wisdoms. Five international research groups, lead by faculty members based at either the Hertie School or the London School of Economics, involved academics from other European institutions. In this context renowned members of this newly established research network developed several working papers, a number of which are included in this special issue. All articles, contributions and speeches included in this issue were developed for the 2011 Dahrendorf Symposium, a joint initiative of the Hertie School of Governance, London School of Economics and Political Science and Stiftung Mercator.
Author Information
Helmut Anheier is Dean and Professor, Hertie School of Governance. He also holds a chair of Sociology at Heidelberg University and is Academic Director of the Center for Social Investment. Gesa-Stefanie Brincker, Dahrendorf Manager, Hertie School of Governance, is a manager for the research project Changing the European debate at the Hertie School of Governance and seminar coach for the Schwarzkopf Stiftung Young Europeans.
201x London School of Economics and Political Science and John Wiley & Sons Ltd.
The Educational Competence of Economic Policymakers in the EU

Mark Hallerberg
Research Article
Hertie School of Governance
Joachim Wehner
Abstract
This article compares the competence of the principal economic policymakers in 27 European Union (EU) member states with those in other advanced economies. Following earlier work on specialists in government, we consider whether prime ministers, nance ministers and central bank governors have an education in economics or a related eld like business. We nd that EU prime and nance ministers are more likely to have legal than economics training, which distinguishes them from their OECD peers. Among the most recent accession countries, economic policymakers were better trained prior to accession than after it. Eurozone economic policymakers have essentially the same overall level of education as their EU peers outside the eurozone, but eurozone prime ministers, in particular, are much less likely to have advanced economics training. Among the exceptions are countries experiencing a high frequency of nancial crises. In these cases the level of economics training is comparatively high. We speculate that these countries have little choice but to appoint policymakers who, at least in terms of background, appear to be competent.
Policy Implications
Educational backgrounds of Europes economic policymakers vary considerably. These differences may translate into policy differences.
While there are countless volumes of biographies of individuals, there has been little systematic study of the personal characteristics of economic leaders. One exception is the work by Blondel (1985), who presents a systematic global survey of government ministers from 1945 to 1980, including their occupational background. He discusses differences between amateurs and specialists, with specialization indicated by ministerial appointments to posts that correspond with their prior training. Others have considered the backgrounds of political leaders (Besley and Reynal-Querol, 2011; Dreher et al., 2009; Goemans et al., 2009) and of central bankers (for example, Ghlmann and Vaubel, 2007). There is also a body of literature on the traits of top managers in the private sector (for example, Kaplan et al., 2008). The only work we know of to date that focuses specically on nance ministers is that of Blondel (1991), although Chwieroth (2007; see also 2010) does consider whether central bankers and nance ministers in developing countries have neoliberal edu-
cational backgrounds. Even then, little attention has been paid to variations in the level of educational attainment and differences in specialization of economic leaders. In this article we review certain personal characteristics of the principal economic policymakers in European Union (EU) member states, focusing on their educational background. Our sample includes the 27 countries when they were democracies since 1973. To study whether the patterns are EU-specic or found more generally in the advanced market democracies, we also include comparative data from most OECD countries that are not members of the EU. The main goal of the article is descriptive to map out patterns in education. We also make no claims that certain types of policymaker necessarily lead to better economic policies more generally (for example, Besley et al., 2011; Rogoff, 1985). At the same time, there are patterns that suggest possible causal relationships, which we intend to explore in followup research. However, before one can more fully
10
Mark Hallerberg and Joachim Wehner
examine causal mechanisms relating to policy, one must rst understand why certain types of people and not others are appointed. We would also prefer to map out our data on a case-by-case basis to examine causality more directly. This article must be more humble and focused on description. To preview, we nd that EU nance ministers are less likely to have training in economics or business than their peers in OECD countries. We also nd, however, that competence, as assessed by training, is higher among economic policymakers in some eurozone countries like Greece and Portugal that have had nancial difculties (Reinhart and Rogoff, 2009). Our assumption is that countries that face severe economic problems have little choice but to appoint policymakers that, at least in terms of their background, appear to be competent.
competence of European economic policymakers, in particular: H1: Joining the EU leads to a demand for more competent ministers who can represent a given country before economic policymakers from other countries; the competence level of policymakers should therefore increase with membership. H2: EMU increases the competence of nance ministers. In the following section we introduce our dataset, describe selected cross-national patterns and examine some of the data in relation to these expectations.
2. EU Policymakers in Comparative Perspective 1. European Integration and Economic Competence

There are good reasons to concentrate on the backgrounds of European economic policymakers in particular. First, the responsibilities of the EU more generally are strongly weighted towards economic policy. The EU is especially active in regulation (for example, Majone, 1996) but it is responsible for additional economic policies as well. It negotiates exclusively trade treaties. Internally, capital, labor, services and goods can mostly circulate freely because of EU statutes and their enforcement through the European Commission and rulings from the European Court of Justice. Member states have coordinated exchange rate policies with varying degrees of success since the nal collapse of the Bretton Woods system in 1973, culminating in the introduction of the euro in 1999. Economic and nance ministers meet regularly in the Economic and Financial Affairs Council (ECOFIN). Hence, economic competence is relevant not only domestically at the cabinet table but across European governments as well. In addition, the creation of the euro also diminished the overall importance of the domestic foreign ministries in Europe. Traditionally, the Committee of Permanent Representatives (COREPER), whose members come from the foreign ministries, prepared the Council of Minister meetings. With the advent of the euro, however, the Economic and Financial Committee, composed of representatives from the member state nance ministries, replaced COREPER as the key body that sets the agenda for ECOFIN meetings. Ministers from eurozone countries also meet separately in the Eurogroup. Hence, the Economic and Monetary Union (EMU) has elevated the importance of nance ministers through ECOFIN and now, increasingly, through the Eurogroup. These developments lead to expectations about the level of We have collected data on the backgrounds of the prime minister, nance minister and central bank governor for 38 countries on a monthly basis for the period 1973 to 2010. We include all 27 EU countries as well as 11 non-EU OECD countries, and we use data from countries only when they were democracies. There are two principle ways to examine our data. First, we can analyze individual policymakers, which is particularly useful for studying the circumstances that surrounded their appointment. Alternatively, we can examine the time share in ofce of individual policymakers. The latter approach can be used to assess the dominance of certain personal characteristics across countries by effectively weighting all individuals by their time in ofce. Here, we adopt the second approach and compare data according to country-months instead of per leader. This yields a total of about 15,000 country-month observations. We use standard international conventions for classifying our data. Education codes come from the United Nations Educational, Scientic and Cultural Organization (UNESCO, 1997) International Standard Classication of Education (ISCED). To begin with general statistics for education, Table 1 compares EU and non-EU countries. For the sake of brevity and exposition, we refer to the non-EU countries in our sample as the OECD countries in the remainder of the article even though a number of EU countries are also members of the OECD. The rst two columns display the percentage of country-months with a given type of economic policymaker whose highest degree is at the graduate (up to a Masters degree) or postgraduate (doctorate or equivalent) level, with any remainder suggesting less than a graduate degree.1 In aggregate, there is almost no difference between OECD and EU countries. The exception is for central bank governors, with OECD countries having more months (39 versus 30
Economic Policymakers
11
Table 1. Comparison of OECD and EU educational background (% of country-months) Graduate, eld Graduate Prime minister OECD EU Finance minister OECD EU Central banker OECD EU 62 63 57 61 61 70 Postgraduate 27 29 35 34 39 30 Bus. Econ. 25 19 55 37 66 63 Law 17 38 17 39 16 19 Postgraduate, Economics 19 19 55 40 81 74
Source: Ofcial national government sources including parliamentary archives, nance ministry websites and central bank websites; international institutions including the European Parliament, European Commission, OECD, Club of Rome, European Investment Bank and the UN; biographical encyclopedias, including Munzinger, Britannica and national biographical databases; personal websites of politicians; newspaper reports. This table presents for EU and OECD countries the percentage of country-months when the relevant individual was a college graduate, studied law or business economics as a primary eld, and received a postgraduate degree in economics. On the International Standard Classication of Education (UNESCO, 1997) six-point scale, this corresponds to a 5 equivalent to the rst level of tertiary education completed (for example, Masters degree in many European countries) as well as a 6 (for example, PhD).
percent) of an ofce holder with the equivalent of a doctorate. The third and fourth columns on the eld of study are more interesting. Clearly, there are more country-months with economic policymakers who have a legal rather than an economic background in EU countries. Twice as many EU country-months have a legally trained prime minister (or president). Moreover, nance ministers have a slight edge in law over economics in EU countries. The trend is very different in OECD countries, where the ratio is 55:17. When looking at postgraduate training, the difference between the two samples narrows somewhat. Finance ministers have an advanced degree in either business administration or economics 55 percent of the country-months in OECD countries, but only 40 percent of the time in the EU group. This difference is smaller among the central bankers, although OECD countries remain somewhat more likely to have economists in this role. We also present tables that break down some of the data by country. Tables 2 and 3 examine the educational background of prime and nance ministers, respectively. For prime ministers, Table 2 indicates that Germany and Finland had the longest time with a prime minister in ofce with a degree in either the humanities or the social sciences, while Table 3 shows that German nance ministers are most likely to have such degrees. For nance ministers, law backgrounds are most common in Belgium and Luxembourg. If one considers the original members of the EU, or the EU-6, their nance ministers have an economics graduate degree just 22 percent of the time. Of course, it could be that European nance
ministers are more likely to do advanced degrees in economics, which we examine in Table 4. Indeed, our data show that EU-6 nance ministers have a doctoral equivalent in economics in 32 percent of all country months. This is right at the average for all countries in our dataset. Looking at EU countries, it is noteworthy that Central and East European countries have a larger percentage of time in ofce by individuals with natural science undergraduate degrees. At the graduate level, 21 percent of the time their nance ministers have an equivalent of a doctorate in economics. There are three countries under joint EU International Monetary Fund supervision in the summer of 2012, and their backgrounds vary. Greek economic policymakers are some of the best educated in the developed world prime ministers and nance ministers in this country have advanced degrees 98 percent and 90 percent of the time, respectively. Greek nance ministers have an equivalent of a PhD in economics 58 percent of the time. Portugal is similar prime ministers have some sort of an advanced degree 81 percent of the time while the equivalent for nance ministers is 94 percent, with that degree being a PhD in economics fully half of the time. In Ireland the proportions of time where the prime minister and nance minister has an advanced degree is 57 percent for both positions, and just 3 percent of the time does the nance minister have an advanced degree in economics. To have a better sense of EU effects, we examined statistics for the same countries before they joined the Union and afterwards. We separated them according to waves of joining the EU, with Greece, Spain, Portugal,
12
Table 2. Prime ministerial educational background, university degree, 19732010 (% of country-months) Humanities Soc. Science Australia* Austria Belgium Bulgaria Canada* Chile* Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Iceland* Ireland Italy Japan* Latvia Lithuania Luxembourg Malta Mexico* Netherlands New Zealand* Norway* Poland Portugal Romania Slovakia Slovenia South Korea* Spain Sweden Switzerland* UK USA* Total 33 28 57 20 32 0 13 23 22 48 115 51 110 8 23 1 26 10 33 30 11 0 0 0 22 27 17 27 13 37 3 29 28 0 32 11 18 58 29 Economics 23 18 31 33 13 0 19 31 23 6 1 13 22 33 58 7 7 8 20 30 23 0 61 28 43 3 30 11 20 29 0 71 28 0 25 21 0 32 20 Business Admin. 0 36 0 10 0 4 0 35 0 0 0 0 0 0 0 5 48 2 8 0 4 0 0 43 21 5 0 4 9 0 0 0 16 0 11 8 20 0 7 Law 56 32 79 10 62 47 68 4 32 10 2 36 19 95 25 65 25 75 23 6 0 100 92 29 35 16 3 18 20 35 55 0 28 94 0 50 24 0 38 Science Maths 0 8 0 21 0 0 0 3 0 32 0 0 13 0 0 0 0 0 8 60 18 0 17 0 0 0 0 3 0 0 0 10 0 0 0 0 30 0 5 Engineering 0 0 0 7 0 28 0 15 0 14 0 3 0 0 0 18 0 0 2 29 50 0 0 0 0 0 0 30 38 28 43 0 0 6 0 8 0 0 6 Other 0 0 0 27 0 22 0 0 0 0 4 11 0 1 22 0 0 0 0 0 0 0 0 0 0 5 29 0 0 0 0 0 0 0 2 5 0 11 3 None 11 0 1 0 0 0 0 0 23 0 0 0 0 0 0 5 8 10 5 0 0 0 0 0 0 46 22 6 0 0 0 0 0 0 54 3 8 0 7
Note: This table presents the percentage of country-months a country had a prime minister with the given degree. Because some individuals had several degrees, the percentages may add up to more than 100. An asterisk (*) indicates a non-EU country.
Austria, Finland and Denmark in the early wave and the Central and European countries, Cyprus and Malta in the late wave. There is an increase in competence among the early joiners, with the percentage of time of nance ministers with advanced economic degrees increasing from 24 percent prior to EU membership to 51 percent afterwards. In the latter group, however, the results are reversed nance ministers had advanced economic degrees 78 percent of the time prior to accession but only 57 percent afterwards. Still, the post-accession average for the late wave countries remains somewhat higher than for the early members.
Table 5 looks at overall levels of education of eurozone leaders. There is no difference when comparing prime ministers and nance ministers. There is, however, a statistically signicant difference between eurozone and non-eurozone members of the EU when it comes to policymakers with advanced economics degrees, but it runs counter to our expectation above eurozone policymakers consistently are less likely to have advanced degrees in economics.2 This is especially striking for prime ministers just 1 percent of prime ministerial months in eurozone countries have had an ofce holder with an advanced degree in economics. The trend is also
13
Table 3. Finance ministerial educational background, university degree, 19732010 (% of country-months) Humanities Soc. Science Australia* Austria Belgium Bulgaria Canada* Chile* Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Iceland* Ireland Italy Japan* Latvia Lithuania Luxembourg Malta Mexico* Netherlands New Zealand* Norway* Poland Portugal Romania Slovakia Slovenia South Korea* Spain Sweden Switzerland* UK USA* Total 0 0 8 0 48 18 0 0 21 11 18 9 74 13 0 16 7 7 8 0 14 0 11 0 12 34 15 0 0 0 0 0 0 0 31 16 60 50 16 Economics 9 5 1 100 0 0 50 29 38 60 3 21 39 57 63 23 13 21 21 39 76 13 11 100 71 4 26 75 66 50 84 85 37 73 19 50 7 35 34 Business Admin. 19 86 1 1 17 60 37 25 19 27 0 1 0 0 0 0 27 11 30 3 20 13 83 0 13 18 21 24 12 40 0 0 11 0 8 0 0 7 16 Law 45 11 89 0 51 0 25 23 11 0 31 59 28 30 12 36 35 65 41 0 0 87 21 0 14 13 12 0 19 0 0 10 43 51 5 3 34 5 27 Science Maths 0 3 0 10 0 0 0 6 0 9 0 3 1 0 0 5 0 0 1 35 31 0 0 0 0 15 0 0 0 3 8 0 0 8 0 0 0 0 3 Engineering 0 0 0 0 0 21 0 18 9 4 13 19 0 13 7 0 7 0 0 24 5 0 0 0 0 0 0 1 16 5 29 0 0 5 0 21 0 4 5 Other 5 11 0 0 0 0 0 0 3 6 7 0 0 0 19 9 0 0 0 0 0 0 0 0 0 0 6 0 0 0 5 0 0 0 25 0 0 0 3 None 22 0 0 0 6 0 0 0 0 0 23 8 0 0 0 11 16 7 0 0 0 0 0 0 0 23 20 0 0 0 0 0 0 0 23 11 3 0 6 Unknown 0 0 5 0 2 0 15 0 0 0 4 0 0 0 0 0 0 0 0 33 2 0 0 0 0 0 0 0 0 10 0 10 18 0 0 0 0 0 2
Note: This table presents the percentage of country-months a country had a nance minister with the given degree. Because some individuals had multiple degrees, the percentages may add up to more than 100. An asterisk (*) indicates a non-EU country.
present, if less dramatic, for nance ministers and central bankers.
3. Concluding Remarks
There are clear differences in education levels and the specialization of economic policymakers between EU policymakers and those from other industrialized democracies. EU prime and nance ministers are more likely to have legal than economics training, which distinguishes them from their OECD peers. Among the most recent accession countries, economic policymakers were better
trained prior to accession than after it. Eurozone economic policymakers have essentially the same overall level of education as their EU peers outside the eurozone, but eurozone prime ministers in particular are much less likely to have advanced economics training. Among the exceptions are countries with a high frequency of nancial crises in these cases, the level of economics training is comparatively high. We speculate that these countries have little choice but to appoint policymakers who, at least in terms of background, appear to be competent. We plan to explore this nding further in follow-up work.
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Table 4. Finance ministers with PhDs, 19732010 (% of country-months) Economics Chile* Poland Mexico* Hungary Greece Spain Portugal Slovenia Romania Bulgaria South Korea* Netherlands USA* Slovakia New Zealand* Lithuania Austria Switzerland* Estonia Latvia France Cyprus Italy Czech Republic Belgium Luxembourg Sweden Australia* Canada* Denmark Finland Germany Iceland* Ireland Japan* Malta Norway* UK Total 100 84 83 63 58 56 50 44 40 38 37 31 29 27 24 23 21 18 16 14 12 11 11 9 8 8 8 2 0 0 0 0 0 0 0 0 0 0 21 Other 0 0 0 6 0 35 7 0 25 0 5 0 0 0 0 5 16 50 0 3 4 20 32 2 59 30 29 0 7 0 8 55 7 0 0 21 0 24 13 None 0 16 17 31 42 9 43 51 30 62 49 69 71 73 76 71 63 32 84 66 84 61 57 89 30 62 63 98 93 100 92 45 93 100 100 79 100 76 65 Unknown 0 0 0 0 0 0 0 5 5 0 9 0 0 0 0 1 0 0 0 16 0 8 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 1
Table 5. EU policymakers educational levels and advanced economics degrees inside and outside the eurozone, 1973 2010 Prime minister Non-eurozone Eurozone 5.17 (26%) 5.19 (1%) Finance minister 5.25 (42%) 5.24 (35%) Central banker 5.27 (75%) 5.39 (69%)
Note: The rst number is the average educational level on the International Standard Classication of Education (UNESCO, 1997) six-point scale, in which 5 is equivalent to the rst level of tertiary education completed (for example, a Masters degree in many European countries) and 6 the second (for example, a PhD). The number in parentheses is the percent of time that the ofce holder had an advanced degree in economics.
knowledge. At the same time, in crisis situations where time is short, these differences could have an effect on the decisions leaders take.
Notes
We thank Tim Besley, Scott Gehlbach and two anonymous reviewers for helpful comments and suggestions. Luca Giapelli, Claudia Granados, Linnea Kreibohm, Roberto Martinez, Santiago Massons and Juan Camilo Taborda provided superb research assistance. 1. In many European countries prior to the Bologna process, the rst degree one could receive at the university was the rough equivalent of an MA. 2. All t-tests are signicant at the P < 0.01 level.
References
Besley, T. and Reynal-Querol, M. (2011) Do Democracies Select More Educated Leaders? American Political Science Review, 105 (3), pp. 552566. Besley, T., Montalvo, J. G. and Reynal-Querol, M. (2011) Do Educated Leaders Matter? Economic Journal, 121 (554), pp. F205227. Blondel, J. (1985) Government Ministers in the Contemporary World. London: Sage. Blondel, J. (1991) Ministers of Finance in Western Europe: A Special Career? European University Institute Working Paper SPS 91 11. Florence: European University Institute. Chwieroth, J. (2007) Neoliberal Economists and Capital Account Liberalization in Emerging Markets, International Organization, 61 (2), pp. 443463. Chwieroth, J. (2010) Shrinking the State: Neoliberal Economists and Social Spending in Latin America, in R. Abdelal, M. Blyth and C. Parsons (eds) Constructing the International Economy. Ithaca, NY: Cornell University Press, pp. 2346. Dreher, A., Lamla, M. J., Lein, S. M. and Somogyi, F. (2009) The Impact of Political Leaders Profession and Education on Reforms, Journal of Comparative Economics, 37 (1), pp. 169193. Goemans, H. E., Gleditsch, K. S. and Chiozza, G. (2009) Introducing Archigos: A Dataset of Political Leaders, Journal of Peace Research, 46 (2), pp. 269283.
Note: This table presents the percentage of country-months a country had a nance minister with a doctoral degree. An asterisk (*) indicates a non-EU country.
This article focused on describing meaningful differences across countries and time and not on strictly causal relationships. These ndings, however, do lead one to wonder whether a lack of economics training among prime ministers and nance ministers has led to decisions in the EU that focus more on legal issues than on economic sense. One should be careful about pushing this speculation too far ministers sit at the top of ministries with many trained staff. Management skills may in day-to-day affairs be more important than specialized
15
Ghlmann, S. and Vaubel, R. (2007) The Educational and Occupational Background of Central Bankers and Its Effect on Ination: An Empirical Analysis, European Economic Review, 51 (4), pp. 925941. Kaplan, S. N., Klebanov, M. M. and Sorensen, M. (2008) Which CEO Characteristics and Abilities Matter? National Bureau of Economic Research Working Paper 14195. Cambridge, MA: NBER. Majone, G. (ed.) (1996) Regulating Europe. London: Routledge. Reinhart, C. and Rogoff, K. (2009) This Time is Different. Princeton, NJ: Princeton University Press. Rogoff, K. (1985) The Optimal Degree of Commitment to an Intermediate Target, Quarterly Journal of Economics, 100(4), pp. 11691190. United Nations Educational, Scientic and Cultural Organization (UNESCO)(1997) International Standard Classication of Education.
Available from http://www.unesco.org/education/information/ nfsunesco/doc/isced_1997.htm [Accessed 21 October 2012].
Author Information
Mark Hallerberg is Professor of Public Management and Political Economy at the Hertie School of Governance. He is Director of Herties Fiscal Governance Centre. Joachim Wehner is Senior Lecturer in Public Policy at the London School of Economics and Political Science.
16
The Policy Consensus Ruling European Political Economy: The Political Attractions of Discredited Economics
Research Article
Waltraud Schelkle
European Institute, London School of Economics
Anke Hassel
Abstract
Since the Great Recession in 2008 academic economics has come under heavy criticism. But a straightforward alternative is not in sight either. We analyse in this article how the major aws of applied economics are the mirror image of its attractions to policymakers, mainstream political parties and reform-minded administrations. We rst assess what the consensus until recently has been and how it could have been implicated in the crisis. Secondly, we argue, following Hall, that the policy consensus continues to persist because it is politically attractive. The article ends with observations of how the management of the Euro area crisis still shows the attractiveness of the consensus.
Policy recommendations:
Introduce greater pluralism in advisory bodies on economic policy to include civil society organizations, such as trade unions, and consumer organizations as well as academic disciplines other than economics. Review compensation policy for representatives on advisory committees to create a level playing eld for experts from civil society organizations and independent consultants with nancial sector lobbyists. Support and back up critical voices in the nancial industry and in regulatory bodies against those who defend regulatory neglect and the privilege of rent-seeking for the nancial industry.
1. Whose crisis?
Since 2008 crises in nancial markets have forced governments to unprecedented monetary and scal intervention, unprecedented both in scale and degree of coordination. Sovereign debtors are under sustained attack by nancial markets for their poor growth and pitiful public nances that the crisis of 20082009 generated. Governments are desperate for advice on how to stop contagion and a new recession. The situation is particularly difcult in Europe where the future of the European Union (EU) and the common currency in particular are at stake. This seems a pertinent moment for taking stock of what the economic policy consensus of the recent past has been, whether it is to blame for the recent crises or whether it can help policymakers now in their attempts at effective crisis management.
In similar previous situations, namely the Great Depression of the interwar years and the stagation following the oil crises in the 1970s, the economic policy consensus of the time came under close scrutiny and eventually shifted to Keynesianism and monetarism, respectively. Today, criticism of academic economics is not in short supply but a straightforward alternative is not in sight either. The critics and mainstream economists do not agree even on how to label the consensus of recent years. The less favourable characterizations span from privatized Keynesianism (Crouch, 2009) and neoliberal market fundamentalism (Hall and Lamont, 2011) to macroeconomics based on models of a centrally planned economy (Buiter, 2009). For evidence of a paradigm in crisis, the critics can point to over-indebtedness of households and increasing inequality, but also to the
Policy Consensus
17
unravelling of institutional fundamentals such as central bank independence.1 In defence, mainstream economics can point out that they explore market imperfections and outright failure in controlled variations of the perfect-competition-full-exibility benchmark (for example, Smets and Wouters, 2003). The use of the consensus model by many central banks and supranational, applied research outts proves that macroeconomists are not only scientists but also engineers engaged in xing real world problems (Woodford, 2009). The defenders are bolstered by the fact that the lessons, which governments seem to have drawn from the various crises, suggest that the economic policy consensus of the last two decades is less obsolete than the critics think. As before, supranational policy reports and summit conclusions end with calls for structural reform, budget consolidation and commitment to price stability. Global nancial regulation is still orchestrated by men in grey suits meeting in Basel and relies heavily on the same old instrument of (modest if somewhat raised) capital requirements. Put less favourably, a distinct possibility is that mainstream economics is a pathology (Hay, 2011) that simply lingers on without killing the patient outright. But what does the consensus consist of? Those who see the nancial crisis also as an ideational or intellectual crisis tend to characterize mainstream economics as the embodiment of neoliberalism that assumes that markets get it right. Those who acknowledge that there may have been some oversight but that there is no alternative to the new synthesis insist that there is a well-developed analysis of market failure in mainstream economics and it merely has to be updated in light of the new experience. An alternative to both, for which we argue in this article, is the position that accepts that it was not neoliberalism that got into crisis but a synthesis of neoclassical and new Keynesian economics that takes market failures into account; yet the alternative also concedes that the policy consensus has serious aws that made it overlook all the factors leading up to this crisis, such as systemic risk.
2. New Keynesianism and neoliberalism the argument in brief

Our contribution addresses the policy consensus on the European political economy in one fundamental way. In much of the writings on the shift from the post-war golden years to a new economic paradigm after the late 1970s, the contrast is drawn between the Keynesian welfare state on the one hand and neoliberalism on the other hand.2 Many political scientists and political economists therefore portray mainstream economics, its policy advice and the politics of market regulation as if it was under the spell of a decidedly neoliberal thrust (for example, Hay, 2011; McNamara, 2006; Stiglitz, 2008).
We think that this contrast is awed. Keynesianism has not given way to a neoliberal agenda but to a new Keynesian-neoclassical synthesis that took price and wage rigidities into account, as a fact of economic life, with costs and benets. The new Keynesian macro-economic policy that followed from it combined activist ination targeting with structural supply-side policies, which means policies that aim at changing certain institutions like employment protection or wage-bargaining patterns. Structural supply-side labour market policies are frequently seen as a dening element of neoliberalism. Activation, in the sense of privatizing the responsibility for nding a job, in contrast to an active labour market policy, was therefore seen as a cornerstone of a neoliberal agenda that abandoned the Keynesian welfare state. However, we argue that the turn to supply-side labour market policy was a response to political demands of core electoral constituencies rather than the biggest parcel in a neoliberal package. In other words, both trends the change in labour market policies and the demise of the Keynesian welfare state went in parallel and were even connected, but not because of a macro-economic paradigm that was dismissive of the welfare state as such. At rst glance, this difference sounds overly subtle, but we maintain that it helps us to understand the persistence of the policy consensus even after the nancial crisis. A challenge to our view is Crouchs interesting hypothesis that the distinction between new Keynesian macroeconomic policy and a supply-side policy agenda can explain why neoliberalism did not die (Crouch, 2009). Crouchs answer is to claim that private Keynesianism succeeded the Keynesian welfare state, which kept demand steady and helped neoliberalism to continue even though it meant a harsher economic environment for the working population. He maintains that the Keynesian system of public demand management was not followed by a neoliberal turn to pure market rule, but rather to market liberalism combined with extensive consumer debt incurred by low-income and medium-income households (Crouch, 2009, p. 382). Privatized Keynesian demand management thus helped to maintain the rather unpopular and unwanted neoliberalism and liberalization. We argue that new Keynesianism and supply-side policies interact in a somewhat different way. First of all, privatized Keynesianism, as portrayed by Crouch (2009), is not demand management at all but a reinforcement of the pro-cyclical movements of market demand. The new Keynesian policy consensus meant, above all, a move from the macro-level to the micro-level of economic management. This micro-level economic management addresses the supply side of the economy, that is, price and wage rigidities. It also tackles the denial of
18
Waltraud Schelkle and Anke Hassel
market access for certain consumers that is supposedly caused by a lack of competition between nancial providers. However, liberalization cannot be sustained on a purely ideological basis for long. Policymakers must be seen to solve labour market problems and thereby respond to political demands by the electorate. We suggest that this is what the synthesis model delivered and why even a awed model of new Keynesian policymaking became entrenched in our political system. In the following, we will assess what the consensus until recently was and what its potential aws were. Next, we explore what made the consensus attractive. In this, we follow Hall (1989, pp. 370375), who proposed that the political power of economic ideas requires, at a minimum, their economic, administrative and political viability. That is to say, ideas must resolve economic problems deemed pressing and relevant by policymakers; they must be in accord with bureaucratic practices and not overstretch implementation capacities; and they must appeal to broader constituencies and possibly allow policymakers to forge new coalitions. We conclude that, paradoxically, the aws could be the ip-side of what made the consensus attractive, in particular to European governments with their perception of pressing low employment problems. This is followed by an assessment how the economic policy consensus worked in practice and may have actually contributed to the crisis. The obsession with labour market reforms made policymakers miss the gathering storm in nancial markets. The contribution ends with our observations of euro area crisis management that shows that the discredited economic consensus is still alive and well. The formation of politically cross-cutting coalitions that aim at defending the real economy against nancial havoc has only started to form and the jury is still out on whether it will succeed.
interested in market imperfections and their policy implications than the critics acknowledge. This raises the question whether the economic policy consensus is at all to blame for the crisis. If it is to blame, we are in deeper trouble than even the critics think. It simply will then not do for economics to take account of the real world if that is what they already did. The workhorse model for economic policy-making The consensus model has three building blocks (Carlin and Soskice, 2006, pp. 8190). In the rst, aggregate demand (household consumption and possibly rm investment) are determined as resulting from income and the real interest rate it is the conventional IS curve of the old neoclassical synthesis. In the second, the supply-side of the economy is characterized as resulting from wage and price setting in imperfectly competitive labour and commodity markets this is the resurrected Phillips curve in a form that has absorbed the monetarist critique. This supply side determines a natural rate of unemployment, given the structural and institutional features of the economy, such as transaction costs and corporatist arrangements that keep it from attaining full employment. In principle, this long-run equilibrium is compatible with any level of nominal prices. So we need, nally, a monetary rule that gives the economy a nominal anchor and gets it back into a low-ination equilibrium after a shock. The central bank uses the interest rate, not money supply, which is the dening difference from monetarism. The rule describes the monetary authoritys preferences over the inationunemployment trade-off that characterizes the supply side of the economy. How does a capitalist economy work in this stylized depiction? The standard situation is that the economy is in its long-run equilibrium and then hit by a shock, that is, an exogenous disturbance in demand (a change in investment or consumption) or in supply (a change in input prices), which pushes the economy off track. Since the natural (un-) employment rate is determined by wage and or price setters, this leaves only ination as a choice variable for policymakers (Akerlof et al., 1996, p. 1), typically with zero as the optimal ination rate.4 The central bank perceives shocks as making the economy deviate from its ination target. If then prices rise more, the central bank must raise the interest rate (or vice versa), which reduces the demand for credit that would sustain the existing level of investment and consumption. Higher unemployment will dampen wage and price increases, depending on the features of the labour and product market such as employment protection or costs of price adjustment that determine short-run trade-offs between ination and employment. The central bank moves the economy along these short-run
3. What was the economic consensus of the last two decades?

This section presents the main elements of the workhorse model of mainstream macroeconomics, that is not its theoretically most advanced version but the analytical worldview with which applied economists are brought up. This workhorse model is called the new neoclassical synthesis or new Keynesianism; labels that can be used interchangeably, as we argue below.3 It is necessary to recall the basics because we want to revisit the critique from within that accuses the economic mainstream of a naive trust in markets and an obsession with general equilibrium in a complete market system (for example, Buiter, 2009; Krugman, 2009). These informed critiques are often taken up in more popular versions as the neoliberal policy consensus in ideology and practice. In our view, the new mainstream has been much more
Policy Consensus
19
Phillips curves back to the long-run equilibrium. The more inertia there is in price and wage setting, the longer this will take and the more unemployment will be necessary to force down ination. From the point of view of the central bank, the supply side (the Phillips curve) is thus the constraint on its stabilization policy while the demand side (the IS curve) is the transmission channel through which monetary policy works. The rst observation that will strike most readers is the central role of monetary policy for the working and stabilization of the economy. The rst surveys of Goodfriend and King (1997) and Clarida et al. (1999) codied the macroeconomic consensus by pointing out the role of monetary policy in it. The consensus could be formulated without any reference to scal policy.5 The new synthesis considers scal policy to be distorting, determined by a political process and thus ruled by other than efciency considerations (Goodfriend and King, 1997, pp. 237, 245, 280). In their extensive survey of the new Keynesian consensus on the conduct of monetary policy, Clarida et al (1999 p. 1702) mention scal policy only once, namely, when they note that in a low ination environment, nominal interest rates may hit the zero bound and so the important open question arises as to whether cooperation from scal policy is necessary (p. 1702). It would probably have perplexed Keynes to nd that this is considered an open question by economists who align themselves with his name. Monetary policy here is activist (Goodfriend and King 1997, p. 256), in the sense that the central bank does not simply wait and see after a disturbance. But the monetary authority is also not pro-actively seeking to shift the long-run equilibrium this is the role left for government and their structural reforms of labour and product markets. The monetary rule is therefore a response function, summarizing (averse) preferences over ination and unemployment. A central bank with high preferences for price stability chooses a radical disination strategy even if costs in terms of employment are high, and chooses a more gradualist one if it is less ination-averse. An activist central banks own preferences over the short-run Phillips trade-off that capitalist economies face imply a credibility problem. This arises when the central bank is more unemployment-averse than wage and price setters and can manipulate the very constraint it faces, here: ination expectations. This difference in preferences seems to be a far-fetched assumption, given that central bankers are not normally recruited from the rankand-le of trade unions. The rationale offered is that even independent central banks may come under pressure from governments with an ination bias (Carlin and Soskice, 2006, p. 167). This has allowed intense study of how a central bank with an ination bias can be comGlobal Policy (2012) 3:Suppl.1
mitted to price stability, and was extremely inuential in the design of the European monetary union (Blinder, 1997; Schelkle, 2006). The consensus as synthesis In what sense does this amount to a policy consensus and a new synthesis of once opposed schools of macroeconomic thought, Keynesianism and monetarism? In methodological terms, mainstream economists have come to accept most of the critique that neoclassical macroeconomists, from Milton Friedman to Robert Lucas, launched against the old neoclassical synthesis, meaning the pump-priming of the IS-LM model. Expectations must not be treated ad hoc but given careful thought, which has been turned into the stipulation that expectations must be rational in the sense of model-consistent.6 This has been generalized to a call for micro-foundations; that is, all macroeconomic relationships and responses must be grounded in individually rational behaviour that translates into aggregate behaviour. The synthesis makes extensive use of the eternally living representative agent that optimizes over an innite time horizon. It is the basis for dynamic stochastic general equilibrium models that many central banks and the European Commission now use (Buiter, 2009). In substantive theoretical terms, adherents of the synthesis accept the crucial role of monetary policy for stabilizing the economy and that even in the presence of under-employment, inationary pressures may arise. It is a moot point which school of thought compromised more here. Monetarism and its offspring, real business cycle theory, claimed that the central bank should simply follow a strict money supply rule that endows the economy with enough additional transactions media to grow at price stability. This has been replaced by an inationtargeting central bank that uses the interest rate actively to stabilize an economy prone to shocks. At the same time, (macro) economists have adopted the monetarist lens of the central bank that grasps the entire macroeconomy by adding the reinterpreted Phillips curve as a constraint on its policymaking. The Phillips curve is now an aggregate supply curve xing output and equilibrium employment in the long run and the adjustment path in the short run. It makes labour and product markets ultimately determine equilibrium while nancial markets play only a residual role.7 One can thus argue that, strictly in terms of economic theory, the notion of a neoclassical synthesis is more pertinent while the policy activism of the central bank can be characterized as Keynesian. The terms can thus be used interchangeably, depending on whether the authors want to stress the supply-side determined, natural equilibrium or the realistic imperfections that can give the demand side and monetary policy a lasting inuence.
20
The reconceptualization of the price mechanism is the most relevant example to illustrate what a rich research programme opened up thanks to this synthesis: the evidence from mature economies suggests that rms are not price takers but price setters in markets for less than fully substitutable goods or brands, that is, in monopolistically competitive markets (Akerlof et al., 1996, p. 21; Goodfriend and King, 1997, p. 249). The price setting that corresponds to this form of competition, namely mark-up pricing, can grasp a rich set of economic phenomena, such as pricing-to-market in volatile markets and smoothing over the business cycle. In contrast to marginal cost-pricing in atomistically competitive markets, it provides a surplus that can be the subject of negotiations with organized labour. Ination can thus arise from distributional conict [among] different social groups held only in check by a credibly ination-averse central bank (Carlin and Soskice, 2006, pp. 133134, 160168). Its aws in general Our overview of the economic policy consensus before the crisis contained three possible candidates that may be relevant to the question Whose crisis that of neoliberalism or of something called new neoclassical synthesis new Keynesianism? It may be helpful to summarize them briey at this point, mainly to show that what could be dismissed as rather esoteric squabbles among academics before the crisis might be serious aws contributing to the crisis from hindsight. At the most obvious level, we agree with the critics of mainstream economics that the underlying benchmark of a dynamic general equilibrium is a problem (see Prosser [2006] for a particularly insightful critique). This reference point gives the impression that the enlightened Visible Hand can shift the economy gradually and continuously towards this benchmark by getting rid of rigidities, by aligning incentives through more transparent information and by allowing for the emergence of missing markets through permissive regulation. Financial markets cannot alter this underlying equilibrium; if anything they should facilitate its attainment. This is the source of the label, market fundamentalism for the trend in economic policy over recent decades (Hall and Lamont, 2011). It also paints a much more optimistic image of capitalist economies than we can nd in Keynes (1936). In this mainstream economics perspective, capitalist economies may be full of microeconomic imperfections but they have no systemic aws. Market adjustment may work imperfectly but it does not work perversely, as Keynes (1936, p. 291) maintained for a situation of deation, to be outlined presently, and Shiller (2003) claimed for a situation of asset market bubbles.
Secondly, the micro-foundations agenda, while seemingly esoteric to non-economists, served to restore the superior role of price adjustment. Only non-economic explanations, such as political forces (insider power) or psychology (the representative worker resents inequality), can make sense of real rigidity, for instance wage earners resisting wage cuts even when faced with rising unemployment. This goes directly against the Keynesian proposition that quantity adjustment may trump price adjustment in capitalist economies and that this may be functional. For the latter, take the case of why market forces cannot lead an economy out of deation: even if unemployment has risen, there may be no tendency for real wages to fall. Rising unemployment makes desperate workers to offer their services at ever lower wage rates while desperate rms lower prices to sell the goods they already produced. But if both wages and prices fall, then real wages stay roughly constant and in any case do not necessarily fall as much as needed to make rms keep their work force, let alone hire more workers at lower nominal wages. Thus, the synthesis does not consider the case that nominal exibility can generate real rigidity, and arguably suffers from a fallacy of composition. It takes the whole for its parts, here: by assuming that both wages and prices are rigid while they can be both exible, making the whole rigid.8 In macroeconomics, (nominal) exibility can be the problem rather than the solution. But the micro-foundations agenda is based on the premise that macroeconomics is not a eld of study in its own right because the whole is equal to the sum of its parts, neither more nor less. This is too strong an assumption, as Keynes (1936, pp. 358361) illustrated also with his paradox of thrift9 and social choice theorists like Thomas Schelling (1978) have conrmed since then. Finally, the consensus model has a sensible take on the Phillips curve, namely that it may exist but it cannot be exploited (Carlin and Soskice, 2006, p. 75). Yet, by making it the prime constraint on monetary policy and macroeconomic stabilization generally, it focuses all attention on labour and commodity markets. Financial markets come in only as an afterthought regarding the transmission of monetary policy. Policymakers were busy looking under the lamppost of the new synthesis for yet another necessary structural reform while nancial bubbles were allowed to grow. This was despite the fact that there have been plenty of warnings about asset market bubbles (even Alan Greenspan admitted that there may be irrational exuberance in nancial markets), yet the moment passed after markets rebounded after the 2001 crash. By concentrating on markets for (the ow of) services and goods, there was an in-built analytical bias against considering the catastrophic stock ow dynamics resulting from asset and debt accumulation. These dynamics would come to trump any rigidities in
Policy Consensus
21
labour and commodity markets upon which ination targeters and structural reformers so obsessively concentrated.
Economic viability The consensus model must have offered answers to what representative politicians or expert audiences outside central banks perceive as the most urgent economic policy problems. For this to be the case, they should not be required to understand the workhorse model in any detail. During the 1980s ination had been brought under control by central banks mandated to focus on price stability but the rising levels of unemployment with which economies entered every new business cycle remained a pressing concern. So, rst of all, a model that moved from monetarist ination-ghting to responsive ination-targeting was welcome, thereby conceding that heavy-handed ination ghting has had high costs in terms of unemployment. Moreover, the model took into account all those factors that could explain the ratchet effect in unemployment levels. Market failure, institutional rigidities and hysteresis effects like the rapid devaluation of human capital were all enlisted to explain rising levels of equilibrium unemployment. The downward rigidity of nominal wages was not a problem in an era of moderate and variable ination. In fact, downward rigid money wages were helpful for real adjustment because changes in the price level or the exchange rate could then engineer changes in real wages across the board, leaving the wage structure of different types of workers relatively untouched. But after the breakdown of the Bretton Woods exchange rate system, ination (expectations) became much less controllable as the nominal anchor of a dollar standard had been removed. It took the volatile 1970s to build up the resolve among policymakers to ght ination head on, starting with the Volcker shock in 1979. For the Europeans, this also meant stabilizing exchange rates and this started monetary policy coordination that led to monetary union in 1999. These ultimately successful attempts at lowering and stabilizing ination had the effect that downward rigid nominal wages became rigid real wages; when the economy went through a phase of disination, real wages could even rise as a result. Coordinated wage bargains, which had not only introduced wage oors but also wage ceilings and used to standardize wages across industries to pre-empt the poaching of skilled workers, became dysfunctional even though they had on the whole a levelling effect on wage growth. Organized labour defending wage coordination was then accused of serving insiders only, to the detriment of the unemployed, female and young entrants into the labour market. This was an accusation that especially the OECD jobs study of 1994 popularized and at the same time managed to give it the air of rigorous economic analysis. Some relief came from work that showed that not all wage coordination was bad. Collective wage setting can keep wage increases at a competitive rate if
4. What were the attractions of this economic policy consensus?

The aws of the new synthesis did certainly not diminish its political attractions. They may even have contributed to its attraction, which we can understand following Hall (1989) by assessing its economic, administrative and political viability. He synthesizes three approaches. There is, rstly, an economist-centred account that claims it is expert advice in government that gives economic ideas powerful inuence; which is typically proposed by academics who served for some time in government or in a central bank (recent examples can be found in Bussire and Stracca, 2010). Second, a state-centred account claims that the extent to which economic ideas catch on with the bureaucracy and, in particula,r senior ofcials is crucial for their success, an approach initiated by Theda Skocpol in historical-institutionalist studies (Weir and Skocpol, 1985). Finally, a coalition-centred account of policymaking, in the version that Peter Gourevitch (1986) championed, stresses that the brightest economic ideas do not have much effect if there are no coalitions of interests organizing around them. Hall (1989, pp. 813, 370388) suggests that each of these accounts notes an important requirement for the viability of an economic idea in practice: it must be translated from a scholarly discourse into something that policymakers nd useful; the state machinery must be able to work with this idea; and a set of political constituencies must nd policies based on the idea to be in their interest. Obviously, each of these determinants and their combination leave a lot of space for country variation that would require a research project of its own to fully explore here. We illustrate the argument using the case of Germany. The German case is crucial because it shows how strong the pull towards supply side in employment policies had become. The socalled Hartz reforms in the early 2000s were a clear departure from earlier policies that were characterized by the welfare without work syndrome (Esping-Anderson, 1996). German unication had led to an expansion of social policies that aimed at making unemployment bearable rather than forcing potential labour supply into the market. This changed, notably under a government led by Social Democrats, and since then long-term unemployment has given way to in-work poverty. While quite contested at the time, we show how this shift in labour market policy was supported by a decisive political consensus that supports Halls conjecture.
22
they internalize the possible damages of overly generous settlements for the economy as a whole. Such benecial coordination can come from monopoly unions or from strong unions in the exposed traded goods sectors that set the ceiling for all others (Calmfors and Drifll, 1988; Soskice, 1990). But where these institutions or such an export-orientation of a national political economy are absent, labour market exibilization was the only game in town. A late manifestation of the new consensual approach was the European Councils endorsement of exicurity in December 2007. In the words of the Commission, it involves the deliberate combination of exible and reliable contractual arrangements, comprehensive lifelong learning strategies, effective active labour market policies, and modern, adequate and sustainable social protection systems. (European Council, 2008, p. 52) The exicurity concept had the beauty of being considerate as regards the diversity and the complexity of social policy and labour market interactions. As the recent report on employment in Europe points out: Everything considered, there is no single combination of policies and institutions to achieve and maintain good socio-economic results, but rather there are different pathways to good performance that are, to a large extent, the result of distinct historical trajectories. Respecting the principles of subsidiarity (and the Open Method of Coordination), this allows scope for tailormade policy packages to suit national preferences with respect to distributional aspects, risk-taking and other national objectives (European Commission, 2008, p.177). This is perfectly in line with the consensus: supply-side reforms can shift economies towards a more benecial fundamental equilibrium and increase employment; this holds notwithstanding institutional diversity. Administrative viability The record on administrative viability is arguably more mixed. On the one hand, the demands on administrative capabilities in macroeconomic policy diminished to the extent that responsibilities for stabilizing demand management moved to central banks. This has enormous practical advantages. It requires only a meeting of the central banks governing council or monetary policy committee to change the interest rate and possibly other conditions under which banks may renance their credits to the private sector. By contrast, discretionary spending programmes are full of practical pitfalls for the executive. They give the opposition in parliament an opportunity to accuse the government of too little, too
late, or any other easy criticism that ad hoc programmes deserve. They require bureaucrats to nd temporary jobs in sufcient quantity but without too much crowding out of existing private sector capacities. They ask for income to be put at the disposal of those who spend it (instead of saving it) without too much leakage or fraud. The lags in scal policy literature initiated by Friedman (1953), summarizes these difculties in a number of timing problems. The synthesis model that elevates the central bank to the prime stabilizer of the macro-economy and leaves scal policy to rely on automatic stabilizers thus came as a great relief.10 However, administrative capacities became stretched in other respects, namely by the microeconomic (structural) supply-side reforms that governments were instead meant to engage in. They could all be justied as moving the long-run Phillips curve towards lower equilibrium unemployment. But it is a complex task to operate activating labour market policies, such as putting recipients on training programmes or engaging in individual case work for job placement; using the tax system for employment-friendly subsidies and rate structures or writing contracts for private providers of welfare services that are closer to markets but also have market incentives. This called for a profound reorganization of bureaucracies, for instance, amalgamating public employment services and welfare ofces to one-stopshops where unemployed beneciaries can get the full range of offers but benets can also be used as a sanction to monitor the effort in job search (Schelkle et al., 2012). These complexities were tackled by new public management techniques and by engaging private providers for frontline work. The EU played a facilitating role in this. As governments were picking up the trend and went for activating labour market policies, which included outsourcing to private providers, the EU helped to build networks of enlightened civil servants who understood that they could not simply oppose this trend. An example of how successful this can be is the formation of the active European network of heads of public employment services (HoPES). To this very day, HoPES embraces and shapes the activation and outsourcing reforms that governments want so as to keep pivotal role for the public sector rather than succumb to retrenchment (Weishaupt, 2010). The German Hartz reforms are a good case in point. As described in detail in Hassel and Schiller (2010), activation policies in Germany originated in the various layers of public administration among bureaucrats. In informal meetings of leading civil servants the ineffectiveness of the existing system was raised and reform proposals contemplated (Fleckenstein, 2008; Hassel and Schiller, 2010, p. 212ff). The most pressing urge for change came from local authorities, which were weighed
Policy Consensus
23
down by increasing numbers of long-term unemployed people with no prospects or incentives to nd employment. The system was perceived as wasteful and counterproductive; the labour agency had a reputation of being a self-satised bureaucracy. Local-level activation pilot projects were carried out in several places, often with the help of private think tanks, in order to prove that the practice could be changed. The promoters of new activating approaches were then integrated in national reform policies when the government changed. The real push for structural reforms came from the looming scal crisis. As the dotcom bubble burst and the German budget violated the decit limit of the Stability and Growth Pact in 2000, the government began actively and seriously to look into structural reforms to curb social spending (Hassel and Schiller, 2010). Activation through restructuring unemployment benet entitlements was the solution that combined the urge for creating job incentives for low-skilled people with controlling social expenditure. Still, the reorientation from macro to micro management has proved to be an arduous, often costly process and is by no means resolved. But we can see that the micro-foundations turn had attractions for scal authorities at the time, since structural reforms promised to let the state off the hook with respect to difcult-toimplement stabilization programmes that can quite visibly fail.11 At the same time, this turn gave the state a role in modern social engineering, supporting an active bureaucracy rather than the complete retreat of the state. Political viability Regardless of its administrative viability, the supply-side agenda contributed to the political viability of the consensus. The new synthesis appealed in particular to centrist social democrats who had struggled with the weakening of their electoral base of organized labour in manufacturing for some time (Kitschelt, 2000; Pontusson, 1995). Centre-left policymakers not only faced the problem of a steady decrease of industrial employment rates but also increasing political pressures from the trend in inequality. Their core constituencies became divided over the amount of social spending that went into transfer payments for labour market outsiders. Social democratic governments were criticized for collusion with insiders, supported by (spurious) evidence that they were less likely to increase spending on active labour market policies benetting outsiders (Rueda, 2006). In electoral systems of proportional representation, centre-left parties in the 1990s frequently faced the dilemma of either protecting the interests of the lower middle-class and dominating the centre-left but not winning an electoral majority, or moving towards the
median voter and losing the support of traditional supporters (Kitschelt, 1999). A successful electoral strategy implied the move towards the centre ground. Supply-side reforms were thus a welcome opportunity, rstly, to shed the image of social democrats being hooked on pump-priming and redistribution, and, secondly, to conspicuously do what is economically sensible even if it hurt their own constituencies of labour market insiders in terms of job security (while promising them a larger take-home pay packet in the long run). Structural reforms aimed at securing the centre ground of electoral competition by orienting centre-left parties towards the median voter. We can thus see how labour market reforms became attractive for parties in the section of the ideological spectrum where one would least expect it. The divisions over preferences of social policy reforms enabled governments to engage in structural reform that changed the distributional effects of employment-related social policies (Husermann, 2010). Centre-left parties hoped to claim credit for activation policies and family-friendly social investment strategies from female carers and workers as well as other labour market outsiders (Bonoli, 2012). From the early 1990s onwards, labour market activation was indeed promoted primarily by centre-left parties and executed by centre-left governments. Examples for a turn towards activating policies by centre-left governments are Denmark, the UK, Sweden and Germany (Bonoli, 2010). Under the conditions of budgetary constraints, activation was an alternative to straightforward retrenchment by the centre-right and were still in line with scal retrenchment. Germany, as the latest example is again a case in point. Within the Social Democratic Party (SPD) a lively discussion about the electoral strategy had erupted from the early 1990s onwards. The election campaign in 1990 led by traditionalist Oskar Lafontaine left the party with the lowest result in post-war history, namely only 33 per cent of the popular vote. A leadership battle in the mid1990s led to a shift to the centre-right under the chairmanship of Gerhard Schrder who pushed the SPD vote to over 40 per cent in 1998. After the change of government, leadership positions within the parliamentary group and the Ministry of Labour were lled with modernizers in social and labour market policies (Hassel and Schiller 2010, p. 140ff).12 The party leadership hoped that through a decisive move towards structural reform policies the ongoing internal conicts would be solved to the advantage of the party modernizers. A modern centre-left would create new coalition possibilities as the Social Democrats embrace of structural reforms was quite compatible with the manifesto of Liberals and even the compassionate wing of Conservative parties. Thereby a broad
24
party-political spectrum could be rallied around the structural reform agenda that the new synthesis supported. Moreover, the comparative policy evaluations that supranational agencies like the OECD and the EU produced relentlessly spread the message that activation is best practice, successfully operated in impeccably social democratic countries such as The Netherlands. Finally, structural reforms also opened up room for projects of local job placement, which were popular with politicians due to their experimental character and controllable effort, and the opportunity to claim responsibility for them. Treasuries, but also senior ofcials in spending ministries, endorsed such public sector modernization. The hallmark of this economic policy consensus was the Lisbon Strategy decided in 2000, when a majority of centrist social democratic governments had just come to power in the EU. The ofcially ordered critical reviews of this Lisbon Agenda, most notably gathered together in the Sapir et al. (2004) and the Kok (2004) reports, criticized less the substance of the consensus than the lack of resolve with which governments pursued it.
5. Conclusions: the continuing political attractions of a discredited consensus

We have shown that there was clearly a consensus on macroeconomic policy that was not monetarist or of the real business cycle variety or what political scientists would call neoliberalism. Hence, we do not share the critique that part of the problem that got the rich world into the worst recession in the post-war era was that economists were hooked on models irrelevant to an imperfect world and supported a neoliberal market fundamentalism that wanted to get government out of the way. The consensus research programme consisted of an intense analysis of market imperfections and it endorsed active policy interventions, especially on the supply side. This consensus was not purely academic: it also reached into the research departments of the central banks, the International Monetary Fund, the OECD and the European Commission, which ultimately informed the building of econometric models in policy analysis and evaluation. However, we agree with the critics that the reference to a benchmark of a general dynamic equilibrium was a source for misleading policy advice. However, in our view it is not so much the assumptions of perfection that were problematic, since they were systematically scrutinized in subsequent analyses. With hindsight, we can see that the assumption of it being fundamental was the problem, since this is the economists jargon for determined in the real economy. This analytical anchor led to a blind spot towards the role of nancial markets and monetary policy in determining the activity level of any economy.
Two other aws are not recognized as fully as we think is necessary. There is, rstly, the preoccupation with micro-foundations, that is, the idea that all macroeconomic phenomena must be derived from individual optimization, which made macroeconomists neglect systemic risks and rendered them susceptible to fallacies of composition. Secondly, the focus on (imperfect) labour and commodity markets left no specic and fundamental role for the nancial system and therefore missed how the malfunctioning of asset markets may feed back into commodity markets. Unfortunately, we also found reasons to believe that it was exactly these aws that contributed to the attractions of the economic policy consensus. Policymakers and administrations were attracted to micro-optimization in the context of a fundamental equilibrium model because it deected attention from governments perceived weakness in macro-steering and offered plenty of policy choices at the micro-level. This came in handy as the composition of the electorate changed, rapidly leading to a search for the new middle but also to cross-party coalitions. The consensus also seemed to address the most urgent economic policy problem of our times, namely, how to raise activity rates without pump-priming the economy into inationary growth. It was respectful of diversity and the functional equivalence of, say, individual wage contracting and coordinated wage setting in achieving good economic results. Hence, it did not require the elimination of all institutional diversity, which made it particularly popular with governments and the Commission in the EU. The political demand for the policy consensus was therefore strong and continues to be so even after the nancial crisis, if the reforms of economic governance in the Economic and Monetary Union since 2010 tell us anything about revealed preferences of governments (Gros et al., 2010). The policy debate about what next? on both sides of the Atlantic is hooked on the need for scal restraint, on the one hand, and stimulating private consumption and investment by ending the credit squeeze, on the other. This is still perfectly in line with the pre-crisis consensus in its emphasis on a secondary role for scal policy (that should be restored) and on creating demand through private credit expansion.13 This step back to the future is quite worrying, however, if the economic policy consensus of the last two decades is partly to blame for the nancial crisis. In their rst reactions, governments in the G20 and leading member states of the EU seemed to be determined to end the regime of self-regulation in nancial markets (Sarkozy, 2008), make the regulatory regime less dependent on private credit ratings (Yassin, 2010) and generally rein in excesses like scandalous banker bonuses that are paid out regardless of the performance of the businesses they manage. While some robust re-regulation of
Policy Consensus
25
nancial markets is in the making, there has also been some back-tracking, for instance by making the new emergency facility of the European monetary union dependent on private bond nance and hence credit rating. There has certainly been no end to scandalous bonuses paid by the very same banks that were bailed out by taxpayers who still suffer from the consequences of the crisis. There is some alternative thinking in economic theory available, for instance at the Institute for New Economic Thinking (n.d.) sponsored by George Soros. But the alternatives were pushed into heterodoxy and had scholars had little chance to put forward robust models for policy analysis, in exchange with professional users in central banks and treasuries. The herding behaviour concerned not only nancial markets but economics in academia as well. (Buiter, 2009; see also Davis, 2011. Thus, we are not optimistic that change will result merely from changing our economic models. But the cross-cutting coalitions that could form around the aim of defending the real economy against nancial havoc have yet to come forward and supersede the political clout of the nancial industry. What could move things on from here? One policy conclusion is certainly that more pluralism in institutionalized policy advice would help. Councils of economic advisors or committees on reform should have a wider catchment area than the economics departments of renowned universities and the upper echelons of business. Representatives of trade unions and consumer organizations but also from other academic disciplines should have guaranteed places. The quality of advice does not merely consist of understanding estimates and models put out quickly to silence entrenched interests but of preparing decision-makers for the diversity of concerns and distributive effects that may hit them once a policy proposal is put into the public domain. This will require some innovation in recruiting advisory committees. For instance, the cognitive capture by the nancial industry is perpetuated not least by the fact that nancial institutions can afford to pay their representatives on the various supranational committees while independent consultants, consumer organizations and organized labour cannot afford this. The policy to ensure independent advice by not paying those experts and stakeholders that sit on a myriad of EU committees thus leads to their giving inferior advice. This seems to have been recognized by the Internal Market Commissioner Barnier who is in the forefront of changing the composition and the compensation of committee membership in nancial regulation (Austrian Federal Chamber of Labour, 2011). Last but not least, policymakers and governments can strengthen those voices within the nancial industry and the nancial media that articulate self-criticism and
endorse moves that would protect the nancial industry from itself. Analogous to big business at the turn of the last century, which was crucial for the emergence of employment protection and social insurance (Swenson, 2002), those members of the nancial elite who show some insight into past failings and exibility of mind must be coopted and put in charge of reforms. Such brave and insightful characters do exist. But they also need the courage of political ofce holders to stand by them when those who defend regulatory neglect and the privilege of rent-seeking for the nancial industry try to discredit the reputation of those who they see as traitors. The recent stand-off between Barclays, represented by Bob Diamond, and the Bank of England, represented by Paul Tucker, over the xing of the Libor rate is a prime example for the challenges ahead. It seems that the Bank of England has just about won in this standoff. But it will require many more such small victories in order to undo the legacy of a discredited policy consensus.
Notes
We thank participants at the Dahrendorf symposium in November 2011 and at the European Institutes student staff seminar at LSE for helpful discussions and are particularly grateful for constructive comments from Abel Bojar (LSE), Eddie Gerba (Kent) and Deborah Mabbett (Birkbeck). The usual disclaimer applies.
1. See Hodson and Mabbett (2009) for an insightful analysis of the UK in 20082009 and Schelkle (2012) for the European Central Bank. 2. See, for instance Jessop (2010) for the contrast between the Keynesian welfare state and the Schumpeterian workfare state but also Hall (forthcoming): Active labor market policies were the supply-side alternative to Keynesianism. Although their complexion varies from one country to another, they involve government subsidies for training positions or jobs created for groups at greatest risk of falling out of the labor market, such as the young and long-term unemployed. 3. See Goodfriend and King (1997, sect. 5) and Clarida et al. (1999, p. 1662) for the rst overview articles that noticed the consensus among academic economists and practitioners of central banking; for more recent and accessible presentations, see Carlin and Soskice (2006: especially ch. 15) and Woodford (2009). Mankiw and Romer (1991) have presented an early (new Keynesian) textbook version. 4. In his comments on Goodfriend and King (1997, p. 249), Blanchard (1997, p. 293) notes that the presence of wage rigidities makes the consensus that central banks should target ination close to zero doubtful. 5. The reverse also holds: Carlin and Soskice (2006, ch. 6) devote an entire interesting chapter to scal policy but do not use their workhorse model at all. In other words, the model is not useful for the analysis of scal policy. 6. That is, economic agents modelled exploit all the information available (which does not have to be complete or perfect) and
26
7.
8.
9.
10.
11.
12.
13.
this information includes the model itself. This methodological principle was rst stated by a mainstream Keynesian economist, John Muth (1961). See Akerlof et al. (1996) and Galbraith (1997) for a critique of the old and new synthesis. Keynes economics arguably had the employment level determined in the interaction between product markets (effective demand, in the sense of demand expected by rms contemplating investment) and nancial markets (taxing the real economy with its demand for an interest rate that is determined not by the readiness to defer consumption but by the readiness to give up liquidity). Economists hooked on micro-foundations typically take a shortcut and pretend that workers and rms directly contract a real wage because the actual price level is equal to the rationally expected level. See Carlin and Soskice (2006, pp. 4647) who at least problematize this short-cut. The paradox is that households attempt to save more can lead to less saving in the economy. It is based not on some rigidity but on the perfect functioning of the price mechanism that responds to lower demand when goods are actually bought and sold for money payments. Chapter 6 on scal policy in Carlin and Soskice (2006) starts not with discretionary spending policies but automatic stabilizers, that is, built-in revenue and expenditure items of a budget that vary with the business cycle such that the balance moves counter-cyclically. The composition of stimulus packages in OECD countries during the crisis of 20082009 provides evidence for the fact that governments have not gone back to large-scale public employment programmes (IMF, 2009, table 5). None of the traditionalist members of parliaments achieved high ofce in the eld of social and labour market policy after 1998. The Minister of Labour was a politically inexperienced and modernist trade union leader who initiated a far-reaching and predominantly liberalizing pension reform (Hassel and Schiller, 2010, pp. 184ff.). In this vein, Carlin and Soskice (2006, p. 571) discuss consumption smoothing of households as resulting purely from the counter-cyclical credit demand of rational households to anticipated interest rate policy.
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Republic], 25 September. Available from: http://www.elysee.fr/ president/les-actualites/discours/discours.18.html [Accessed 21 September 2012]. Schelkle, W. (2006) The Theory and Practice of Economic Governance in EMU Revisited: What Have We Learnt About Commitment and Credibility? Journal of Common Market Studies, 44 (4), pp. 669685. Schelkle, W. (2012) European Fiscal Union: from Monetary Back Door to Parliamentary Main Entrance, CESifo Forum, 1, pp. 28 34. Schelkle, W., Mabbett, D. and Freier, M. (2012) The Transformation of Public Employment Services During the Lisbon Decade, in M. Smith (ed.), Europe and National Economic Transformation: The EU After the Lisbon Decade, Palgrave, chap. 7. Schelling, T. C. (1978) Micromotives and Macrobehavior. London: W. W. Norton. Shiller, R. J. (2003) The New Financial Order: Risk in the 21st Century. Princeton, NJ: Princeton University Press. Smets, F. and Wouters, R. (2003) An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area, Journal of the European Economic Association, 1 (5), pp. 112375. Soskice, D. (1990) Wage Determination: The Changing Role of Institutions in Advanced Industrialized Countries, Oxford Review of Economic Policy, 6 (4), pp. 3661. Stiglitz, J. E. (2008) The End of Neoliberalism? Project Syndicate blog, 7 July, http://www.project-syndicate.org/commentary/theend-of-neo-liberalism. [Accessed 22 October 2012]. Swenson, P. (2002) Capitalists Against Markets: the Making of Labor Markets and Welfare States in the United States and Sweden. New York and Oxford: Oxford University Press. Weir, M. and Skocpol, T. (1985) State Structures and the Possibilities of Keynesian Responses to the Great Depression in Sweden, Britain, and the Great Depression, in P. B. Evans, D. Rueschmeyer and T. Skocpol (eds), Bringing the State Back in. Cambridge: Cambridge University Press, pp. 107167. Weishaupt, T. (2010) A silent revolution? New management ideas and the reinvention of European public employment services, Socio-Economic Review, 8 (3), pp. 126. Woodford, M. (2009) Convergence in Macroeconomics: Elements of the New Synthesis, American Economic Journal: Macroeconomics, 1 (1), pp. 267279. Yassin, Y. (2010) ECB breaks equal-treatment pledge and accepts Greek junk bonds, CentralBanking.com, 4 May. Available from: http://www.centralbanking.com/central-banking/news/160 4222/ecb-breaks-equal-treatment-pledge-accepts-greek-junk-bonds [Accessed 23 October 2012].
Author Information
Waltraud Schelkle is Senior Lecturer in Political Economy at the European Institute of the London School of Economics and Adjunct Professor of Economics at the Free University Berlin. Anke Hassel is Professor of Public Policy at the Hertie School of Governance. She is also an Adjunct Professor of the Graduate School of Social Sciences at Bremen University.
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The Euro Area Crises, Shifting Power Relations and Institutional Change in the European Union1
Research Article
Daniela Schwarzer
Weatherhead Center for International Affairs, Harvard University
Abstract
This article studies recent governance dynamics in the euro area under the pressure of the sovereign debt crisis from 2009 to the end of 2011 from an institutionalist perspective. It investigates ve cases of implicit or explicit institutional change which reveal the pace and the scope of explicit and implicit institutional change in the monetary union under crisis conditions. It argues that key steps of crisis management have actually created path dependencies for further institutional change. It also argues that incoherent responses from multiple actors in the face of immediate crisis management needs, new policy challenges and coordination difculties in the crisis have strengthened the case for more substantial institutional change. An institutional set-up that continues to adapt only incrementally to the inner and outer challenges by not impacting more strongly on national sovereignty and by not strengthening supranational policy-making based on its own sources of legitimacy will not be able to solve the collective action problems inherent in the European Monetary Union (EMU)s architecture with a centralized monetary policy and insufcient integration in the elds of economic, budgetary and nancial policy coordination.
Policy Implications
The adaptability of the institutional framework of the euro area should not be underestimated. Substantial adjustment to its governance have occured and will happen below the level of Treaty change. In the medium-term, a more fundamental reform may be required in order to account for problems of governance efciency and, increasingly, problems of legitimacy. An institutional set-up that continues to adapt only incrementally to the inner and outer challenges by not impacting more strongly on national sovereignty and by not strengthening supranational policy-making based on its own sources of legitimacy will not be able to solve the collective action problems inherent in the Euro areas asymmetry; namely, a centralized monetary policy and insufcient integration in the elds of economic, budgetary and nancial policy coordination.
About break-ups and leaps forward

In the course of the sovereign debt and the banking crisis that have hit member states of the euro area with full force since early 2010, both policymakers and academic observers have come to a point where they no longer take the eurozones long-term existence for granted. An increasing number of observers see a breakup becoming more and more likely unless there is a leap forward in integration, for instance by forging a political union.3 This view is increasingly shared by market participants who seem to converge on the perception that under the current structure and with the
current membership the euro area does not work. Either the structure will have to change, or the current membership will have to change (UBS, 2011, p. 1). So, in the midst of the ravaging crisis, this article asks whether and in which ways the European Union (EU) has undergone institutional change in the course of the current crisis up to the end of 2011 and whether it constitutes a substantial change to the governance system of the euro area. Three combined strands of developments together changed and continue to change the governance of the euro area. There are, rstly, the reforms of the Lisbon Treaty, which came into force on 1 December 2009. The Lisbon Treatys institutional reforms, in particuGlobal Policy (2012) 3:Suppl.1 doi: 10.1111/1758-5899.12013
Institutional Change in the Crisis
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lar with regard to the European Council, form a relevant background for crisis management and for the moves towards something like an economic government. Secondly, and related to the rst point, the crisis management mode under which the eurozone has been functioning since early 2010 has led to new power relationships between member states and institutions, in particular with the ECB. Furthermore, some of the crisis management decisions taken under the intense external pressure exerted by the nancial markets pre-determine long-term institutional reforms following at a later date. Thirdly, there is a political appetite for explicit governance reform that seems to be driven by two considerations: drawing lessons from how the root causes of the severe crisis in the euro area build up in order to make the euro area more crisis-resilient in the future, and, under the pressure of the market-driven crisis, demonstrating the political ability to act and to rethink the governance of the euro area. Among others, Hall and Taylor (1996) have identied factors that shape member states willingness to engage in institutional change, including the process of European unication, despite the implied loss of competences and sovereignty: First of all, they rationally pursue a xed set of preferences. Secondly, in particular in the euro area under crisis conditions, politics consists in solving collective action dilemmas, usually with suboptimal outcomes. Thirdly, institutional arrangements can serve as a remedy to collective action dilemmas, in particular because they shape the actors expectations about how others are likely to behave and hence their strategic calculations. Against this background it is consistent for member states to engage in institutional engineering, given the profound impact of the crisis and the discussion of its root causes, which are seen in insufcient regulation, a lack of policy coordination and irresponsible political behavior. In the following, the article studies ve cases of implicit or explicit institutional dynamics which in reality are closely interdependent but are treated distinctly for analytical purposes: (i) the increased role and prole of the European Council lead by a permanent president; (ii) the role of the German government in crisis management, governance reform and the denition of policy priorities; (iii) the ECB, which has turned into the only institution able to swiftly and credibly contain nancial market panic; (iv) the establishment of temporary and permanent sovereign debt crisis mechanisms and (v) new measures for closer surveillance and coordination of budgetary and economic policy (the Six Pack), which broaden and deepen policy coordination yet without so far venturing into sovereignty transfers. The analysis reveals the pace and the scope of explicit and implicit institutional change in the monetary union under crisis conditions, arguing that key steps of crisis
management have actually created path dependencies for further institutional change. An institutional perspective on the euro areas ability to survive With regard to the question how the sovereign debt crisis is actually shaping the euro area, institutionalist perspectives have relevant concepts and analytical insights to offer. They help to better grasp institutional dynamics and to understand both decision-makers ability to transform and the resilience of the euro areas institutional architecture. While institutions can generally be understood in a very broad sense, encompassing both formal and informal institutions, the empirical focus of this article is on the explicit or incremental evolution of formal institutions. Institutional change can be the result of explicit decisions (such as Treaty amendments, law-making, the implementation of European Council conclusions) or an incremental evolution, which means in the EU context below the level of Treaty change or even below the level of secondary law amendments. Ruptures and radical institutional innovation are indeed possible but, in particular in the EU, institutional change most of the time occurs incrementally in the course of policy-making. In the EU, with its experimental character of multilevel policy-making in a negotiated system (Scharpf, 1988), institutional engineering and policy-making are even less separated than in nation-states. Often, formal institutional structures are still under development while policies are already made. There is a continual process of adjustment in a policy growing in scale and scope which, in the crisis, is confronted by its own major weaknesses. Formal institutional change is very frequently the ex post codication of incremental change brought about by practical policy-making in the given framework. Streek and Thelen (2005)2 have developed a useful typology of ve types of change: Layering describes a process of adding new institutional elements to existing ones. The process is assumed to be formal in nature, based on an explicit decision to change the institutional organization. Displacement means that an element of the institutional setup becomes more important over time. This process, like the following three, can be formal in nature, that is, based on an explicit decision on the institution as such, or it can occur implicitly in the course of policy-making. Redirection takes place when, for example, the objectives of an institution are changed. Drift describes a development in which institutional organizations are challenged (possibly even destroyed) through external developments.
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Daniela Schwarzer
Table 1. Formal and information institutions Formal Nature Treaties, secondary legislation, court rulings, Council conclusions Creation Explicit decision Prerequisites Shared interest in outcome or possibility of imposition Change Explicit decision to change, or incremental evolution (e.g. through displacement or redirection, see below) Possible Binding power, constraining behavior, redening impact preferences in view of constraints, information distribution, increased transparency and reliability Source: Based on Schwarzer (2005, p. 33) Informal Social constructs such as shared norms, ideas, identities Intended or unintended effect of social interaction Social interaction, trust Social interaction, build-up or breakdown of trust and reliability
Trust enforcing, increase reliability, enable consensus building, basis for formal institutionalization, enforcement of nonbinding rules
Depletion happens when an institution breaks down. This typology helps to sharpen the analytical approach to the vast empirical developments underway in the sovereign debt crisis and will be applied in the following analysis.
1. Creeping institutional change in the rst decade of EMUs existence

Since the founding treaty of EMU entered into force in 1993, the institutions and governance structures of the EMU have undergone considerable changes; the most signicant of which can be characterized as layering in the typology developed by Streek and Thelen. In other words, an initially incomplete governance framework was step by step completed with additional elements. One cause of change has been the asymmetric structure of the EMUs architecture. First of all, there is no commonly dened economic and scal policy facing the centralized monetary policy, although these policy areas and the common monetary policy inuence each other directly in their effects. Secondly, the initial institutional mechanisms were designed for groups of different member states: while the ECB is in charge of the monetary policy only for the EMU countries, the Economic and Financial Affairs Council (ECOFIN), as the initial key decision-making body in the economic pillar, included all EU member states. Since the beginning of the EMU this double asymmetry has led to institutional compromises and changes that gradually reinforced the distinction of the eurozone as a Community in the Union. The most important element of this creeping institutionalization was the founding of the Eurogroup, initially an informal meeting of the ministers for economic and nancial affairs of euro area member states, but the only and exclusive forum for the EMU at government level that allowed a monthly exchange (Ptter, 2006; Schwarzer; 2010).
The macroeconomic dialogue (also called the Cologne Process) was introduced just before the start of the Monetary Union in 1998 in order to establish a dialogue among government representative, the social partners and Commission and ECB representatives. So far, one meeting per year has been held at the political level and one at the administrative level. The exchange is yet not very intense due to the low frequency of meetings, the large number of actors involved and the heterogeneity of interests underlying this discussion, which so far have not been overcome by reshaping the macroeconomic dialogue. Several other processes which can be summarized under the heading of the open method of coordination were added in policy areas where spillovers could happen, but for which no readiness existed to proceed with integration. Examples that are relevant for the euro area but do not exclusively concern member states sharing a single currency are the Luxembourg process on employment and labor markets, the Cardiff Process on product and capital markets, and later, the Lisbon Strategy in 2000 and the EU 2020 strategy of 2010. The reform of the Stability and Growth Pact of 2005, which also constitutes an institutional reform of the EMU governance framework (Schwarzer, 2005), aimed at giving more political leeway to governments while bringing long-term sustainability and the composition of public expenditure to the center of attention. The major motive of exibilizing the Pact was to take into account specic national economic and budgetary conditions more easily in the future. Meanwhile, no EU treaty negotiated since the Maastricht Treaty actually brought about a fundamental change to the governance of the EMU, either with regard to exclusive fora for the EMU, or in terms of changing the rules and procedures for policy coordination. The Lisbon Treaty is indeed the rst piece of primary law to mention the Eurogroup in a protocol, but it
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does not bring about new elements exclusively designed for governing the EMU.
2. The Lisbon Treaty: strengthening the grounds for intergovernmental responses to the crisis
However, the Lisbon Treaty in general altered the rules of EU decision-making in a way which has become relevant for the euro area. Some changes to the general institutional setting and decision-making procedures have taken an unexpected turn. The Treaty was at rst perceived as bringing more supranationalism to the EU. But in the course of 2010 the EU seemed to become more intergovernmental. The European Council and President the new power center The most relevant formal institutional change for the question of leadership and power relationships was surely the installation of the permanent President of the European Council. Herman Van Rompuys rst weeks in ofce roughly coincided with the beginning of the sovereign debt crisis. The combination of the new presidential system, which, in a process of layering, has been added to the existing institutional setting, and the seriousness of the crisis put the European Council in precisely this period in the spotlight of attention (Dinan, 2011). In the background, the European Councils rst president successfully tackled the difcult task of establishing himself as a moderator among the 27 heads of state and government most of whom instinctively do not appreciate being moderated or even led. He did not prole himself as a strong leader with a distinct political agenda. In his rst two years in ofce, he has apparently closely consulted the heads of state and government of the large member states and seemingly managed to get a sense of member governments preferences before taking action at European Council meetings. Van Rompuys successful mediation has strengthened the European Council within the institutional structure of the EU. Over the years the European Council, which is mentioned as an EU institution in the Lisbon Treaty (Art. 15 TEU) for the rst time, had gradually taken over real power and impetus from the Community framework (Kurpas et al., 2007) a process that accelerated in 2010. Very early in 2010 Van Rompuy explained that the European Council would rst seize the nancial and economic crisis agenda and later turn to international climate negotiations, foreign policy issues and strategic partnerships. He also suggested that the European Council should be convened up to ten times a year which, at the outset, seemed to be a radical break with the previous rhythm of four regular Council meetings per year.
But, in the end, the European Council met eight times in 2010 mostly occupied with crisis management and international affairs. All in all, in 2010 the ground was prepared for the European Council to become the central leader and agenda setter in the EU across policy areas (von Ondarza, 2011, p. 6) at the expense of the original community institutions. The loser of Lisbon and crisis management: the rotating presidency 2010 also put a term to the rotating council presidency in its previous form (Bunse et al., 2011; von Ondarza, 2011). This is the result of two Lisbon innovations. Firstly, the increased role of the European Council chaired by Van Rompuy has substantially reduced the agenda-setting ability of the rotating presidency and of the sectoral councils which the rotating presidency chairs. Secondly, the fact that the high representative chairs the meetings of the foreign ministers and represents the EU externally has removed further interesting features from the rotating presidency, for instance the hosting of international summits. In this way, the two generally most prominent national political leaders the head of state or government and the foreign minister play largely no important role during their presidency. The crisis mode clearly accelerated this process: the dominant topic on the EU agenda since the start of 2010 has been the sovereign debt and the banking crisis in the euro area and these were mostly dealt with in fora that are not chaired by the rotating presidency. The rotating presidencys role is reduced to being a service provider (von Ondarza, 2011, p. 5) rather than acting as an agenda setter or policy entrepreneur. In the view of Streek and Thelen (2005) this challenge to the rotating council presidency in its traditional role can be described as institutional drift. It is conceivable that this trend will intensify if, in the future, the rotating presidency is replaced by permanent chairmanships in further Council formations. Struggling for its impact and role the European Commission Moreover, the European Commission has had to struggle to maintain its standing and has continued to lose institutional authority, as it has done since the resignation of the Santer Commission in 1999. The seizure of long-term policy orientations and strategic reection by the European Council has challenged its role both in crisis management and in the process of economic governance reform. This can best be illustrated by the reported rivalry between European Commission President Barroso and Herman Van Rompuy and the fact that the task force to reform the economic governance of the EMU was a VanRompuy task force and not a Barroso task force.
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Daniela Schwarzer
This trend may continue once the European Council is less occupied with the crises and turns to other policy areas. The weakening of the European Commission has inuenced inter-institutional relations, in particular those for the European Parliament (EP), which now sees the Commission neither as a partner nor a rival, but a lesser entity in a new political landscape (Dinan, 2011, p. 117). While the formulation of strategic directions and agenda-setting is increasingly provided by the European Council, the European Commission has seen its operational role increase through the recent economic governance reforms. On the one hand, the legislative package called the Six Pack has conrmed and strengthened the European Commission in budgetary and economic policy coordination, without, however, transgressing limits of national sovereignty. The European Semester also puts the European Commission in a central position. Yet the denition of policy priorities has shifted to the European Council or the Euro Summit, as for instance the detailed agenda of the so-called Euro-Plus Pact shows, which is likely to be more important for economic policy coordination than, for instance, the EU2020 Strategy drafted by the European Commission. As part of the Troika, the European Commission also has had a crucial role to play in the negotiation of rescue packages as soon as a member state requests a loan. Interestingly, the Commission has been very successful in imposing its views on the adequacy of programmes on the International Monetary Fund (IMF) which, at least in recent years, initially tended to take a more neo-Keynesian approach than the European Commission would defend. Ltz and Kranke (2011) empirically trace the prevalence of the Commission over the IMF and argue that the Commission, as the member states agent with a weak internal position, is actually very able, thanks to a paradox of weakness, to impose its views on the Fund. All in all, rather than as institutional drift the change of the role of the European Commission in the governance structures of the euro area that is underway can best be described as redirection. The EP a rising, yet struggling star The EP, in contrast, is one of the institutions that benets most from the Lisbon Treaty. With the new Treaty, the joint decision procedure has now become the ordinary legislative procedure that puts the Parliament on an equal footing in all related legislative procedures. Its powers have thus, for instance, increased in the elds of justice and home affairs as well as in cohesion and agricultural policy and the negotiation of trade agreements (EP, 2010a). The Lisbon Treaty also gave the Parliament more rights in budgetary policy, as it expands the scope of parliamentary control, giving the EP a stronger role in the determination of annual budgets and making its
consent mandatory for the EUs 7-year nancial framework. In 2010 Parliament used its new powers, surprising the member states in a series of demonstrations of power, the rst being the rejection of the SWIFT agreement (allowing sharing EU citizens bank data with the US authorities) in February 2010. It likewise actively engaged in the negotiations on the European External Action Service. It had only marginal decision rights but managed to secure important concessions from the high representative and the member states via its budgetary powers (Kietz and von Ondarza, 2010, p. 1). The Parliament obviously strives for an equal footing with the Council in the EUs institutional triangle (Kietz and von Ondarza, 2010, p. 2). In September 2009, in an unprecedented move, it committed Manuel Barroso to detail his key political projects as candidate for a second term as Commission president before the EP. This gave the Parliaments power to appoint and dismiss the European Commission a new quality and can be seen as an attempt to have a say in the setting of long-term policy priorities, which it does not formally have, despite its strengthened role thanks to Lisbon. This practice and other elements that strengthen the EP as an actor in the institutional triangle of the EU are laid down in the revised Framework Agreement on relations between the EP and the Commission of October (EP, 2010b.) While this agreement of course does not alter the EPs role as enshrined in primary law, it is widely seen as being an important tool for the Parliament to further extend its inuence over the running legislature. This observation is obviously shared by the Council, which claimed that several provisions have the effect of modifying the institutional balance set out in the Treaties, mentioning in particular provisions on international agreements, infringement proceedings against member states and the transmission of classied information to the EP (European Council, 2010, p. 1). In the sovereign debt crisis the EP severely criticized measures taken by the member governments of the euro area that did not involve the EP and partly were not even implemented in the community framework. The creation of the rescue mechanisms based on intergovernmental treaties raised particular concern, not only because Parliament had no opportunity to be involved in the emergency summit decisions but also because there is a growing concern that the current and future stabilization mechanisms of the euro area may evolve into an entity of surveillance and coordination at the heart of the euro area but without being based on community law or involving the EU institutions. Meanwhile, the EP has essentially used four channels to be involved in the debate on crisis management and governance reform. Firstly, it was a co-decider in the
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legislative procedures setting up the Financial Supervisory Structure and the Six Pack (see below) two opportunities for the EPs Economic and Monetary Affairs (ECON) Committee to impose more supranational reasoning on the member states than the positions of the ECOFIN had initially foreseen. Secondly, the EP ran a temporary CRIS Committee (on the nancial, economic and social crisis), which was charged with analyzing the extent and causes of the crisis for the EU and the member states and was tasked with proposing measures to improve nancial market stability. Thirdly, the EP has continued its 3-monthly monetary dialogue with the ECB president as well as its (so far) informal dialogue with the president of the Eurogroup. Fourthly, it has begun to dene its space in the new economic and scal policy coordination architecture organized under the umbrella of the European Semester. A rst step was its discussion of the Annual Growth Survey 2011, the key European Commission document that initiates the European Semester at the beginning of each year. There is scope for the further development of the involvement of the EP, in particular, as the effectiveness and legitimacy of the European Semester still need to be improved (see below). Furthermore, the EP could extend its formal and informal consultation (so far with the ECB president and the Eurogroup president) to the new president of the Euro Summit. Moreover, the EP (formally or informally) can become more involved with national politicians, in particular when a country is placed under an excessive decit procedure (EDP) or an excessive imbalance procedure (EIP). It could hence ask national politicians to testify before it, for example, in the case of a serious breach of the member states obligations.
parallels the behavior of most Commission presidents in pre-Lisbon times. Small and medium-sized member states hence continue to argue for strong supranational actors, as it is through them that they see a chance to assure to be heard in EU policy-making. Unsurprisingly, they have harshly criticized the dominant role of the large member states, for instance the Franco-German Deauville compromise on the reform of the euro area of October 2010. Unlike in previous events of Franco-German leadership, neither government consulted their partners before tabling their proposal at the subsequent European summit. A similarly explosive case was the last-minute package deal in late 2010 between London, Paris and Berlin in which the British prime minister secured a guarantee of the British rebate in exchange for Germanys insistence to revise the EU Treaty when installing the sovereign debt crisis mechanism. On several occasions there have been counter reactions, in particular from Central and Eastern Europe, against what is being perceived as Franco-German dominance. One example was a gathering of Central and Eastern European Countries initiated by Poland on economic governance questions in a reaction to Frances refusal to accept the Polish nance minister during the Polish rotating EU presidency as a guest to the Eurogroup. Germanys new role in the eurozone Germanys political and economic weight after reunication has become particularly visible in the sovereign debt crisis. Partly involuntarily, the country has taken on a key role in the EU. It has not only by far the largest economy but recently was also one of the most dynamic economies in the EU. Thanks to painful adjustments in previous years when the country had to pull itself out of the situation of being the sick man of Europe (2003), Germany has turned into the engine of growth of the euro area in 2010. It enjoys unbroken condence in nancial markets with top credit ratings and low risk premiums. Its size makes it the largest state and its credibility makes it the most important guarantor and creditor for fellow euro area member states through its contribution of 27 percent of the guarantees of the current European Financial Stability Facility (EFSF)4 and the future European stability mechanism. Germany accepted this position as the guarantor sine qua non only with considerable hesitation, even frustration. There is a widespread perception that the sovereign debt crisis occurred only because other member states did not engage in structural reforms and budgetary austerity and essentially undermined the euro areas stability framework, which was a necessary condition for Germany to give up the Deutschmark. Germanys initial reluctance to help Greece, its occasionally harsh way of
3. Shifting power relations and the new German dominance

The trend towards intergovernmental cooperation bears a potential for conict not only with the EUs supranational institutions. Beyond the institutional change described above, power relations have shifted considerably. Marginalization and new groups emerging If decisions of crisis management and governance reform are taken among the heads of states and government without a major contribution by supranational actors, this process is likely to marginalize small and mediumsized member states. It is an open secret that President Van Rompuy closely consults with the German chancellor and the French president but is said to pay less attention to the heads of state and government of small-sized and medium-sized member states who continue to see the European Commission as key to positioning their interests. This is no new phenomenon and
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pushing for tougher rules and sanctions in policy coordination and for the creation of a European insolvency procedure, as well as its unusually uncooperative strategies in pushing for its interests have made Germanys role and commitment to the EU one of the key issues in the debate on the future of Europe. Throughout crisis management, domestic conditions constrained the governments action, among them critical public opinion, the parliamentary opposition and the Constitutional Court, in particular with regard to the question whether the rescue packages are constitutional5 and how far the further reform of the euro area can go. In addition, strong concerns emerged that the rescue package for Greece and the 750 billion rescue fund would change the EMU in such a way that incentives for sound scal and economic policies would fade in a situation in which the existing surveillance and coordination mechanisms had already proven to be inefcient. Out of this concern, the German government launched nine proposals for the reform of euro area economic governance in May 2010 which have importantly dened the subsequent reform agenda that is still being implemented. One of the characteristics of traditional German policy towards the EU was strong support for the EU institutions. The German government has supported a strengthening of the EP for decades, traditionally backed the European Commission and positioned itself as a defender of the Community method, when other capitals such as Paris eyed the possibility of cooperation in small groups or a directorate beyond the community framework. Under the pressure of the crisis, this policy stance at least temporarily shifted. German Chancellor Merkel (2010) in a speech at the College of Europe in Bruges actively defended, for the rst time, the idea of the intergovernmental Union method as a legitimate and useful alternative to the Community method. Moreover, recent governance proposals consider the Euro Summit to be the key decision-making and coordination body, while a legal and political strengthening of the European Commission or the EP so far does not seem to be a priority for the current government. The implications of this policy shift for the EU may only be fully measured in years time but, if the trend persists they are likely to accelerate the evolution towards more coordination, instead of integration. Germany also takes a pivotal role in dening the economic policy agenda for the eurozone, in particular with its proposal of the Euro-Plus Pact, which is essentially about structural reform and budgetary austerity. Among German efforts to export its own economic policy agenda is also a bilateralization of conicts over measures to cope with the debt crisis (see, for instance the pressure exerted on Greece before the rescue packages were agreed upon and more recently, when the German
chancellor and the French president pushed the Greek prime minister towards abandoning the referendum).
4. The role of the ECB

If there is one institution whose factual role in economic governance has changed since the start of the sovereign debt crisis, it is the ECB. As early as 2007 the ECB became a more and more present crisis manager through interventions in the nancial markets. The ECB launched the so-called securities market programme, that is, it started purchasing government bonds in the secondary market. It took this unprecedented move in order to prevent an excessive fall in bond prices that would lead to a further deterioration in condence among investors. From a central banking perspective the programme served to ensure the proper transmission of monetary policy during the sovereign debt crisis. By preventing overly sharp moves, countries access to nancial markets can be kept open and nancial institutions spared write-downs on their portfolios. So the ECB in fact became a key player in the management of the debt crisis, which some argue exceeds its mandate and may complicate the pursuit of its primary objective: to guarantee price stability. While it would be an exaggeration to classify this evolution as redirection, because the ECB arguably still pursues a monetary policy (though with means that some observers would evaluate as belonging to the eld of scal policy), there is a clear case of displacement: the ECB has become more important in the institutional arangements of the EMU. It no longer only runs the euro areas monetary policy but has evolved into a crisis manager that is willing and able to ensure the survival of the euro area. Its prominent rule in day-to-day crisis management also leveraged its political inuence in the euro area in two ways. Firstly, when it came to debating governance reforms, the ECB (2010) formulated explicit expectations towards the member states that it tabled while the work of the Van-Rompuy task force was continuing. In several speeches, Central Bank President Jean-Claude Trichet added to the economic governance debate. One key issue in the reform debate was the question of private sector involvement (PSI) in the event of a sovereign debt crisis over which the ECB put itself into strong opposition with Germany, a promoter of early PSI (see below). Secondly, the ECB became directly involved with disciplining member states to implement reforms on the domestic level. A joint letter of 5 August 2011 from Trichet and the ECB president-in-waiting Mario Draghi to Prime Minister Silvio Berlusconi was leaked, in which the two central bankers laid out a detailed reform programme for the Italian republic (Corriere della Sera, 2011). The acting and future ECB presidents explicitly refer to the conclusions of the emergency summit of
35
euro area heads of state and government that had committed themselves to honour fully their own individual sovereign signature and all their commitments to sustainable scal conditions and structural reforms (Corriere della Sera, 2011). So the central bankers were effectively pressuring a defecting head of government to honor his commitment all this with sanctions in their hands that were much more powerful than the peer pressure exerted by the fellow heads of state and government: not buying further Italian debt on the secondary markets. Thirdly, the ECB is also part of the Troika composed of European Commission, ECB and IMF representatives who negotiate with and monitor progress in those member states that have received an aid package. On the surveillance and on the sanctioning side, the ECB hence transgresses previous limits of its inuence on national governments. Both moves shed a new light on the question of political independence or involvement of the ECB. While it can be argued that the pressure of the crisis justies these radical moves into new elds of action, a key question in the future governance reform debate will be how to provide for the conditions to bring the ECB back to basics, that is, limiting its role to the core of monetary policy. This is particularly important as market pressures combined with the path dependency provoked by these moves in the rst place may eventually push the ECB further down that line of action. Given its institutional self-interest in the maintenance of the euro and its own existence, the ECB, from an institutional logic, is to be expected to privilege its own survival over policy objectives laid down in its own statues. It is hence up to the member states to ensure way out of the current evolution. Germany and the ECB youve lost that loving feeling The evolution of the German relationship with the ECB is particularly interesting. On the one hand, the German government strongly inuenced the way the Maastricht Treaty and the ECB statutes conceive the ECB. Hence, in terms of independence and focus on monetary stability, the ECB mirrors the old Bundesbanks role and orientation. In the course of the sovereign debt crisis, however, the ECB had undertaken measures that, from a normative German perspective, are widely seen as contradicting the initial idea of the ECB. But while prominent economists are very outspoken against these moves (see, for instance the comments by Axel Weber, the former Bundesbank president who was expected to become the next ECB president), the government cannot criticize the ECBs action as long as there is no crisis mechanism in place that can take the task of stabilizing bond rates in the markets off the ECBs shoulders. Market participants clearly see the (even silent) support of
the ECBs secondary market purchasing (SMP) programme by the German government as key to its success. Meanwhile, with regard to the ECBs disciplining efforts towards euro area governments such as Italy, the German government is keen to see the ECB transgressing its political responsibilities as both probably share the sober assessment that there are hardly any other disciplining mechanism that can encourage reluctant political leaders to embark on deep-seated reform and consolidation processes apart from market discipline (which can turn into panic) and the threat of withdrawing behind the scene stabilization through the ECBs SMP. The German government and the ECB have been opposed to each other on one even more fundamental topic: the role of PSI in the handling of the sovereign debt crisis. The German government early on in the reform debate argued for automatic PSI as soon as a member state asked for a loan from the rescue mechanisms, in the early stages of reection not even distinguishing between solvency and liquidity crises. The ECB, meanwhile, took a very active position against the German government, highlighting the risks involved by aiming at an institutionalization of PSI, both with regard to the direct effects (the destabilization of bond-holding banks) and the indirect contagion effects through the bond markets.
5. Ad hoc crisis mechanisms a permanent change of game in the EMU

On 2 May 2010, a 110 billion rescue package was agreed to save Greece from illiquidity. But the loan package that had been designed to take the country off the markets until spring 2013 failed to calm the markets, whose volatility increased to such a degree the week after that so that far-reaching policy decisions had to be taken on the weekend of 79 May 2010. The EU designed two new crisis management instruments: the EFSF and the European Financial Stabilization Mechanism (EFSM). The EFSM is based on guarantees from the Community budget of up to 60 billion, while the EFSF is an inter-governmental body providing up to 440 billion in guarantees from the euro area member states. the IMF decided to complement these mechanisms with potential nancial support to euro area countries of up to 250 billion. The EFSF mechanism has undergone two key reforms in the rst 18 months of its existence. On 21 July 2011 an emergency Euro Summit decided to expand the possible instruments of the EFSF, including secondary bond market purchases and the ability to provide loans to member states for the recapitalization of the national banking sector. On 26 October 2011 the decision was taken to leverage the EFSF in order to increase its lend-
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ing volume to up to 1 trillion. The European stability mechanism (ESM) that will take over from the temporary mechanisms probably in the course of 2012 will most likely incorporate these measures (European Union, 2010a).6 The creation and extension of the crisis management mechanisms is a case of institutional layering. The adding of these new institutional elements has several implications for the overall governance set-up of the euro area. First of all, conditionality attached to loans has proven to be the most effective disciplining device for national economic and scal policies. In the future, it is conceivable that the ESM may be at the core of budgetary and economic policy coordination for those member states that require loans in times of liquidity shortage. It is conceivable that in Streeks and Thelens terms displacement will then occur: the ESM may develop into a more pro-active actor if, once in place, it can actually provide preventive loans before a crisis actually hits, meaning that it can extend its role in supporting structural adaptation processes. The framework of this will probably be provided by the European Councils policy agenda and the European Commissions annual growth reports, but the ESM may evolve into a key player in these coordination mechanisms. Secondly, the ESM has the potential to take the ECB out of its current role as only effective crisis manager through its intervention in the bond markets, but only if it is provided with the necessary means to intervene and the exibility to act as a crisis manager. These decisions can be interpreted as the litmus test for national governments willingness to actually reduce the ECBs role as a crisis manager and let the EFSF or ESM shoulder this task by backing the intergovernmental mechanisms.
On 27 September 2010 the European Commission, which had also been part of the task force, tabled a Six Pack of legislative acts with three objectives: to reform the Stability and Growth Pact, which is supposed to ensure sound public nances in the EU, to establish new standards for national scal frameworks to underpin the coordination of budgetary polices, and to introduce rules and standards for the future surveillance and coordination of national economic policies. Four of the six related legislative texts proposed by the European Commission were decided under the joint decision procedure. The EP was hence fully involved in the process and its reports at the end of 2010 showed that it was willing to confront the ECOFIN over a host of issues. Shortly after the Commission proposals, the Van Rompuy task force released its report which, additionally, identied the need for a European mechanism to deal with sovereign debt crises. Both proposals reected the acknowledgement that the current debt crisis would not have hit the Euro area the way it did had the member states better coordinated economic and budgetary policies since the launch of the euro in 1999. It became a widespread consensus that budgetary discipline is only part of the problem. External imbalances within the euro area and insufcient policy coordination in the rst 11 years of the EMU have led to a considerable divergence in economic performance. Too large macroeconomic imbalances are part of the reasons for the severe sovereign debt crisis some member states are currently undergoing. Given these insights, combined with the pressure on national budgets resulting from demographic changes in the EU member states, it became a major political concern to strengthen the rules for economic and budgetary policy surveillance in the eurozone. The Six Pack With the Six Pack decision of October 2011, scal policy coordination has been considerably strengthened. National scal frameworks now have to meet minimum quality standards (reliability and transparency) and cover all administrative levels. Fiscal policy planning is encouraged to adopt a multi-annual perspective, so as to reach the medium-term objectives (Council Directive 2010). Meanwhile, a new concept of prudent scal policy-making has been introduced in scal monitoring with a stronger focus on achieving the medium-term objective. Alongside these measures, which are designed to improve national budget procedures, the European rules for surveillance and coordination of budgetary policy-making (the EDP and the Stability and Growth Pact) were reformed in 2011. The rules of the Stability and Growth Pact have been changed in the following ways: the 3 percent decit
6. Reforming economic governance of the euro area

In parallel to managing the sovereign debt crisis, the EU advanced at an impressive speed with the reform of its economic governance mechanisms in 20102011. A rst achievement was the establishment of new European nancial supervisory structures. The legislative acts were decided upon in a joint decision procedure and were completed in November 2010. They established the European Systemic Risk Board, which is responsible for the macro-prudential oversight of the nancial system in the EU and three further new European authorities for the supervision of nancial activities with regard to banks, markets and insurances and pensions. At the European summit on 2526 March the heads of state and government decided to install a task force to prepare a report for necessary economic governance reforms under the chairmanship of Herman van Rompuy.
37
target will be replaced by a balanced budget objective, the reduction of debt to 60 percent of GDP has been imposed on member states, both an insufcient reduction of decit and public debt can be santioned on proposal by the European Commission and against the will of the member states. Expenditure benchmarks will now be used alongside the structural budget balance to assess adjustments towards medium-term objectives. Expenditure growth rates should not exceed trend growth. Member that do not meet the medium-term objective should set their annual expenditure growth below trend growth (unless extra revenues are collected). The EDP can now be launched based on government debt developments as well as based on government deficit (Council Regulation, 2010. If a member state continues to ignore council recommendations within the EDP the Commission makes a recommendation to the Council. That recommendation is considered as having been adopted unless a qualied majority of member states votes against it and results in a new 0.2 percent of GDP noninterest-bearing deposit (Regulation of the European Parliament and of the Council, 2011). The initial policy recommendations by the council based on a Commission recommendation remain subject to qualied majority vote. Financial sanctions kick in at an earlier stage of the EDP. The Stability and Growth Pact has hence become more complex as a result of the recent reform. On substance, the major shift is that the expenditure growth rate and debt development are accounted for (only the debt criterion triggers EDP) and a stronger focus is being put on medium-term objectives. While the reversed majority increases reputation costs, administrative and political discretion remains. Hence, the actual implementation of the rules still depend crucially on the member states own interests in implementing implement the rules. While the European Commission has seen as slight increase of its formal power, it remains to be seen how it reads its new role and how able it will be, if it wants to, to take a strong position in the coordination of economic and budgetary policies in the euro area. Meanwhile, the EU does not have the right to directly intervene in a national budgetary policy. The legislative package also creates a surveillance mechanism to account for competitiveness divergences and macroeconomic imbalances (European Union, 2010b). It is conceived of as an alert system based on an economic reading of a scoreboard consisting of a set of indicators covering the major sources of macroeconomic imbalances. The EIP is based on Article 121.6 Treaty on the Functioning of the European Union (TFEU) and includes nancial sanctions for member states that do not follow recommendations.
The European semester On 7 September 2010 the European Semester was approved by the EU member states as part of the new economic governance architecture. It is supposed to ensure that the EU and the eurozone will coordinate ex ante their budgetary and economic policies while national budgets are still under preparation, in line with both the (revised) Stability and Growth Pact, the macroeconomic surveillance mechanism and the Europe 2020 strategy. As tested so far once in the year 2011, the European semester starts with an Annual Growth Survey, in which the Commission provides an analysis on the basis of the progress on Europe 2020 targets, a macroeconomic report and the joint employment report, and recommends key measures to improve growth perspectives. The survey includes country-specic recommendations and is to be discussed by Council formations and the EP ahead of the spring European Council. At the spring Council, the heads of state and government identify the main challenges facing the EU and give strategic advice on policies. The member states are supposed to take these into account when presenting their medium-term budgetary strategies through stability and convergence programmes and, at the same time, draw up national reform programmes and set out the action they will undertake in areas such as employment, research, innovation, energy or social inclusion. These two documents are sent to the European Commission each April for assessment. Based on the Commissions assessment, the Council will issue country-specic recommendations to countries whose policies and budgets are out of line (for instance, if their plans are not realistic in terms of macroeconomic assumptions or they do not address the main challenges in terms of scal consolidation, competitiveness, imbalances and so on). Each July the European Council and the Council of Ministers provide policy advice before member states nalize their draft budgets for the following year. Draft budgets will then be sent by governments to the national parliaments, which continue to fully exercise their right to decide on the budget. The assessment of the rst European Semester (January to June 2011) was rather sober. It ambitious objectives have not (yet) made a signicant impact on national policy-making. A recent study (Hallerberg et al., 2011) shows that countries adapt very differently to the constraints imposed by the new coordination framework, depending on various factors. In addition to concerns about the European Semesters effectiveness, doubts about its legitimacy have been raised. A stronger involvement by the EP is seen as one possible way forward to overcome both problems of legitimacy and effectiveness as it could become a forum in which information is exchanged and
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its role of watchdog for the relationship between the Commission and the Council [could be] made more visible and effective (Hallerberg et al., 28). The Euro-Plus Pact The Euro-Plus Pact is an economic policy agenda designed to address the imbalances in the euro area (European Council, 2011) in addition to the Six Pack. It was endorsed on 11 March 2011 and was formally adopted on 24 March by 17 euro area member states as well as Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania. The Pact focuses primarily on areas that fall under national competence. Each year, concrete national commitments will be undertaken by each head of state or government. Implementation is monitored by the European Commission, which will feed its observations of the process into its annual growth report, and politically by the heads of state or government. The Pacts four objectives are to foster competitiveness, employment and the sustainability of public nances and to reinforce nancial stability. In addition to the issues mentioned above, attention is paid to tax policy coordination. The countries with a surplus are seen as a benchmark (Heise, 2011, p. 14), whose economic policy should be imitated by countries running an external decit. More explicitly than the macroeconomic imbalance procedure, the Pact denes imbalances as an asymmetrical problem and puts the burden of adaptation on the countries in decit. Meanwhile, these countries are seriously constrained in the adaptation instruments they may use: exchange rates are non-existent for euro area members while the Stability Pact constrains their budgetary means. Under the pressure of peer reviews and European Commission reports, which are likely to raise some awareness among nancial market actors, at least while the debt crisis is not entirely overcome, the only way forward for decit countries is hence scal austerity and structural reform. Further reaching reforms, including a revision of the EU Treaty After a further escalation of the sovereign debt crisis and a deterioration of the situation in the banking sector, the Euro Summit of 26 October 2011 committed itself to making further progress in integrating economic and scal policies by reinforcing coordination, surveillance and discipline (Euro Summit 2011, p. 7). Apart from measures to be implemented on the national level, in particular the following points have been announced (Euro Summit 2011, p. 810): Firstly, their intentions to use Article 137 TFEU to provide for more scope of interference by the European Commission and the Council in examining
national budgets of member states in EDP as well as closer monitoring and coordination of programme implementation in case of the slippage of an adjustment programme. Secondly, the role of the Commissioner should be strengthened. Thirdly, macroeconomic and microeconomic policies should be coordinated even more closely, building on the Euro-Plus Pact in the objective of achieving a further convergence of policies to promote growth and employment while the pragmatic coordination of tax policies (Euro Summit 2011, pp. 810) is deemed necessary. The Summit has also committed itself to the following changes in the governance structure of the euro area. Euro Summit meetings are to be held after European Council meetings at least twice a year, including the Commission president, which will provide strategic orientations on the economic and scal policies in the euro area (Euro Summit 2011, pp. 810). Additional meetings can be called by the new president of the Euro Summit. The president of the Euro Summit will prepare the summits together with the Commission president and will inform the non-euro area member states and the EP. The Eurogroup will be given a stronger preparatory structure, including a permanent Brussels-based president of the Eurogroup Working Group. Reporting lines between these structures, the Eurogroup president and the Euro Summit president will need to be dened. There will be a monthly meeting between the president of the Euro Summit, of the Eurogroup, of the European Commission, to which the president of the ECB and the presidents of the supervisory agencies and the EFSF ESM can be invited.
7. Conclusions: the eurozones new governance framework is taking shape

Drawing together the observations from the ve cases of institutional change analyzed here, a picture of the future economic governance framework of the euro area is emerging. It can be characterized as follows. Firstly, in the course of sovereign debt crisis management, new actors have come to the forefront: the ECB has considerably expanded its scope of action and inuence and the Troikas responsibility in implementing conditionality in loan-taking countries has brought together the IMF, the ECB and the European Commission onto a new level of policy interference with euro area member states. The current crisis has, moreover, accelerated the process of layering, that is, adding new elements to the institutional organization of the EMU that had begun well before the start of the crisis. The newly created EFSF and the future ESM may turn out to be the institutional hub for policy coordination, raising questions of democratic accountability and legitimacy. But as the empirical analysis has shown, there are also cases of
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redirection, which eventually may lead to a drift if certain institutions are formally or informally loosing importance to such a degree that they can no longer assume their initial role. Crisis management decisions, for instance, the decision to create a temporary rescue mechanism, have clearly created path dependencies which made euro area member governments start seeking a permanent solution only weeks after the temporary mechanism was created. All subsequent changes to the temporary mechanisms are meanwhile likely to be included in the permanent ESM, the founding treaty of which is currently under ratication. The analysis has further shown that incoherent responses from multiple actors in the face of immediate crisis management needs, new policy challenges and coordination difculties have, along with the evolving crisis, strengthened the case for more substantial institutional change. Consequently, a closer institutionalized euro core is emerging within the EU-27. The 17 euro area member states are bound together by tougher rules and harder sanctions, a shared policy agenda and newly institutionalized mechanisms such as the EFSF and the future ESM. This has implications for future EMU enlargements: entering the EMU not only means entering a more closely integrated core but also implies that euro area accession countries are willing to buy their way into the rescue mechanisms (in which they would automatically be on the donor side upon accession as they have to fulll the convergence criteria). While it is improbable that the convergence criteria for EMU accession in laid down in the Treaty on the Functioning of the EU will be changed, the political and economic hurdles that need to be overcome will denitely change in such a way that EMU accession may become less attractive. Thirdly, if an economic government emerges for the euro area, this is most probably not going to develop itself out of the European Commission, but rather out of the European Council. In particular, the Euro Summit conclusions of 26 October 2011 underpin the perception that the European Council sees itself as the core institution to ensure policy coordination and surveillance as well as the denition of policy priorities. The ongoing euro area crisis catalyzed the increasing role of the European Council outside the EU institutional triangle of Parliament-Commission-Council but at the heart of decision-making. This intergovernmental power center is the reason why, despite the upgrade of the EP and despite the strengthening of leadership on the European level, the EU is seen as becoming more intergovernmental, and some have even observed a renationalization taking place. For instance the VanRompuy task force, which assembled mostly nance ministers of the EU member states was widely interpreted as a signal that the member states would prefer
intergovernmental consensus seeking at the price of a marginalization of the European Commission and the EP which, in contrast to the Commission, was not represented in the working group. One might argue that, even if the EU has become relatively more intergovernmental, there are to date no cases in which an actual renationalization has taken place and in which the community method has actually been pushed back. Indeed, at least in 2010, intergovernmental approaches were chosen in those elds where the community method does not apply and hence can be read as a way for the EU to expand its scope of action. But since mid-2011 eurozone governance reforms have come back on the agenda, which means that choices need to be made whether the political leaders of the euro area head for more coordination or joint policy-making, including eventually an extension of the community method to the elds of budgetary and economic policy-making and surveillance. To date, governments have privileged coordination over integration, but still a profound debate over the future political nature of the euro area has started. Fourth, the evolving governance mechanisms go hand in hand with the development of a distinct economic policy agenda for the euro area. The application of the macroeconomic imbalance procedure is likely to be asymmetric (that is, adaptation is mostly to be expected on the side of the decit countries), the Euro-Plus Pact surely is. This means that the decit countries are embarking on a long process of budgetary austerity, structural reforms and real devaluation. Depending on the overall growth environment, this may not prove sustainable politically, socially and economically to some member states. Depending on the future evolution of the sovereign debt and the banking crisis, the euro area members may have to take more far-reaching steps, both with regard to budgetary policy coordination and economic policy co-ordination and with regard to the ESM to deal with sovereign debt crises. This will be anything but easy to achieve. One reason is that already now integration has reached a degree where any further step will touch on key features of national sovereignty. Even the implementation of tougher budgetary and economic policy coordination can trigger resistance if national policymakers feel there is too much interference with national policies. While the euro area has shown a remarkable capacity to adjust the functioning of its governance below the level of Treaty change, in the medium-term a more explicit and fundamental reform will be required in order to take into account problems of governance efciency and, increasingly, of legitimacy. An institutional set-up that continues to adapt only incrementally to inner and outer challenges by not impacting more strongly on
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national sovereignty and by not strengthening supranational policy-making based on its own sources of legitimacy will not be able to solve the collective action problems inherent in the EMUs asymmetric organization; namely, a centralized monetary policy and insufcient integration in the elds of economic, budgetary and nancial policy coordination. It is very likely that a debate on limits to sovereignty and the technocratization of politics as a reaction to the reforms launched in 2010 will emerge. An increasing number of observers think that the problems of efciency and the legitimacy of policy coordination can only be overcome by a larger transfer of sovereignty and more democratic legitimization on the EU level. This would require a major step of political integration after the current reform, which could be a revised EU Treaty, elaborated by a Convention and possibly only ratied and applied to the eurozone members.
Notes
1. This paper was rst presented at the Dahrendorf Symposium in November 2011 in Berlin. I am grateful for helpful comments from the participants in the debate, the editors of this special issue and two anonymous referees. 2. This framework has also been applied to the the evolution of the EMU by Salines et al. (2012), who cover part of the cases analysed here. 3. Bishop, 2011; De Grauwe, 2010; Mnchau, 2010. 4. Own calculations based on The Parties (2010). 5. The main question here is whether the rescue packages constitute a bail-out or not. The No-Bail-Out-Clause of Art. 125 TFEU is one of the core features upon which the Constitutional Court, back in 1992, had ruled that the Maastricht Treaty and the introduction of the single European currency were compatible with the German basic law. 6. Any further decisions that may have to be taken to expand the EFSF and increase its ability to contain the crisis.
References
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Council of the EU (2010) Press Release, 3039th Council meeting, Employment, Social Policy, Health and Consumer Affairs. Luxembourg, 21 October. Available from: http://europa.eu/rapid/pressReleasesAction.do?reference=PRES/10/282&type=HTML [Accessed 21 September 2012]. Council Regulation (2010) 2010 0276(CNS) 14615 11; Amending Regulation (EC) No 1467 97 on Speeding Up and Clarifying the Implementation of the Excessive Decit Procedure. Available from: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri= CELEX:32011R1177:EN:NOT [Accessed 19 October 2012]. De Grauwe, P. (2010) Euro Has No Future Without A Political Union, London: Bloomberg, 14 May. Available from: http://www. bloomberg.com/news/2010-05-13/euro-has-no-future-without-a-poli tical-union-commentary-by-paul-de-grauwe.html [Accessed 19 October 2012]. Dinan, D. (2011) Governance and Institutions: Implementing the Lisbon Treaty in the Shadow of the Euro Crisis, Journal of Common Market Studies, 49 (S1), 103121. DOI: 10.1111/j.1468-5965.2011.02183.x European Central Bank (ECB) (2010) Reinforcing Economic Governance in the Euro Area Available from: http: www.ecb.europa.eu pub pdf other reinforcingeconomicgovernanceintheeuroareaen. pdf [Accessed 10 June 2010]. European Council (2010) Statement on the Framework Agreement on Relations Between the European Parliament and the Commission, Brussels Available from: http: register.consilium.europa. eu pdf en 10 st15 st15018.en10.pdf [Accessed 19 October 2012]. European Council (2011) Conclusions of the Heads of State and Government of the Euro Area, 11 March. Available from: http:// www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ ec/119809.pdf. [Accessed 19 October 2012]. European Parliament (EP) (2010a) Framework Agreement on Relations Between the European Parliament and the Commission Strasbourg, 9 February. Available from: http://eur-lex.europa. eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:304:0047:0062:EN:PDF. [Accessed 22 September 2012]. European Parliament (2010b) Revision of the Framework Agreement on Relations Between the European Parliament and the Commission, Strasbourg, 20 October. Available from: http:// eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2012:070E:009 8:0119:EN:PDF [Accessed 22 September 2012]. Euro Summit (2011) Euro Summit Statement, 26 October. Available from: http://www.consilium.europa.eu/uedocs/cms_data/docs/ pressdata/en/ec/125644.pdf [Accessed 22 September 2012]. European Union (2010a) 2010 0281 (COD), PE-CONS 31 11; Regulation of the European Parliament and of the Council on the prevention and correction of macroeconomic imbalances; 28.10.2011, Available at http://register.consilium.europa.eu/pdf/ en/11/pe00/pe00031.en11.pdf [Accessed 21 September 2012]. European Union (2010b) 2010 0279 (COD); PE-CONS 29 11; Regulation of the European Parliament and of the Council on enforcement measures to correct excessive macroeconomic imbalances in the euro area 28.10.2011. Available at http://register.consilium. europa.eu/pdf/en/11/pe00/pe00029.en11.pdf [Accessed 21 September 2012]. Hallerberg, M., Marzinotto, B. and Wolff, G. (2011) How Effective and Legitimate Is the European Semester? Increasing the Role of the European Parliament. EP Brieng Paper, PI A ECON NT 201024, August 2011. Available from: http://www.europarl. europa.eu/document/activities/cont/201109/20110901ATT25810/ 20110901ATT25810EN.pdf [Accessed 22 September 2012]. Heise, A. (2011) European Governance: The EU gets tough Institutionelle Reformen nach der Krise, Working Papers on
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Economic Governance, No 38, May 2011, Universitt Hamburg. Available from: http: www.wiso.uni-hamburg.de leadmin wiso_dwp_vwl Heise WP._StaatsWiss 38-European_Governance_The_EU_gets_tough__Institutionelle_Reformen_nach_der_ Krise.pdf Kietz, D. and von Ondarza, N. (2010) Das neue Selbstbewusstsein des Europischen Parlaments, SWP-Aktuell 2010, A57 (July). Available from: kms2.isn.ethz.ch ... 2010_EU_Parliament.pdf [Accessed 22 September 2012]. Kurpas, S., Crum, B., de Schoutheete, P., Keller, J., Dehousse, F., Andoura, S., et al. (2007) The Treaty of Lisbon: Implementing the Institutional Innovations, Politics and Institutions, CEPS Special Reports, 15 November. Available from: http://www.ceps.eu/ node/1385 [Accessed 22 September 2012]. Ltz, S. and Kranke, M. (2011) The Paradox of Weakness in Crisis Lending: How the European Commission Prevails over the IMF, Mimeo, 11 April 2011. Merkel, A. (2010) Rede anlsslich der Erffnung des 61. akademischen Jahres des Europakollegs Brgge, 2 November 2010. Available from: http://www.bundesregierung.de/Content/DE/Rede/2010/ 11/2010-11-02-merkel-bruegge.html [Accessed 19 October 2012]. Mnchau, W. (2010) The euro area must take responsibility or it will split, Financial Times, 9 May. The Parties (2010) EFSF Framework Agreement, Consolidated Version. Available at: http://www.efsf.europa.eu/attachments/ 20111019_efsf_framework_agreement_en.pdf [last accessed 21 September 2012]. Ptter, U. (2006) The Eurogroup. How a Secretive Circle of Finance Ministers Shape European Economic Governance. Manchester: University Press. Regulation of the European Parliament and of the Council (2011) 2010 0278 (COD) On the Effective Enforcement of Budgetary Surveillance in the Euro Area, PE-CONS 28 11, 28 October. Available from: http://register.consilium.europa.eu/pdf/de/11/pe00/ pe00028.de11.pdf [Accessed 19 October 2012].
Salines, M., Glckler, G. and Truchlewski, Z. (2012) Existential crisis, incremental response: the eurozones dual institutional evolution 2007-2011, Journal of European Public Policy, 19(5), pp. 665681. Scharpf, F. (1988) The Joint-decision Trap: Lessons from German Federalism and European Integration, Public Administration, 1 (2), pp. 239278. Schwarzer, D. (2005) Fiscal Policy Co-ordination in the European Monetary Union. A Preference-Based Explanation of Institutional Change. Baden-Baden: Nomos. Schwarzer, D. (2010) Die Eurogruppe: Vom informellen Gremium zum Kooperationsgaranten in der Whrungsunion, in D. Kietz, P. Slominski, A. Maurer and S. Puntscher Riekmann (eds), Interinstitutionelle Vereinbarungen in der Europischen Union. Wegbereiter der Verfassungsentwicklung, Baden-Baden: Nomos, pp. 277296. Streek, W. and Thelen, K. (2005) Beyond Continuity: Institutional Change in Advances Political Economies. Oxford: University Press. UBS Investment Research (2011) Euro Break-Up: the Consequences, Global Economic Perspectives, 6 September 2011. Available from http://bruxelles.blogs.liberation.fr/UBS%20n%20de%20l%27 euro.pdf [Accessed 22 September 2012]. Von Ondarza, N. (2011) Koordinatoren an der Spitze. Politische Fhrung in den reformierten Strukturen der Europischen Union, SWP-Studien 2011, S08 (April). Available from: http://www.swpberlin.org/de/publikationen/swp-studien-de/swp-studien-detail/ article/eu_politische_fuehrung_seit_lissabon.html [Accessed 22 September 2012].
Author Information
Daniela Schwarzer, Stiftung Wissenschaft und Politik, is currently Fritz Thyssen Scholar at the Weatherhead Center for International Affairs, Harvard University.
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The Political Economy of the Crisis: The End of an Era?

Loukas Tsoukalis
Research Article
Hellenic Foundation for European and Foreign Policy University of Athens
Abstract
The article constitutes a political economy exercise in trying to understand the crisis of the euro area and draw lessons from it. The bursting of the biggest bubble in the Western nancial system for decades has led to a big crisis in a currency union without a state, which is the euro area now occupying centre stage in the European political system. The culprits are many, but there have also been colossal failures in markets and institutions. A new modus vivendi between democracies and nancial markets needs to be found. Banking and sovereign debt crises are closely intertwined and they both cross national borders. Yet European solutions have proved difcult to reach because of economic divergence and rising populism. The distribution of pain is hardly an easy task, while implementation has been rendered more difcult in an increasingly intergovernmental EU system. There are deep underlying differences over the overall economic strategy. Yet a lively debate has developed as manifestation of an emerging European public forum. The stakes are high. Will the crisis act as a powerful catalyst for further integration in Europe? The alternative would be disintegration at a high cost. Crises provide opportunities for change. This is arguably the end of an era. The article ends with a rallying cry for Europe the broad minded.
Policy Implications
European integration needs to turn again into a positive sum game for creditors and debtors, surplus and decit countries by looking for new ways of distributing the burden of adjustment, recognizing the political boundaries of solidarity with conditionality, and strengthening common institutions. Europeans need to rethink their model of economic development, redening the relationship between democracies and nancial markets, adopting more environmentally friendly policies and more socially inclusive, while placing more emphasis on qualitative growth. We need to revise our ways of managing European (and global) interdependence, while deciding how far we want to go in trying to defend common interests and values in a world where size still matters a great deal.
The political economy of the crisis: the end of an era?

Europe is in deep crisis: the statement now sounds like a commonplace observation. It is the worst economic crisis for decades, with no end in sight as yet. It will shape Europe and European integration for years to come but it also risks leading Europe down the road to disintegration. The contrast with the mood prevailing at the turn of the new century is stark. Then, Europe was riding on a wave of euro-enthusiasm and many people were convinced that further integration was an unstoppable process. Three big and highly ambitious projects were expected to transform radically the economic and
political scene in Europe: economic and monetary union (EMU), the biggest ever enlargement of the EU following the disintegration of the Soviet empire and the turning of the European founding treaties into a Constitution. It was going to be yet another round of deepening and widening, as the European jargon goes, but on a much bigger scale than ever before. Now, we are much wiser lynched by reality, one might argue. European citizens and international markets have taught us lessons that have proved to be rather expensive. We have learned, for example, that European citizens are no longer ready to give their leaders a carte blanche on the future of European integration. A yawning gap has opened between elected politicians and their electors on things European: parliamentary
Crisis: The End of an Era?
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ratications of the Lisbon Treaty (and its predecessor) were mostly comfortable, and with large majority votes, while referendum results revealed much unhappiness and also large amounts of ignorance among the citizens. The elitist conspiracy of European integration, full of good intentions and with remarkable results, had probably reached its limits. The so-called permissive consensus was no longer. We have also learned that although enlargement may be indeed the most successful foreign policy of the EU, it inevitably comes with a price in terms of internal cohesion. Numbers also make a big difference. With 27 (soon to be 28), European councils of different denominations are no longer a group. They have now come to resemble a mini-UN conference. And that makes a big difference on the way those councils are treated, especially by representatives of the bigger countries. On the other hand, more people now realize that the EU is not a modern incarnation of Saint Pantaleon, the allmerciful healer of all kinds of disease. The miracle of Europeanization has been cut down to size through experience (Featherstone and Radaelli, 2003). The creation of the single currency has been undoubtedly the most important act of integration. We always knew that the construction conceived at Maastricht was unbalanced but that was all that was politically feasible at the time. Before the crisis, I used to compare the EMU to a postmodern construction (Tsoukalis, 2005 [2003]) that deed the laws of gravity. It did so successfully for more than 10 years and there were those who were lulled into believing that the good times would last forever. Alas, the laws of gravity (and the market) nally began to take their revenge and they did so with great force. Was the EMU a step too far in European integration? We are in the process of nding out the answer and the stakes are very high indeed.
The outbreak of the crisis: who are culprits?

We live through a big crisis of the euro area, which is part and parcel of a much broader crisis that has resulted from the bursting of the biggest bubble in the Western nancial system for several decades (Hemerijck et al., 2009; Roubini and Mihm, 2010). Greece served as the catalyst for the outbreak of the euro crisis when markets began to realize that the nancial crisis was rapidly transforming itself into one of sovereign debt. Greece had the worst combination of three different decits: a large budget decit, added to an already sizeable public debt; an equally large, indeed unsustainable, decit in its current account a decit of competitiveness, in other words; and a serious credibility decit as people realized that Greek politicians had been repeatedly economical with the truth and creative with the use of statistics. Greece was not unique with respect
to any of those three decits among members of the euro area and the wider world. But it had, undoubtedly, the worst combination when markets began to panic again, while governments, and notably its own, took their time in trying to take a grip of an, admittedly, very difcult situation (Tsoukalis, 2012). Much of the Greek political class (and those who elected them) had been adding for years to the public debt: clientelism was coupled with gross mismanagement and the results were appalling. But the buck does not stop at the door of Greek politicians. Part of the responsibility surely lies with European institutions and Greeces EU partners. For several years Greek governments pretended that public nances were in order and reforms were under way, while the rest pretended to believe them. On the other hand, the problem is not conned to Greece. There was systemic failure: the surveillance mechanism set up at Maastricht clearly did not work. The stability and growth pact was inadequate in its conception and poorly implemented. And when the crisis came we all discovered (or were just reminded) that the EU had no mechanism to deal with it some had apparently been afraid of moral hazard. But were Irish politicians less to blame having allowed a small group of bankers to bankrupt the Irish economy? More recently we began to learn more about the Spanish version of the bubble and there are surely other national lessons to learn given the chance. What about Anglo-American politicians, including those of new Labour, who had acted as missionaries for deregulated nancial markets, allegedly the pioneers of modern capitalism? And were German politicians (and regulators) blameless, and hence morally justied in chastising the others? They were apparently caught unaware that their own banks had been an integral part of the big bubble, feeding into it the savings of their customers while accumulating all kinds of toxic assets. The crisis is the result of colossal failures in markets and institutions. It also marks a big failure for economic science and its prophets.1 The efcient market hypothesis, resting on the behaviour of rational actors armed with perfect information, which had provided the intellectual basis for nancial deregulation in the West, was shown to bear little resemblance to real life nancial markets in which greed and moral hazard met in an explosive mix, with the old herd instinct being added for extra effect. One may indeed wonder what kind of world the authors of those theories inhabit, although some have been rewarded with Nobel prizes. Financial power often translates into political power: there were many instances of politicians having been hijacked by nancial lobbies. And the academic profession was shown to be particularly prone to mainstream thinking attachment to mainstream thinking was sometimes apparently related to pecuniary interest.
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Loukas Tsoukalis
Lessons from the crisis

When the crisis acquired a strong European dimension many people began to bet on the disintegration of the euro area on the belief that Europeans had neither the instruments nor the political will to deal with the problem. They were mostly, although not exclusively, to be found in Wall Street and the City of London. They have not won their bet but the game is far from over. Many things have happened since the outbreak of the crisis. The unthinkable has indeed happened in many ways: scal consolidation measures and structural reforms have been applied in the most vulnerable countries, together with big bail-outs that dare not speak their name; binding coordination procedures of national policies are now enshrined in a new treaty; large renancing of private banks has been made through the European Central Bank (ECB) and direct purchases of sovereign bonds in secondary markets; and the setting up of a big crisis mechanism that was not supposed to be there because of the fear of moral hazard. The unthinkable has therefore happened, but at every stage markets reached the conclusion that it was not enough. Political responses to the crisis have generally been slow, inadequate and poorly handled. Some critics go further: they argue that the overall strategy is awed. I shall attempt to draw below some general, albeit preliminary, lessons from the crisis. Seven is a number with allegedly mystic or sacred powers, and this is the one I shall use here. Who knows, we may in the end have to resort to those powers in order to save the euro! The crisis in Europe manifests itself mainly as a crisis of the euro area. Thus, strictly speaking, it concerns only 17 out of the 27 members of the EU. But we all know that the rest, in the non-euro area of the EU and much beyond, are indirectly affected in many different ways. The crisis of the euro has tended to monopolize interest and attention, thus turning the subsystem of the euro into the core of EU activity. This is unlikely to change any time soon and it is bound to have broader implications for the European political system. This is the rst and rather straightforward lesson. A further step in the direction of an institutionalized two-tier Europe was taken with the signing of the treaty on stability, coordination and governance in March 2012, from which the UK and the Czech Republic have chosen to abstain. Democracies and nancial markets do not operate on the same clock. This lack of synchronization becomes highly destabilizing in a world where markets set the pace. This has become glaringly obvious during the crisis, especially in its European manifestation where the political clock usually operates at the speed of the slowest of democratic polities in a multinational system. A distinction needs to be drawn between democratically regulated markets and market-driven democracies. Many
years ago, Susan Strange coined the term casino capitalism and warned us of the likely consequences (Susan Strange, 1986). Critics of a system that clearly grew out of control follow up the analysis with recommendations for stricter regulation and supervision of nancial markets. We surely have not seen the end of this story. To be fair, Western governments have themselves to blame not only for the excessive deregulation of nancial markets but also for their increased vulnerability to the vicissitudes of those markets through their growing dependence on borrowing. There are two sides to the story. The second and more controversial lesson is about the tense relationship between democracies and nancial markets in todays world, which needs to be recast in a more solid mould. The crisis began a few years ago with runs on banks, followed by runs on states and back again. Large bank exposure and rising sovereign debt have been operating like communicating vessels across national borders. In other words, there is a close interdependence between the banking and the sovereign debt crises in Europe.2 They therefore need to be tackled jointly in the transition to the post-crisis world. And since this is a European problem that clearly goes beyond national borders it also requires a European solution. This is, however, easier said than done. One reason for the difculties encountered has been growing economic divergence in Europe as a result of the crisis. Different countries have been affected in different ways and in different times. Most of the countries in the core and the eastern periphery were hit rst. They were followed by countries of the southern periphery, plus Ireland. Economic reality and policy perceptions in Greece, Portugal or Spain continue today to be very different from those prevailing in Germany, Austria or Finland. Regional integration as a big convergence machine between the core and the periphery of Europe has now gone into reverse gear. This is the collateral damage of the crisis. If it were to continue, it would risk having broader consequences for the European project. Political leaders need to cope with growing dissatisfaction in their societies in some of them it goes one step further and turns into anger and social unrest. Populism is on the rise and so are anti-establishment parties. They offer simple solutions for complex, yet real, problems, they love scapegoats and they carry a strong nationalist message with often anti-European and generally xenophobic undertones (Auer, 2010; Kaldor and Selchow, 2012; Della Porta and Caiani, 2011; Mny and Surel, 2002). They have a strong presence in several countries in Europe, even in what used to be social democratic Scandinavia, long perceived as being immune to that kind of problem. And some are pretty ugly. A host of factors lies behind the populist phenomenon, of different scale and combinations across European
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countries: large immigration, widening income disparities, growing uncertainty in times of rapid change and dissatisfaction with the Golden Straightjacket (Friedman, 1999) imposed on societies when Left and Right converged. It is now getting worse as the feeling of unfairness spreads in our societies, especially among the young, while the old economic orthodoxy is shaking. Unhappiness turns into social unrest in those countries where the problems are more acute, the culture of social protest is stronger and the institutions weaker. Financial markets remain as imperfect as they have always been, while national governments are increasingly constrained by public opinion in seeking solutions that require a strong European (and global) component for problems that have long ceased to be conned within national boundaries. It is like trying to navigate between Scylla and Charybdis. We know from Greek mythology that this required enormous skill and courage, qualities that are not always in ample supply in todays Europe although perhaps this has more to do with structural factors than personalities. The combination of economic divergence and populism makes Europe-wide responses to the crisis very difcult indeed. This is the third lesson. As might have been expected, it has been extremely difcult to agree about the distribution of the burden of adjustment to a world after the crisis, especially because much of it crosses national borders. This is the fourth lesson and perhaps the most difcult problem of all. Many observers agree that a comprehensive solution to the crisis of the euro has to include a European guarantee for bank deposits, recapitalization and restructuring of European banks coupled with joint supervision, rescue operations and or the orderly restructuring of debt, large interventions in nancial markets, as well as continued scal consolidation and structural reforms in individual countries together with more effective common rules. This is a very long and difcult list indeed, involving large sums of money. Another manifestation of the distributional problem relates to surplus versus decit countries, which is in turn connected to the overall macroeconomic stance of the EU as a sum of national macroeconomic policies. It has proved an impossible problem to solve on the basis of generally agreed principles and rules, despite repeated efforts, mainly by the French, to ensure some symmetry between the two sides (Tsoukalis, 1997). It was recognized as such in the early stages of the long journey leading to monetary union: an old problem rst acknowledged by Keynes during the Bretton Woods negotiations. At the time, the Americans represented the surplus countries, although not for very long. We have learned from experience that when the rules are not there, the will of the strongest usually prevails. And then there is the old problem of implementation. We all know about the gap between decision and
delivery in the EU, which is in turn closely related to subsidiarity and the highly decentralized structure of the European political system. Having reached the edge of the precipice, European leaders have taken decisions that would have been completely unthinkable only a short time ago. We will end up with stronger and more effective governance structures, including new rules and institutions for the regulation of nancial markets, closer and more binding coordination of national economic policies with a much broader agenda, backed up with the threat of (more or less) automatic sanctions and more effective surveillance procedures. Moreover, there will be greater emphasis on structural reform aimed at restoring the competitiveness of national economies that have been lagging behind, as well as a mechanism for crisis management on a permanent basis with large sums of money. The European edice will surely look very different as a result of the crisis, assuming it does not fall apart in the meantime.3 The optimists point to the high stakes and remind us that when it comes to the crunch European leaders nally take the necessary decisions in order to save the integration project the euro being undoubtedly a key part of it. The new governance structures will have to work, they add, and remaining gaps will be lled as we go along. The pessimists, however, point to the enormity of the challenge ahead and the big questions that still remain unanswered. Coordination of policies is much easier said than implemented and the political basis on which it rests remains shaky. How will national parliaments react, especially those of the bigger countries (we are surely all equal, but some are still more equal than others), when they begin to receive binding instructions from Brussels and or their partners? Even more so, what will national political leaders of the euro area make of the collective ownership they have taken of new and much more demanding forms of European economic governance? The experience with the old Lisbon Agenda is hardly promising. Admittedly, it was the open method of coordination then and hence not binding. Will it be very different from now on, with provisions and constraints legally enshrined? Or, is it again the triumph of hope over experience? The EU system of governance has become more intergovernmental in many ways. Germany and France have led the way opting for intergovernmental procedures as a way of ensuring a better and more direct control of common European actions during the crisis. Bail-outs, as well as the setting up, funding and operation of the EFSF, have been decided and implemented on an intergovernmental basis. This turned decisions and their implementation hostage to national politics in each one of the countries concerned and hence subject to the speed and the whims of the slowest. This is the fth les-
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son. While waiting for more permanent structures to be set up in the context of a closer political union, the ECB as the European federal institution par excellence has been forced to assume ever-growing responsibilities, thus stretching the limits of its own terms of reference and political legitimacy as well. When some national politicians call for political union in Europe, the seasoned observer may be forgiven for thinking of the famous phrase God give me virtue, but not yet. There are deep-seated differences regarding the appropriate economic strategy to be adopted (WrenLewis, 2012). One side argues that the bursting of the bubble follows many years of high indebtedness, both private and public, with the mix varying from country to country. There is now need for deleveraging and scal consolidation accompanied by structural reforms, which should help to bring countries back to economic health and sustainability. This sounds like a plausible argument, with the qualication that what is good for one country may not necessarily be good for all countries at the same time. This is a familiar distinction that Keynes highlighted many years back. The counterargument therefore runs as follows: at a time when the private sector is trying to reduce its debt, any attempt by governments in most countries to do the same through budgetary contraction risks sending the European (and or the global) economy down a deationary spiral. The policy conclusion that follows from this argument is that countries with a margin of manoeuvre should boost domestic demand (and accept a higher rate of ination?) while for those less fortunate or careless, scal consolidation should not be excessively frontloaded. A growing number of analysts see the ECB as the crucial lender of last resort as market condence sinks. But all this is still anathema to many Germans. Provisions for closer coordination of national economic policies do not automatically resolve the problem of who actually sets the priorities for the euro area (and the EU as a whole). Germany has emerged, beyond any doubt, as the indispensable country inside the euro area, the lender of last resort in many ways. Thus, much of the politics of choosing the way to go about dealing with the crisis has been played out in Berlin, not Brussels. German political leaders have struggled to keep their French counterparts along with them, usually on their own terms. The Franco-German leadership (or hegemony) will be tested as economic differences between the two countries grow and so do their respective perceptions and policy preferences, especially after the election of President Hollande in France. Finding a working compromise between the two countries will be absolutely crucial for the survival of the euro. The German example of sound public nances, wage moderation and structural reform should be imitated by other countries but up to a point. What may be good
medicine in the long term and under normal economic conditions now risks killing the patient by throwing the economy into deep recession. When all economies in Europe do the same, the effect will be cumulative. And there is another aw with the argument that everybody should do as the Germans do: if we all strive for current account surpluses, countries outside the euro area will have to provide the corresponding decits. The USA is unlikely to accommodate. Do we have a better chance with China? There is a political counterpart to the economic risks associated with the prevalent strategy. In the years before the crisis the EU had become increasingly identied with economic liberalization, hence running the risk of being delegitimized in the eyes of those who found themselves on the losing side of economic change. Parties of the centre-left, in particular, had become very much aware of this problem. Now, the perception is changing. In the North, the spectre of a European transfer union is haunting people: the bail-out of the bankrupt economies of some of their partners requires ever-increasing amounts of nancial assistance and guarantees provided by Germany, Austria, The Netherlands and Finland, among others; and their citizens (and taxpayers) are manifestly unhappy, especially since the benets accruing to them through participation in the euro have rarely been explained properly by national politicians. On the receiving end of guarantees and transfers, which are in effect interest-bearing loans as long as they are being serviced, there are people who go through a long and painful process of budgetary consolidation and who increasingly perceive the EU as the policeman of austerity or simply a convenient scapegoat. The combination of the spectre of transfer union for some and the policeman of austerity for others could be political suicide for Europe. The crisis is turning European integration into a zero-sum or even negative sum game. This is the sixth lesson. Luckily, the seventh lesson is more encouraging. The crisis has generated a lively European debate about what needs to be done, which is much more than the usual mere juxtaposition of national debates. A good part of the European policy debate has been conducted in the pages of the Financial Times and other leading European and international newspapers. There has also been intense debate in Germany about ways of dealing with the crisis, as well as about the pros and cons of bail-outs (a dirty word in German). As would have been expected in any country, the arguments ranged all the way from the sophisticated to the vulgar, from the European to the narrow nationalist. Many spoke of punishment, fewer of forgiveness. A large number of economists argue against current policies and bail-outs and some think the euro is not worth saving, while others believe that more decisive action is needed. The German Social Democrats
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have taken a big risk by adopting a strong stance in favour of deeper European integration as a way out of the crisis. We will know the verdict of German citizens at the next election scheduled to take place in autumn 2013.4 What is the price that Germany and others are prepared to pay for saving the euro? How much adjustment is the European South willing or able to make? What is the appropriate mix for European macroeconomic policy? Should the ECB behave like a normal central bank, and should private banks be rescued or some of them at least be allowed to go under? And who stands to lose the most from an eventual disintegration? These are hot political issues that are now being aired in public. In this debate, Germans are not just pitted against Greeks or Italians, hard working Northerners against lazy Southerners. Alliances are also being formed across national borders. There are trade-offs between taxpayers and bank stakeholders, between those with safe and well paid jobs and others joining the ever longer queues of unemployed in Europe. Not surprisingly, this increasingly European debate has been all-inclusive, from the populist variety often degenerating into nasty exchanges of national stereotypes to well-informed exchanges among economists and practitioners, and the more or less visionary speeches of a few political leaders who dare cross the threshold of the pedantic. There have been many more manifestations of a European public forum as a result of the crisis. With the crisis, the EMU has become a make or break issue for Europe. We have clearly reached a new integration frontier and we are not at all sure what lies ahead. The measures required to deal comprehensively with the crisis form a tall order. The banking and sovereign debt problems need to be dealt with jointly and half measures are unlikely to stabilize markets that exhibit simultaneously signs of panic and the behaviour of carnivores that smell blood. The nancial repower required will be very big and so will be the ensuing risks for creditors, while national adjustment programmes will be stresstesting political stability in the debtor countries, the exibility of their economy as well as their social endurance. A new balance will need to be found between stabilization and growth. The survival of EMU requires a new political bargain among member countries, as well as more effective common institutions and rules to back it up. The stakes are very high indeed. The crisis is acting as a powerful catalyst for further integration in Europe. Admittedly, the appetite is not there. But necessity has often been a more powerful driver than good intentions or even desire. The alternative facing us today is disintegration at a very high cost; it is already gradually happening in the market. But what if there are real mists in the euro area? Some people point to Greece, having in
mind its admittedly slow progress of structural reform, although they usually underestimate the huge and painful effort already made in that country in terms of scal consolidation and lower wages and salaries. The fear of a domino effect is also present in most peoples mind. And what if the economic measures required to deal comprehensively with the crisis prove to be beyond the political capacity of member states to deliver?
End of an era?
While trying to manage the crisis we should not lose sight of the broader picture. The crisis that began in 2008, and has already gone through different phases, arguably marks the end of an era. It was an era of globalization that created many new opportunities for growth while permitting a shift of production and economic power of an unprecedented scale from the West to the East, together with the integration of hundreds of millions of people in the world capitalist system, people who had been living until recently in subsistence conditions. It was an era of major innovations and rapid change. But it was also one characterized by growing inequalities and the squeeze of the middle class in the West, especially in the USA and the UK where the nance-dominated model of capitalism was the most developed. And last but not least, it was an era marked by two very big market failures which led to the bursting of the nancial bubble and to global warming. Growing consumption had been largely paid through rising debt and with deleterious effects on the global environment. If this is indeed the end of an era, we are not sure as yet what will succeed it. We nd ourselves in an intermediate stage when the old is dying and the new has not yet been born. According to Gramsci (2010), this is precisely the time of monsters. In todays world, the monsters are taking the form of populism. Populism is trying to ll the vacuum created by the collapse of neoliberal ideology. And this has major implications for national as well as European politics and policy-making. It would be dangerously naive to think that the European dimension of the crisis can be dealt with independently from the rest. Many people pretend, and have good reasons for doing so, that the crisis was an unfortunate accident of the kind that can happen all the time (stuff happens, as Donald Rumsfeld would have said). We should therefore deal with the damage as well as we can and go back to life as usual, they say. After all, there are vested interests to defend as well as intellectual idleness and well-worn habits to contend with. Crises provide opportunities, including opportunities to change the terms of the debate. Surely, our European economies need to become more dynamic the eco-
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nomic prospects are not good and the demographic trends are even worse. Yet while doing so we need to rethink our model of economic development: redening the boundaries of nancial markets, proposing policies that are more environmentally friendly and more socially inclusive, and with more emphasis on qualitative growth.5 We need to renegotiate the social contract by catering more for the interests of the economically weak, as well as the interests of the younger generations who are the main victims of the crisis analysts already refer to the lost generation in some countries. European welfare systems surely need to be reformed but in order to better preserve their essential features in changing conditions. After all, it is not the European social model in its different national incarnations that has brought Europe close to bankruptcy but rather a particular variety of capitalism that had been advertised for years as the only way forward. And we need to revise our ways of managing European (and global) interdependence, while deciding how far we want to go in trying to defend jointly common interests and values in a world where size still matters a great deal (see, among others, Tsoukalis et al., 2009). Many of the old style sovereigntists apparently gathering strength as a result of the crisis seem to inhabit a world of their own. It would be a dangerous world to go back to and this needs to be clearly explained. Europe is better qualied than other parts of the world to adopt such new ways of thinking and eventually even to provide a model for others to follow. It has democratic traditions with strong roots, deeply ingrained notions of social justice and environmental concern, a long history of a mixed economy and a healthy scepticism (of the large majority, until recently at least) of so many -isms, including crude forms of nationalism, a scepticism earned through bitter experience. Elsewhere, I have tried to translate the more widely accepted etymological explanation of the word Europe, meaning broad eyes in Greek, into a rallying cry for Europe the broad minded (Tsoukalis, 2011). For a long time, European integration had been like a car moving uphill: the French usually provided the driver, the Commission the map, the Germans paid for the petrol and the British oiled the brakes. In more recent years it has looked like a car without a driver, in which the map was replaced by a global positioning system (GPS) going on and off, where the Poles insisted on taking out an insurance policy with God, and nobody wanted to pay for the petrol (some clearly cheated), while those inside had an argument about how many more could t into the car. In order to avoid a crash we desperately need a capable driver and some people believe she will have to be German, at least for the next part of the journey. We also need a GPS that functions, a sense of direction, a minimum of order inside the car and an agreement
about how to share the bill. It is crucial that European integration turns once again into a positive sum game, which has not been for some time. The European political scene has become more pluralistic, with a wide range of opinions and interests. The interplay of national interests has always determined the course of European integration, the famous Community method notwithstanding. But as integration deepened and widened, national interest became more relative as a concept, and more directly shaped by partisan preferences. Other interests have begun to raise their pretty or ugly heads. There is no single European narrative (see Plabay et al., 2010), as constructivists would have said. If it ever existed, it has surely suffered several deaths as a result of successive rounds of widening and deepening. And that is not necessarily a bad thing, just another sign of the European political system becoming more pluralistic and hence more mature. Europe needs political oxygen to breathe. Otherwise, it may suffocate or die from boredom.6 True, interminable council meetings conducted through interpreters in search of the long-winded compromise is not the stuff that is likely to attract the old-style politician full of adrenalin. The nature of European politics is indeed different but no less real. It often looks dull and introverted. There is something stale in the European world of Brussels. But we also know from experience that a few personalities can make a big difference. The crisis may help to bring them forward. Politics is about choices and choices need to be clearly articulated and explained to citizens. In our European countries today political choices must have a strong European component. Our security and prosperity depend on it. More integration is not good for its own sake. And if it were so in the past, it is no longer: there are not enough buyers now. In some policy areas, however, Europe will require more not less coordination and integration. Financial markets are a prominent example because interdependence in the market place has already gone very far. Interdependence needs joint management and this has to be explained to people: there is an educational role for politicians as well. The same applies to the governance of the euro and also parts of the internal market. Can we seriously argue, for example, that in a single market with the free movement of goods and capital there is no need for coordination in the area of taxation, including corporate taxes? Unless we imply that taxes do not matter or that free riding should be elevated into a high principle of the integration project. Nobody is seriously talking about harmonized taxes, only for minimum rates that would put a oor underneath what now looks like a race to the bottom.7 Solidarity should remain an integral part of the overall European bargain. But it needs to be explained and defended against all kinds of populists and narrow
49
nationalists. It also needs to be connected to common projects and common goods, in which most, if not all, see tangible benets for themselves; and it has to be subject to conditions and rules.8 No free lunch, in other words. This surely applies to the governance of the euro, and it should increasingly apply to immigration and free internal borders. Solidarity does not enjoy ample space in our increasingly atomized societies and this is more true across borders. We shall need to rediscover the meaning of society and the value of public goods in the years to come, thus partly reversing a trend that has lasted for long and has gone too far.9 None of the above is value free. But political economy in its classical form was not value free either. We have been invited to present and debate future options for Europe that go beyond conventional wisdoms, thus following the example that Ralf Dahrendorf had himself set as an author and political animal. This is my own modest contribution to the debate. With reference to What Kind of Europe?, Ralf paid me a huge compliment when he wrote: it restored my belief that it is possible to be proEuropean and analytical, indeed critical. I have tried to remain loyal to that objective.
6.
7.
8.
9.
the same, or even similar, policy conclusions. See, for example, two excellent works by Hutton (2010), with an emphasis on inequality, and Kaletsky (2010), who criticizes excessive faith in the efciency of markets. On qualitative growth, see the report submitted to former President Sarkozy by a group of eminent, yet unorthodox, economists, including Stiglitz et al. (2009). Habermas (2011) has written a plea for a European constitution as a democratic response to the crisis. For a more historical approach, see Luuk Van Middelaar (2012). Politicization in the EU remains a controversial subject: Hix (2008) has strongly argued in favour, and I have also done so (Tsoukalis, 2005, 2007), while Moravcsik (2006) thinks otherwise. This is an argument put forward by Mario Monti, now Prime Minister of Italy, in his report to the President of the European Commission (Monti, 2010), as part of a new European bargain for the relaunching of the internal market programme. Jacques Delors has repeatedly and convincingly argued the case for solidarity as a key part of the European bargain and so has Helmut Schmidt. In Margaret Thatchers words: there is no such thing as society, there are only individual men and women, and there are families (Thatcher, 1987).
References
Auer, S. (2010) New Europe, Journal of Common Market Studies, 48 (5), pp. 11631184. Buiter, W., Rahbari, E., Michels, J and Giani, G.(2011) The Debt of Nations, Citigroup Global Markets, 7 January. Darvas, Z., Gouardo, C., Pisani-Ferry, J. and Sapir, A. (2011) A Comprehensive Approach to the Euro-Area Debt Crisis, Bruegel Policy Brief, 2 (February). Available at: http://www.bruegel.org/ publications/publication-detail/publication/499-a-comprehensiveapproach-to-the-euro-area-crisis-background-calculations/ [Accessed 23 September 2012]. De Grauwe, P. (2011) Governance of a Fragile Eurozone, CEPS Working Document, (May). Brussels: Centre for European Policy Studies. Della Porta, D. and Caiani, M. (2011), Social Movements and Europeanization. Oxford: Oxford University Press. Frankfurter Allgemeine Zeitung (2012) Der Offene Brief der Oekonomen im Wortlaut, 5 July. Featherstone, K. and Radaelli, C.M. (eds) (2003) The Politics of Europeanization. Oxford: Oxford University Press. Friedman, T. (1999) The Lexus and the Olive Tree. London: Harper Collins. Gramsci, A. (2010) Prison Notebooks. New York: Columbia University Press. Gurot, U. and Leonard, M. (2011) The New German Question: How Europe Can Get the Germany It Needs, ECFR Policy Brief, (May). Madrid: European Council on Foreign Relations, Habermas, J. (2011) Zur Verfassung Europas, Ein Essay. Berlin: Suhrkamp Verlag. Habermas, J., Bonger, P. and Nida-Rmelin, J. (2012) Fr einen Kurswechsel in der Europapolitik, Frankfurter Allgemeine Zeitung, 3 August. Hemerijck, A., Knapen, B. and van Doorne, E. (eds) (2009) Aftershocks: Economic Crisis and Institutional Choice. Amsterdam: Amsterdam University Press. Hix, S. (2008) Whats Wrong with the European Union and How to Fix It. Cambridge: Polity. Hutton, W. (2010) Them and Us: Politics Greed and Inequality Why We Need a Fair Society. New York: Little, Brown.
Notes
1. Before the crisis, Padoa-Schioppa (2007) wrote that European nancial supervision was neither super, nor did it have any vision. In What Kind of Europe? (Tsoukalis, 2005 [2003]). I wrote about the inherent instability of nancial markets, the risk of systemic crisis in a deregulated environment, and raised the question about who will pay the costs, when the crisis does eventually break out: the nance industry, consumers, or taxpayers? Others have expressed similar views, and more cogently: an old-fashioned minority allegedly unable to understand, among other things, what a huge difference sophisticated computer models made in the functioning of nancial markets. Now we all do, although having drawn very different conclusions from the ones propagated by the economic orthodoxy at the time. In a remarkable piece of self-criticism, the independent evaluation ofce of the International Monetary Fund (Independent Evaluation Ofce of the International Monetary Fund, 2011) wrote about the group think, intellectual capture and incomplete analytical approaches behind policies that had led to the crisis. 2. See also Buiter et al. (2011), Darvas et al. (2011) and Kopf (2011). For an extremely lucid and readable story of the development of the crisis of the euro, see also Pisani-Ferry (2011). 3. There is a rapidly growing literature on the new European economic governance. For a short and critical article on the subject, see De Grauwe (2011). 4. See the letter signed by 172 economists and published in Frankfurter Allgemeine Zeitung (2012), as well as Sarrazin (2012) and Habermas et al. (2012) as representative examples of very different views. They often go beyond narrow economic arguments, presenting alternative visions of Europe. See also Gurot and Leonard (2011); Paterson (2011); and Schwarzer (2012). 5. Today critiques of the old order do not always stem from the same analytical or ideological basis, nor do they end up with
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Independent Evaluation Ofce of the International Monetary Fund (2011) IMF Performance in the Run-Up to the Financial and Economic Crisis: IMF Surveillance in 200407, IEO Evaluation Report, (February). Washington, DC: IEO. Kaldor, M. and Selchow, S. (2012) The Bubbling Up of Subterranean Politics in Europe. Civil Society and Human Security Research Unit, London: LSE. Kaletsky, A. (2010) Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis. London: Bloomsbury. Kopf, C. (2011) Restoring Financial Stability in the Euro Area. CEPS Policy Brief 237, (March), Brussels: Centre for European Policy Studies. Mny, Y. and Surel, Y. (eds.) (2002), Democracies and the Populist Challenge, Basingstoke: Palgrave. Monti, M. (2010) A New Strategy for the Single Market: Report to the President of the European Commission. Available at: http://ec.europa.eu/bepa/pdf/monti_report_nal_10_05_2010_en.pdf. [Accessed 1 November 2012]. Moravcsik, A. (2006) What Can We Learn from the Collapse of the European Constitutional Project? Politische Vierteljahresschrift, 47 (2), pp. 219241. Padoa-Schioppa, T. (2007) Europe Needs a Single Financial Rulebook, Financial Times, 11 December. Paterson, W. (2011) The Reluctant Hegemon, Journal of Common Market Studies, 49, S1, 5775. DOI: 10.1111/j.1468-5965.2011.02184. Plabay, J., Nicola idis, K. and Lacroix, J. (2010) Echoes and Polyphony: In Praise of Europes Narrative Diversity, in J. Lacroix and K. Nicoladis (eds) European Stories: Intellectual Debates on Europe in National Contexts, Oxford: Oxford University Press, pp. 334 362. Pisani-Ferry, J. (2011) Le rveil des dmons : La crise de leuro et comment nous en sortir. Paris: Fayard. Roubini, N. and Mihm, S. (2010) Crisis Economics: A Crash Course in the Future of Finance. New York: Penguin. Sarrazin, T. (2012) Europa braucht den Euro nicht: Wie uns politisches Wunschdenken in die Krise gefhrt hat. Munich: Deutsche Verlags-Anstalt. Schwarzer, D. (2102) The Political Economy of Germany in the Sovereign Debt Crisis, in W.R. Cline and G. B Wolff (eds) Resolving the European Debt Crisis. Washington, DC: Peterson Institute for International Economics, pp. 143161. Stiglitz, J.E., Sen, A. and Fitoussi, J-P. (2009) Report by the Commission on the Measurement of Economic Performance and Social Pro-
gress, available at: http://www.stiglitz-sen-toussi.fr/documents/ rapport_anglais.pdf. [Accessed 23 September 2012]. Strange, S. (1986) Casino Capitalism. Oxford: Basil Blackwell. Thatcher, M. (1987) Interview for Womans Own Magazine, 31 October 1987, available at: http://www.margaretthatcher.org/document/ 106689. [Accessed 1 November 2012]. Tsoukalis, L. (1997) The New European Economy Revisited. Oxford: Oxford University Press. Tsoukalis, L. (2005 [2003]) What Kind of Europe? Oxford: Oxford University Press. Tsoukalis, L. (2007) Une Europe plus politique, Raison Publique 7, Oct., pp. 1319. Tsoukalis, L. (2011) The Delphic Oracle on Europe, in L. Tsoukalis and J.A. Emmanouilidis (eds) The Delphic Oracle on Europe: Is There a Future for the European Union? Oxford: Oxford University Press, pp. 205222. Tsoukalis, L. (2012) Greece in the Euro Area: Odd Man Out, Or Precursor of Things to Come? in W.R. Cline and G.B. Wolff (eds), Resolving the European Debt Crisis Washington, DC: Peterson Institute for International Economics, pp. 1935. Tsoukalis, L., Cramme, A. and Liddle, R. (2009) An EU Fit for Purpose in the Global Age. London: Policy Network. Van Middelaar, L. (2012) Le passage lEurope: Histoire dun commencement. Paris: Gallimard. Wren-Lewis, S. (2012) The Return of Schools of Thought in Macroeconomics. Available at http://www.voxeu.org/article/returnschools-thought-macroeconomics [Accessed 23 September 2012].
Author Information
Loukas Tsoukalis is Professor of European Integration at the University of Athens and President of the Hellenic Foundation for European and Foreign Policy (ELIAMEP). He has taught at Oxford, LSE, Sciences Po, the College of Europe in Bruges and the European University Institute in Florence. He is the former Special Adviser to the President of the European Commission, and author of many books, including The New European Economy (Oxford University Press, 1997, several editions) and What Kind of Europe? (Oxford University Press, 2005 [2003]).
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Contribution: The Financial and Euro Crisis, 2011 Dahrendorf Symposium in Berlin
Contribution
Sylvie Goulard
Member of the European Parliament (Alliance of Liberals and Democrats for Europe)
I am very happy to be here, because it is always a pleasure to be in Berlin, even if I must say that it is very frustrating for me to speak English in Berlin. But I will try. If I may, I would like just to say one word: we should not just say that we have to save the euro. The euro is much more than the euro, and I do not believe that it is sufcient simply to say: Well, we have to save the euro, because if we dont, chaos will ensue. If I remember well, the Unwort des Jahres, the worst word of the year, last year in Germany was alternativlos, there is no alternative. I consider it very important to take the time even in such a crisis to think a little bit about why we are here and what we want to do together, all together, north and south, the Germans, the Greeks, the Italians and all Europeans from all countries, both inside and outside the eurozone. In the eurozone we have made a clear common choice, which is to share sovereignty in monetary and economic matters. Nevertheless, sharing sovereignty on these issues means sharing sovereignty on the main political issues of our democratic life. I do not think that my life and my childrens lives will be better if we remain inside the small national French box. I honestly believe that I have a lot to learn from the others and I do not see it as an attack on my sovereignty; I consider myself lucky that the continent in which I live has tried to overcome divisions. To answer your questions more precisely, in my opinion the rst priority in Europe, at least in the eurozone, is to create a democracy at the right level. I am convinced that many citizens are ready to make sacrices or to change their behaviour, or to adapt, if they have the feeling that they do inuence the way decisions are made or at least are able to express a preference. They are Conservative, they are Green, they are Liberal, they are Socialists and they are puzzled when they discover that a body called the European Council makes decisions without having a mandate from all Europeans upon whom their policies will have an impact and without being accountable, in public, for what they do. If we have a place where we discuss together, and that after a public debate we consider that a decision has to be taken be it to save money or to ght against tax evasion or whatever the decision is if then, all representatives returns to their country and are able to say: Well, we have decided together. I was there and there were representatives of all the countries concerned, and a decision was taken in public, and we know why they have decided or at least we can try to understand, if we are interested, then we will have changed the face of the euro. My feeling is that the rest of the world will never believe in the euro if it does not evolve into a long-lasting project, if Europe, which is based on democratic values, takes decisions without respecting democracy. I do not have the blueprint: no one does. Our duty is to elaborate a new democratic system after in-depth analysis of the causes of the crisis a systemic political crisis, not just a nancial one and after launching a public debate. Whatever we decide, we have to decide it together, in a crossborder and transparent way. With 330 million people in the eurozone we should rstly agree that no referendum will be held in any member state. And the Bundestag cannot be given a veto right on European issues. We have to take this group of people, be it one nation or not, as a group of people with a common interest and capable of discussing issues, despite all our diversity. And as you can hear: you can try to convince Germans, even in broken English, I hope.
52
Europes Stratied Social Space: Diagnosis and Remedies

Helmut K Anheier and Mariella Falkenhain
Research Article
Abstract
For some 60 years now, various measures have been introduced to bring Europeans together as citizens, based on the idea that increased cross-border encounters would create familiarity, generate a sense of community, facilitate economic activities and ultimately bring about a shared identity, however fragile at rst. Town twinning and numerous exchange and mobility programmes of many kinds are cases in point. These programmes typically were anchored in the municipal, educational and vocational realms. While these mechanisms functioned well, some seem to be losing their innovative capacity; yet all reveal a structural middle-class bias. On the whole they systematically exclude those groups among which the rise of Euro-scepticism and support for anti-European political parties is the strongest, particularly the less well-educated and the new precariat. With the scal crises reducing the capacity of many EU member states to support the European Project nancially, what mechanisms or policy instruments could, in the sense of social engineering, strengthen social bonds across borders and re-energise Europes social space?
Policy Implications
Mobility programmes for tertiary education and vocational training regularly do not reach lower social status groups. They should be made more inclusive by using targeted recruitment campaigns and monetary incentives. Teachers, social workers in youth organisations, community activists or coaches in sports clubs can be effective in reaching out to youths. The success of EU mobility programmes is dependent on such social mediators. Professions and institutions with high social outreach should themselves become targets of training and exchange programmes. Town twinning has become overly institutionalised, relying heavily on established professional and local elites. Town twinning projects need to open up socially and involve a greater variety of participants, in terms of social class, ethnic background and age. Europe needs to embark on an ambitious and large-scale volunteer programme. Such a programme should be incentivised to include participants of the new precariat, be linked to qualication schemes and become part of a sustained campaign to help build Europe from below.
Reconciliation as a social engineering project

In the aftermath of World War II Europes future social space, like its reconstructed economy, was to make divisive, violence-prone and unmanageable conicts among nations less likely, in particular the wars that had destroyed much of the continent twice in little more than two generations. Somewhat simplied, Europes integration as a social space was intended to bring about more Europeanised civil societies in terms of connections, identities and value orientations. The idea was to make Europeans and their civil societies more connected across borders, to make citizens identify more as Europeans than solely or mainly as citizens of their countries and to instill shared values and a sense of common destination in future generations. Such changes do not come about by themselves. Like the political and economic reconstruction of Europe, institutions and organisational infrastructure are required to make them happen. Since the 1950s, based on an implicit theory of change, and without a master plan as an overarching vision in place to guide it, a number of mechanisms were developed and established to help Europes populations overcome the mistrust and divisions of the past and to move closer to a shared social space.
Europes Stratied Social Space
53
A prominent example of such mechanisms is the town twinning movement. Ofcial and organised twinning projects, as we know them today, developed around Franco-German reconciliation efforts in the aftermath of World War II. Twinning projects emerged at the local level, mainly facilitated by local authorities and civil society organisations, as early as 1950 (Vion, 2002; Zelinsky, 1991) and their growth accelerated, particularly in the 1960s. The multiplication of twinning links becomes especially evident in the Franco-German case. According to the databank of municipal partnerships by the German Association of the Council of European Municipalities and Regions (n.d.) they rose from 49 in the 1950s to 2036 in 2011. Importantly, the twinning movement developed mainly as a bottom-up process that relied on local, reciprocal initiatives in both countries. Other mechanisms were put in place by European foundations and bilateral institutions (such as the Franco-German or German-Polish Youth Ofces). They set up exchange programmes that largely mirror the logic of reciprocity that is also found in town twinning. Still other instruments are those designed and implemented by the European Union (EU) in a top-down process. Under the auspices of the European Commission, numerous programmes aim to foster cross-border interaction among Europeans, most notably in the educational realm. Although these mechanisms differ in agency and approach, they all rely on the power of networks among people and organisations and the promise that engineered contacts generate greater familiarity, mutual awareness and understanding among Europeans and, ultimately, construct a social space needed for Europe to develop as a connected, integrated system of civil society and with high levels of social, economic and cultural capital across borders. Travel, exchange and mutual learning served as the three pillars. This reasoning, presented in Figure 1, is well known among sociologists as bridging social capital between adjacent as well as noncontiguous communities (see Putnam, 1993) and can indeed be regarded as the model of social integration in Europe. Of course, the two components in Figure 1 are closely interlinked and while the model initially assumes a unidirectional approach to jump-start the process of generating social capital (Deutsch, 1972), the relationship
will become mutually reinforcing over time (Mau, 2006, p. 27; Roose, 2010, p. 24). Against the background of fundamental political, economic and social changes that have taken place since the end of World War II, we rst explain the need to revisit the basic model of social integration. Secondly, we elaborate on the relationship between social class and European identity before, thirdly, testing the social inclusiveness of two European mobility programmes. With Erasmus and Leonardo da Vinci (LdV), two programmes from the EUs education and training policies have been selected. Targeting a signicant number of young Europeans, their potential contribution for social integration in Europe is specically worth studying. Finally, we reect on how to re-energise a common European social space and make it accessible to a variety of groups.
Rethinking the basic model

Reconciliation was the central motive for encouraging cross-border bonds in the immediate decades after World War II. Notwithstanding the rapid expansion of network ties among Europeans since due to an expanding infrastructure of exchange opportunities, several developments suggest that it is necessary to revisit the way in which cross-border common social spaces became structured. Firstly, tracing the development of the twinning movement over time, we observe decreasing rates of new initiatives between French and German municipalities after a peak in the 1980s and most notably since the start of the new millennium (see Table 1). Similar saturation effects can be observed for twinning agreements between Germany and Great Britain (starting in the 1990s), Italy and Poland. Taking into account that the symbolism of the year 2000 (in marking the new millennium) temporarily produced more new agreements (68 with France, 27 with Great Britain, 22 with Italy and 46 with Poland), the drop in numbers of new twinning partnerships for the entire decade 2000 2009 is striking. As Falkenhain et al. (forthcoming) suggest, the nature of town twinning has changed in recent years. In the case of Germany (Falkenhain et al., forthcoming) and the UK (Gropietsch, 2010, p. 116), the number of traditional town twinnings between two municipalities is decreas-
Figure 1. Basic model.

More opportunities for successful encounters among Europeans from different countries Increased awareness and understanding; ultimately creation of common social spaces and identity
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Table 1. Development of new twinning agreements between Germany and the four most important partner countries* France 19451950 19501959 19601969 19701979 19801989 19901999 20002009 1 49 442 463 511 410 151 Great Britain 9 35 63 109 147 68 35 Italy 0 15 33 40 76 85 74 Poland 0 2 1 15 23 212 149
*The numbers refer to full partnerships, that is, those not limited in terms of time or topic, and based on a formal twinning agreement. Source: German Association of the Council of European Municipalities and Regions
ing whereas new forms of exchanges, often temporary, focused on functional cooperation and with several partner cities, is on the rise. This form of town twinning is complex and requires professional management. EU funding targeting exclusively local authorities (European Commission and Education and Audiovisual, and Culture Executive Agency, 2011) might be conducive to this professionalisation. It may at the same time impede the traditional citizen-led approach of town twinning to evolve. Secondly, the EU has elaborated mechanisms with the aim of encouraging interaction among Europeans (for example, funding for town twinning projects and mobility programmes for different target groups) at a time when growing social divisions in Europe started to challenge the idea of creating a common social space. Indeed, we can observe two overlapping processes in Europe: convergence between countries and divergence within countries. We suggest that Europe is becoming more alike and more unlike at the same time, yet available programmes are ill-equipped to reconcile the two. Let us look at each process in turn and then explore the implications for the kind of social engineering needed to grow Europes social space. Firstly, decreasing disparities between countries are certainly a positive consequence of EU membership. Economic and social differences between northern and southern, western and eastern Europe are less pronounced today than they were 20, let alone 50, years ago (Mau and Bttner, 2008). According to Eurostat data, the average per capita GDP in the EU-15, for instance, declined from 16 per cent above the EU-27 average in 1995 to 10 per cent above the EU-27 average in 2010. This development went in hand with a convergence from the bottom up. The pronounced socioeconomic cleavages, notably between the West and the East that were imported with the 20042007 enlargement have at least been partially bridged, albeit unevenly. Some
Central and Eastern European accession countries have made signicant improvements in the last years (with approximations to the EU-27 average of up to 20 per cent in individual countries), though most still have a per capita GDP of around 40 per cent below the EU-27 average (Eurostat, 2010, 2012). Increasing social inequality in most EU countries is another trend. Within the last two decades inequality of income has increased signicantly in Germany, Finland, Luxembourg and Sweden. Italy, the Netherlands, Denmark, the UK, and the Czech Republic have experienced slight increases. The inequality has remained almost unchanged in Belgium, France and Hungary. Finally, Greece is the only EU country with available data series showing that income inequality declined between the mid-1980s and the late 2000s (OECD, 2011). Developments over time show that incomes in Europe and the entire OECD world became more unequal, particularly during the 1980s OECD, 2011. The late 2000s suggest that inequality levels within the EU are converging (Eurostat, n.d.). Indeed, countries with income inequality below the EU-27 average in 2005, notably Bulgaria, Denmark, Germany, France, Cyprus, Luxembourg and Malta, recorded rising levels of inequality by 2010. High-inequality countries (ranging above the EU-27 average in 2005), such as Estonia, Greece, Italy, Poland and Portugal saw a decline in their gini coefcient until 2005. While the EU-27 average hardly changed in recent years, two groups of countries are moving in opposite directions. The EU-15 became slightly more unequal on average (with a gini coefcient rising from 0.299 to 0.305) between 2005 and 2010, whereas the 12 new member states moved towards more equal income levels in the same time period (that is, a decrease in their gini coefcient from 0.332 to 0.302). In addition to growing levels of social inequality, a large number of EU member states are socially immobile societies. Scholars agree that intergenerational income mobility is especially low in the UK and the southern EU member states, whereas the Nordic countries are relatively mobile (Bjrklund and Jntti, 2009; Corak, 2006; Solon, 2002). Nevertheless, the link between parental and individual earnings has not been eliminated in any European country for which data are available (Corak, 2006, p. 31; OECD, 2010). According to the OECD (2010), intergenerational persistence in education is one of the key factors for wage immobility (see also Raitano and Vona, 2010, p. 8). Persistence in education over generations is particularly high in the southern EU member states but also in Luxembourg and Ireland (OECD, 2010). Growing social inequalities in Europe (that is, increasing income inequality, limited wage mobility and intergenerational persistence of education) not only have implications for Europes economic and political dimenGlobal Policy (2012) 3:Suppl.1
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sion, but also for the process of social integration.1 If both interaction with other Europeans and identication with Europe are inuenced by social status, what are the implications for the basic model of social integration, as suggested in Figure 1?
Europes social space: an elite project?

Findings from several population surveys highlight the positive relationship between socioeconomic factors and identication with supranational or international organisations. On the basis of data from the European Values Study, Arts and Halman (2006, pp. 188, 189) show that men, the young, those with higher income and education and the non-religious identify more easily with larger geographical units, and this is true across all EU member states. This nding is in line with Fligstein (2008) who argues that both the degree of identication with the EU and the extent of interactions with other Europeans are strongly related to socioeconomic factors, especially socioeconomic status (SES). For Fligstein (2008, p. 249), well-educated people and high SES citizens, in particular, have beneted most from EU integration: they interact more frequently with other Europeans and they identify most strongly with the EU (Figure 2). Fligsteins social class argument resonates with that of Gerhards (2010), who suggests that interactions with other Europeans (for example, through communication, travel and friendships) are facilitated by what he labels transnational educational capital (p. 27). This includes knowledge of foreign languages and intercultural competencies of knowing how to interact in different, often diverse social and cultural circumstances. Such capital shapes an individuals capacity to respond to opportunities and challenges that emerge from Europeanisation, ranging from educational options to labour market developments and from cultural appreciation to lifestyle choices. Gerhards and Hans (2012) suggest that access to transnational educational capital is even more unequal than access to general educational capital. For example, they nd that in Germany, transnational educational capital is closely tied to enrolment in secondary education and to stays abroad during secondary education. As the transition from primary to secondary education is already class-biased, and given that stays abroad involve signicant costs and are rarely subsidised, SES becomes an
important determinant for transnational educational capital a nding that has to be put in the context of the social mobility trends cited above to appreciate its full implications on European integration. In sum, Europes social space has become stratied. A cleavage has emerged between The Europeans (especially professionals and other highly mobile and well-educated groups) who are at ease in living and negotiating the new Europe and lower social strata, who seem more likely to be ill-at-ease, even turning to anti-European political parties (Risse 2010). Indeed, Lubbers et al. (2002) nd that in Western Europe the unemployed and lower SES voters are more likely to votes for extreme right-wing parties. Studies investigating the typical voter of the National Front (Neocleous and Startin, 2003) and of the True Finns (Arter, 2010) bear out this pattern. Disillusionment among some population groups, in particular the less educated and the unskilled, the rise of Euro-scepticism and anti-European political parties, and the scal crises that have hit many EU member states have exerted great pressure on the European Project. Against this background, how do mechanisms that seek to strengthen social bonds across borders compare? Do they reect or alleviate social class differences and effects? Mobility in tertiary education: the Erasmus programme The global number of mobile students has dramatically increased, notably in the last decade. It rose by 53 per cent from 1999 to 2007, which is an annual increase of 5.5 per cent (UNESCO, 2009).2 Mobility programmes such as the EUs Erasmus programme have contributed to this growth. The number of participants grew from 3244 in 1987 to 213,266 in 2009. In total, Erasmus has had 2.3 million participants since 1987 (European Commission, 2011a), making it the largest student mobility programme in the world. Beyond the objectives of fostering the territorial mobility of students and improving the quality of education, the Erasmus programme, as part of the EUs education and training policies, also has a social component. The promotion of equity, social cohesion and active citizenship is dened by the EU as an explicit long-term objective in this policy eld (European Commission Education and Training, 2012). Against this background, the question of whether the Erasmus programme is able to respond to the challenges raised by an increasingly stratied social
Figure 2. Fligstein model.

Higher socioeconomic status More interactions with other Europeans Higher identification with the European project
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Figure 3. In and outbound movements of Erasmus participants in 2009 2010.
Source: based on data provided by the European Commission, Education and Training (n.d.)
space becomes especially relevant. The network matrix presented in Figure 3 shows the in and outbound movements of Erasmus participants in 2009 2010.3 Both the position in the network and the visualised strength of ties correspond to a countrys centrality in the network. The countries clustering in the centre (Germany, France, Spain, Italy and the UK) are the most strongly connected in terms of mobile students. In addition to these ve core countries, the matrix shows a group of 11 countries in the semi-periphery, and 16 countries (of which a large majority consists of 2004 and 2007 EU accession countries) in the periphery. Several studies show that Erasmus students typically have privileged backgrounds. Their parents will in most cases have completed tertiary education and have a higher income compared to their non-mobile counterparts (European Commission, 2000; Souto-Otero and McCoshan, 2006, p. 2). Data on mobile students in the UK (King et al., 2010, p. 28) and in Germany (Heublein et al., 2008) conrm the link between parents education and income with participation in Erasmus and with student mobility in general. In the case of Germany, Finger (2012, p. 4) nds that in the context of the Bologna process social inequality in terms of student mobility has increased in the last decade, contrary to what might be expected. Importantly, Souto-Otero (2008) shows that the importance of students socioeconomic status is more pronounced in high GDP countries than in low GDP countries. This nding might reect different motivations
for studying abroad, that is, mobility for consumption for students with a privileged background in higher GDP countries and mobility as investment for students from less privileged backgrounds in lower GDP countries (Souto Otero, 2008, p. 146). Analysing the Erasmus network matrix from this perspective reveals interesting ndings. The core of the network consists of countries with an average per capita GDP of 7.6 per cent above the EU average. The country group in the semi-periphery has a per capita GDP of almost 4 per cent above the EU27 average. Finally, the periphery can be divided in an established small country periphery (ranging at 87.6 per cent above the EU average) and a true periphery with a GDP per capita of almost 39 per cent below the EU average (Eurostat, 2012). Building on Souto-Oteros ndings, the Erasmus network is characterised by two different dynamics. Since Erasmus tends to be an incentive for low SES students from low GDP countries, we can, rstly, observe a social conveyer belt from the periphery to the core. Here, for the lower GDP countries, SES does not play the selective role it plays in high GDP countries. Secondly, in high GDP countries clustering in the centre of the Erasmus network but also in some countries of the semi-periphery and the established country periphery, low SES students are less likely to participate. There is no comparable social conveyer belt from the centre to the margins. The shortcomings in respect to the social dimension of international student mobility have started to receive political attention in recent years. According to ofcial documents (European Commission, 2009; European Ministers responsible for Higher Education, 2009, 2012), the European Commission and the EU member states recognise the need for further efforts to make participation in higher education and student mobility more equitable. Concrete and tangible steps, however, still remain to be developed. Mobility programmes in vocational training The LdV programme was set up in 1995 to implement the EUs vocational training and education policy (VET). The programme supports transnational interaction and cooperation of trainees in vocational training, VET professionals and their institutions. Compared with Erasmus, the number of participants is much lower, at 65,078 LdV participants in 2008 compared to over 200,000 in the Erasmus programme in the same year. However, the number of participants has been steadily increasing (European Commission, 2011c). Social inclusion and cohesion are explicit objectives of this programme and the EUs life-long learning strategy (European Ministers of Vocational Education and Training, 2002, 2010). However, a survey shows that particiGlobal Policy (2012) 3:Suppl.1
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pants with a migrant background come from relatively privileged families (World Social Forum Economic and Social Research, 2007), that is, their parents are better educated and have a lower unemployment rate than the parents of non-migrant participants. The study concludes that disadvantaged people are not particularly well represented in the LdV programme (18 per cent). The proportion of seriously disadvantaged people is a mere 5 per cent (World Social Forum Economic and Social Research, 2007, p. 63). Research into mainstream labour market programmes including vocational training backs the LdV survey ndings, showing that disadvantaged groups are typically underrepresented in these programmes (Nicaise and Bollens, 1998). In programmes specically targeting disadvantaged groups, in general the least disadvantaged segment of the target group participate at higher rates. However, the participant outcomes measured are independent of SES. Strengthening of soft skills, such as personal initiative, team skills and open-mindedness towards new cultures and people are not exclusive to high SES participants. Indeed, parents educational background has no signicant inuence on participants success in vocational training mobility projects (World Social Forum Economic and Social Research 2007, p. 61).4
The way forward

Fligsteins analysis suggests that interaction with other Europeans has a positive effect on attitudes towards Europe, leading to higher identication with the EU regardless of social class (Fligstein, 2008, p. 155). In other words, if interaction takes place (for whatever reason and despite the different social backgrounds), we can expect the power of networks to become effec-
tive (for example, by producing changed subjective perceptions and interpersonal learning). The question, then, is whether and how existing mechanisms and policy instruments created to consolidate Europes social space can successfully respond to the challenges raised by increasing levels of social inequality. What both mechanisms mobility programmes in tertiary education and in vocational training currently have in common is a tendency to enforce existing inequalities rather than to weaken them. The programmes tend to involve the better educated and the upper-middle classes and fail to reach the less educated, blue-collar workers and the lower-middle classes, never mind the new precariat (see Figure 4). For the Erasmus programme this nding holds true for high GDP countries and is less relevant for low GDP countries. If Europes social space is to grow with the demands puts on its population and required by economic and political integration, Europe needs new or re-engineered forms of cross-border network generators. The question is, what mechanisms or policy instruments could re-energise the European social space and make it accessible to those parts of the European populations established mechanisms left behind (see Figure 5). The demographics of the Erasmus programme show that social inequalities are perpetuated, most notably in high GDP countries. The EU and the respective member states should attempt to include more low SES students in the programme. Given that Erasmus scholarships are often not sufcient to cover the costs of living abroad, more attractive monetary incentives are one option. Moreover, nancial assistance for universities to be able to attract and train such students from abroad should be available. Mobility programmes for vocational training, notably the LdV programme, rarely reach disadvantaged groups.
Figure 4. Actual social engineering model.

Upper-middle class members are presented with more opportunities to take advantage of programmes More opportunities for successful encounters among Europeans from different countries Increased awareness and understanding; ultimately greater common identity
Figure 5. New social engineering mode.

Low-income groups to be afforded more opportunities to take advantage of programmes More opportunities for successful encounters among Europeans from different countries Increased awareness and understanding; ultimately greater common identity
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In order to make such programmes more attractive, European commerce, trade and craft associations should be encouraged to offer secondary school leavers incentives to enroll in vocational training. Moreover, they should develop a decentralised network of paid internships in order to encourage the mobility of less privileged youths. Such an initiative would, however, require responses to the specic needs of the target group by offering individual supervision in the preparation and implementation of the internship as well as in the transition phase to the next step in professional formation. Encouraging cross-border interaction at school level may also increase interest in interaction in higher education and vocational training. Given that there are important material (participation fees, inability to host guests) and psychological (lack of motivation) barriers to young people participating in exchange programmes, foundations and municipalities should develop twinning programmes that explicitly target those least mobile in Europe. The EU should allocate appropriate funding for these efforts. Social integration, migration and intercultural dialogue should become topics of cross-border exchange among marginal local communities.5 For example, an interesting programme that promotes exchange between young people from the French municipality Clichy-sous-Bois and Berlins Neuklln district, two socially deprived areas hotspots in France and Germany, has been developed and implemented by the FrenchGerman Youth Ofce (Wagner and Baumann 2010). Opportunities for interaction in Europe often become known and fruitful due to social mediators only. Teachers, social workers in youth organisations or trainers in sport clubs are most effective in reaching out to youths and overcoming psychological barriers. The success of top-down mobility programmes, initiated by the EU among others, is thus dependent on those mediating professions or institutions with high social outreach. With that in mind, offering training programmes to those actors and opening up the possibility for exchange with their counterparts in other EU member states are important measures to equip them with the skills and experiences needed for their work. Cross-border volunteering can help build common social spaces. Indeed, the EU has recently acknowledged the need for creating more opportunities for volunteering in Europe (European Commission, 2011b). The European Voluntary Service (EVS) is certainly an important tool. Its modest capacities and nancial means are, however, striking. While the number of participants in the EVS has increased over time (from around 1200 in the late 1990s to around 4000 in 2006 and 6907 in 2010), it is signicantly lower than the newly established volunteer scheme in Germany (with 35,000 volunteers in the rst year). In 2010 45.7 million were spent in the EVS
compared to 350 million that was allocated in the German programme (Anheier et al., 2012; European Commission, 2006a, 2006b, 2011b, 2012, p. 8). Europe needs to embark on an ambitious and large-scale volunteer programme that encourages citizens of all age groups (and not limited to youths, as EVS does) to serve in other member countries for periods of at least 3 months, and repeatedly. Such a programme should be incentivised to include disproportionate numbers of participants of the new precariat, be linked to qualication schemes and be part of a sustained campaign to help build Europe from below, as was recently advocated by Ulrich Beck and Daniel Cohn-Bendit (2012). In order to make cross-border interaction more sustainable despite a relative lack of nancial resources in public budgets, the possibilities of virtual exchange should be explored and included in mobility programmes. Regarding cross-border interaction and identication, it can be assumed that the Internet reinforces social cohesion among Europeans who already identify with Europe and other Europeans. At the same time it may reinforce the isolation of other, less sociable individuals (see Jensen 2011, p. 19: Van Dijk 2006, p. 269). The exchange programme between Clichy-sous-Bois and Neuklln has shown that the Internet and social media are widely used by young people from less privileged backgrounds once personal contacts across borders have been established.6 The cyber space offers many opportunities to engage, not only for youths, but also for established institutions such as the media. Online editions of newspapers and magazines can link different communities and create blogospheres, especially in and for border regions, as well as for geographically noncontiguous social and professional communities around areas of mutual interest. Finally, Europe should open up its public administrations for meaningful cross-EU participation, especially in terms of professional development and career patterns. Joint recruitment and career tracks that could span several member states come to mind, as do mentorship programmes that link public ofcials across borders. At present, the personnel policies of the 27 public administrations in the EU remain too close to a 19th century national state model, and have yet to seize the opportunities presented by the European Project and to make a much needed contribution to help create a common social space.
Notes
1. For Western democracies, scholars have conrmed a link between an individuals income, education and class on the one hand and non-participation (for example, voting, party membership and civic engagement) on the other. See, for instance, Kohler, 2006; Merkel and Petring, 2011; Schfer, 2011; Solt, 2008. 2. Compared with the enrolment in tertiary education, however, the share of mobile students in Europe has largely remained
59
3.
4.
5.
6.
unchanged. The global outbound mobility ratio (number of outgoing mobile students as a percentage of total tertiary enrolment in a given country) was 1.9 per cent in 1999 and 1.8 per cent in 2007. However, differences between regions exist: whereas the ratio between 1999 and 2007 remained stable in Central and Eastern Europe, it fell by 0.5 per cent in Western Europe (UNESCO, 2009). The network matrix is based on data provided by the European Commission Education and Training (n.d.) and encompasses 32 European countries, that is, the 27 EU member states, the two EU candidate countries Turkey and Iceland, and Norway and Liechtenstein. Data have been analysed using UCINet software and visualised with NetDraw. We would like to thank Dr Alexander Ruser (Max-Weber-Institut of Sociology, Heidelberg University) for compiling the network matrix. According to the authors, one reason for the insignicant correlation between parents educational background and positive effects on participants social, personal and professional skills may be found in high levels of motivation and willingness to go abroad. In other words, by securing a place in the LdV programme the young people have already proven their ability to compensate for any impeding conditions in their family situation (World Social Forum Economic and Social Research, 2007). The claim to rethink the contribution of the twinning movement to these specic issues was raised during the European Congress on Citizenship and Twinning organized by the Council of European Municipalities and Regions, Rybnik, Poland, September 2011. A similar recommendation has been made by Verlinden (2008). Interview with programme manager, Franco-German Youth Ofce, Berlin, October 2011.
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A. Sterbling (eds), Soziale Ungleichheit in der erweiterten Europischen Union. Beitrge zur Osteuropaforschung Band 14, Hamburg: Krmer, pp. 205230. Merkel, W. and Petring, A. (2011) Partizipation und Inklusion, in Friedrich Ebert Stiftung (ed.), Demokratie in Deutschland 2011, Berlin: Friedrich Ebert Stiftung, pp. 89. Neocleous, M. and Startin, N. (2003) Protest and Fail to Survive: Le Pen and the Great Moving Right Show, Politics, 23 (3), pp. 145155. Nicaise, I. and Bollens, J. (1998) Training and Employment Opportunities for Disadvantaged Persons, in Cedefop (ed.), Vocational Education and Training the European Research Field Background Report, Vol. II, Luxembourg: Ofce for Ofcial Publications of the European Communities. Putnam, R. (1993) Making Democracy Work: Civic Traditions in Modern Italy. Princeton, NJ: Princeton University Press. OECD (2010) Economic Policy Reforms: Going for Growth. Part II Chapter 5: A Family Affair: Intergenerational Social Mobility across OECD Countries. Paris: OECD Publishing. OECD (2011) Divided We Stand. Why Inequality Keeps Rising?. Paris: OECD Publishing. Raitano, M. and Vona, F. (2010) The Economic Impact of Upward and Downward Occupational Mobility: a Comparison of Eight EU Member States, Documents de Travail de lOFCE, 201029. Paris: observatoire franais des conjonctures conomiques. Risse, T. (2010) A Community of Europeans. Transnational Identities and Public Spheres. Ithaca, NY: Cornell University Press. Roose, J. (2010) Vergesellschaftung an Europas Binnengrenzen. Eine vergleichende Studie zu den Bedingungen sozialer Integration. Wiesbaden: VS Verlag fr Sozialwissenschaften. Schfer, A. (2011) Der Nichtwhler als Durchschnittsbrger: Ist die sinkende Wahlbeteiligung eine Gefahr fr die Demokratie? in E. Bytzek and S. Rossteutscher (eds), Der unbekannte Whler? Mythen und Fakten ber das Wahlverhalten der Deutschen. Campus: Frankfurt am Main, pp. 133154. Solon, G. (2002) Cross-Country Differences in Intergenerational Income Mobility, Journal of Economic Perspectives, 16 (3), pp. 5966. Solt, F. (2008) Economic Inequality and Democratic Political Engagement, American Journal of Political Science, 52 (1), pp. 4860. Souto-Otero, M. (2008) The Socio-Economic Background of Erasmus Students: A Trend towards Wider Inclusion? International Review of Education, 54 (2), pp. 135154. Souto-Otero, M. and McCoshan, A. (2006) Survey of the SocioEconomic Background of ERASMUS students DG EAC 01 05. Available at: http://ec.europa.eu/education/erasmus/doc/publ/ survey06.pdf. [Accessed 24 September 2012]. UNESCO Institute for Statistics (2009) Global Education Digest 2009. Comparing Education Statistics Around the World. Available at: http://unesdoc.org/images/0018/001832/18324ge.pdf. [Accessed 24 September 2012]. Van Dijk, J. (2006) The Network Society. Social Aspects of New Media. London and Thousand Oaks, CA: Sage. Verlinden, A. (2008) Global Ethics As Dialogism, in R. Commers, W. Vandekerckhove and A. Verlinden (eds), Ethics in an Era of Globalization. Aldershot and Burlington: Ashgate. Vion, A. (2002) Europe from the Bottom-Up: Town Twinning in France during the Cold War, Contemporary European History, 11 (4), pp. 623640. Wagner, C. and Baumann, M. (2010) Dokumentation des DeutschFranzsischen Fachkrfteaustauschs zum Thema Lokale Strategien in benachteiligten Sozialrumen zur Frderung von Integration, Bildung und Prvention. Clichy-sous-Bois and Neuklln. Available at: http://www.ofaj.org/sites/default/les/Clichy-Neukoellne_Doku _DE_endg1.pdf. [Accessed 24 September 2012].
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Author Information
Helmut K Anheier is Professor of Sociology and Dean at the Hertie School of Governance. Mariella Falkenhain is Research Associate and PhD Student at the Hertie School of Governance.
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Keynote Address: Changing the Debate on Europe, 2011 Dahrendorf Symposium in Berlin: Towards a European Political Imperative
Norbert Rttgen
Member of the German Bundestag, Former Federal Minister for the Environment, Nature Conservation and Nuclear Safety
I would like to welcome you all here today. I am sure we are gathered here today with the feeling that this symposium could not be more topical. The time for this symposium is ripe. At the same time, however, it also gives voice to an urgent necessity the need to hold a public, a political, an intellectual debate on how our ideas, our ideas on the Europe we want to design, now appear in the light of the crisis. Initiating a public European debate is not an intellectual luxury but indeed is a political imperative for the survival of Europe. That might sound loftily sentimental. But I mean it as I say. I think we are talking about something fundamental and existential here. scale up to a billion Euros. Initially they are unavoidable as a sort of re-ghting campaign but they will not resolve the problem. Such a policy would be politically and democratically ruinous in the long run, because it would rob both states and politicians of their legitimacy. Politics that lag behind, merely repairing and reacting, lose their domestic legitimacy and, therefore, their reason for being. We need, therefore, to identify what the burning question is behind the euro, debt and banking crises. That is the crucial question the markets are asking themselves. I am convinced the markets do exactly what they are good at, namely exposing weaknesses and pitilessly hounding these weaknesses until they have been resolved. And the question that this poses to us all is a question of Europes political ability to act. Is Europe capable of defending its single currency and does it want to? And since a currency is such a fundamental expression of cohesiveness, we are talking in essence about the European ability and the European will to assert itself in the globalisation process. This leads to the question of to be or not to be for Europe in the global environment.
Keynote Address
Nature of the European crisis

When we talk about shaping Europe, to reect on it in depth we rst need to start with a discussion on our perception of the European crisis. What is it, what is different about it? And I have deliberately chosen the term European crisis. This makes it clear this crisis is not merely a Greek crisis. It is also no longer solely the banking crisis we experienced only 3 years ago a crisis that led the world to the edge of the abyss. In the meantime, we now have a new dimension with a sovereign debt crisis as the consequence of the banking and nancial market crisis of 2008. In turn, as has become obvious at the latest this year, this sovereign debt crisis is interlinked once more with a systemic banking crisis. This mixture of a sovereign debt crisis with a systemic banking crisis shows that the impact, the dimension, indeed the threat posed by this crisis, is inevitably even greater than that of the crisis in 2008. There is a common structure to both crises: namely, the potential for blackmailing countries, democracies and their peoples. It says: you cant let us fail, because it would be your own death if you did. The consequence is rescue funds on a completely new and unimaginable
Whither Europe?
This is a legitimate question since globalisation demands an ability to act that can only be organised on a European level and that today overrides the ability of the member states to act. This, in my view, is at the heart of the crisis. The process of blurring borders, which is the main attribute of globalisation, outpaces the abilities of nationally organised politics. Answers to this question can only come from a European level. This leads me to an initial conclusion: it is politically imperative that Europe is able to act jointly. This ability to act needs to be organised and established in all elds affected by globalisation. And this means in the three key areas:
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monetary and economic policies, defence and foreign policy and climate protection and biodiversity. The global challenges facing these three key elds overtax the ability of a nation-state to act. As long as European policy is represented primarily by nation states with diverging voices, Europe and each individual member state will become irrelevant in the future. If Europe unites to speak with one voice and one will is articulated with just one voice, we will have the chance to inuentially shape the new global order. This is about nothing more or less than to be or not to be. To illustrate this, I could choose, naturally, countless examples from all three elds. One of the most recent: When in the end of October 2011, UNESCO voted on the decision to accept Palestine, European Union member states cast their votes every which way imaginable. Yes, no, or even a resounding abstention in this key arena of international politics the Europeans gave it all. This is just one of the examples that demonstrate that Europe is not a factor to be taken seriously when we speak with so many different voices, each of which cancels the others out. I could recount my experiences in climate and biodiversity politics, too. My most formative experience was the climate conference in Copenhagen where the way in which the the political power vacuum will be lled in future became obvious. The leaders of the BRIC countries did not even turn up at the negotiating table. Instead, they forced the leader of the Western world, the American President, to visit them in their hotel where they offered him the alternative of either nothing at all or only a little. And with this alternative offer from the Chinese, the Indian, the Brazilian and the South African presidents, Barack Obama returned to the Europeans who then had to make the decision: either nothing or only a little. We decided on only a little. This paints a vivid picture of what happens when western leadership fails at a time when world order is in a state of ux. This poses the question whether Europe or the West is still a part of this order and whether the 20th century was the century of the Western world and the 21st century is not. It is about nothing less than creating a new political order in Europe.
Shared sovereignty and the fate of European power

The new element is the relationship between the sovereignty of the member states and the European Union. I am convinced that a new political order in Europe cannot survive without a fundamentally shared sovereignty between the member states. In principle, it is not about the one or the other competence, but there needs to be a basic political sharing of authority between member states and Europe, according to whether the policy area
is affected by the principle of globalisation or not. And with this division, with the principle of shared sovereignty comes the necessity of a direct democratic legitimacy and control by a joint exercise of sovereignty by an executive. Two new elements are needed in the European order: authoritative power and democratic legitimacy (which are the constituents of sovereignty). This is something we are discussing fundamentally, especially with our colleagues and friends in Great Britain. This fundamental debate will continue for a long time because, naturally, there is large disinclination to losing national sovereignty. The fact is that, however, in the meantime when countries do actually formally transfer their sovereignty, they are, in effect, losing nothing materially that they have not already lost during the globalisation process; namely their national sovereignty in the global environment, in monetary policy, defence policy or climate policy. National sovereignty has become a hollow shell because a countrys power to shape policies, at least for European member states, no longer exists. And this is why national power to shape policies will not be transferred to Europe but the power to shape policies at all will be retained only when it is transferred to Europe. Transfer is, therefore, no loss but in truth it maintains European and national power to shape policies through European integration. What does this mean for monetary and economic union? I believe there are two core projects that will be part of European sovereignty and its wielding of power. One is a tardy but nevertheless crucial reaction to the banking crisis, which is repeating itself again with the sovereign debt crisis. It is the creation and establishment of a new nancial order. There will be protests that a new nancial order can only be global, otherwise it cannot act effectively or remain economically sustainable. I believe this argument is self-defeating because the consequence of this position would be that there would be no order whatsoever. In other words, the insistence on a global solution effectively prevents any meaningful regulatory step in the right direction. But we can no longer accept the state of disorder in the nancial markets neither economically nor especially politically. And this is why there must be an exemplary European nancial order. Europe must, even if it means suffering competitive disadvantages in the short term, work on and establish such a sustainable and stable order. I am sure it will assert itself. The second action necessary for monetary policy is the completion of the euro project. The European single currency could not be introduced in its entirety at the time I do not intend to criticise it at all because I believe there was no other way then but was merely a torso in the form of a common currency that was not embedded in common procedural rules, in institutions invested with the power to act and in joint scal and economics policies.
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Norbert Rttgen
This means that today we have a monetary union without an economic and scal union and without procedures and institutions. This is the unnished euro and now we need to complete the European monetary union, especially by setting up a scal union a scal union that is equipped with European-level power to overrule at national level. In my view, this is the core element that needs to be created in answer to the monetary crisis and the unnished euro. This raises the question whether the Europeans, whether they are European governments, European countries or the European public, will summon up the energy for European integration or whether those who warn against the loss of national sovereignty will retain the upper hand. The question is justied when you look at the state of European governments and the presentday public debate in the various countries. Nevertheless, the elementary question still remains as to whether the Europeans will succeed in mobilising their energy to assert themselves or whether, leaderless, we will sidestep this task. European integration wholly in the spirit of Karl Lamers is a necessity and not something that can be chosen or not chosen. For, ultimately, it is the alternative between Europes relevance or its irrelevance.
Overcoming democratic decits

I would like to add a nal but, in my view, crucial aspect. I consider it to be the most difcult technical and conceptual aspect of this political and scientic discussion. The need to increase Europes sovereignty has vital democratic consequences. There is no hope from the onset for a Europe that is a powerhouse of experts who have not been democratically legitimised, that is, a purely technocratic project. If the necessary common sovereignty is to come about and lead to real shared policies between member states and the European Union, European Union citizens must be given the democratic opportunity to vote on policies on both levels in the same way, that is, to vote for or against policies. The democratic shortcomings of Europe in its present distribution of authority are that its citizens are not given the opportunity to genuinely vote on European policies. Especially signicant is how small a role the European Parliament plays in the present debate. But, independent of this is the fact that participating in European elections is not linked to voting for or against a specic policy. And the European Council a key co-decision-maker in European legislation is not designed so that national parliamentary elections really vote on European policies. By necessity, we need here democracy more, since conferring sovereignty without democratic legitimacy is inconceivable. Organising this on a European scale in view of the cultural and linguistic differences will call for a huge amount of creativity. But this debate must be held. I would like to touch briey on some of the elements
I believe need to be discussed. I believe it is inevitable that the principle of parliamentary responsibility will be awarded to the Commission. This means commissioners need to take over full responsibility for their department and they should be authorised to issue directives to their ofcials. This is one of the main differences between the Commission and a national government European Union commissioners do not have the right to issue directives to their ofcials. And because, so to speak, they are unable to assert themselves, the relationship between commissioners and the general directors breaks the chain of democratic legitimacy at this point. However, if I cannot assert myself, then I cannot be held responsible for my decisions. This means that something similar to departmental responsibility is called for: the department principle needs to be set up. I also believe it could well be conceivable that the Commission President is elected directly by the European citizens, the voters, which would generate crossborder and personalised, political competition. And then the President of the Commission would surely need to be endowed with something similar to what we call in Germany Richtlinienkompetenz the authority to issue directives. At any rate, the democratic scope of direct elections needs to match the scope of competence within the Commission. This would facilitate institutional democratic decisions that would spur on cross-border democratic competition. Aside from this, the right to initiate legislation, which up to now has been solely in the hands of the Commission although at the same time the Commission does not have the right to issue directives, as I was talking about earlier would naturally also have be extended to the other co-legislators, the European Union Parliament and the Council. In the long term a bicameral legislative system with the European Council as the executive organ for member states might be considered. And perhaps we might even be capable of such revolutionary measures as coordinating national parliamentary election dates in Europe so that voters can also cast their votes on policies with a European slant on the same day.
Towards a European political imperative

Doubtless, the picture I have just painted is very much a dream for the future. Of that I am quite sure. But we should also be just as sure that without this dream there will be no future. It will require many intermediate steps. I fear we will need longer for this debate than we actually have time to act in. This is why the eurozone will be the rst level for a new order because it is here that we need to act urgently this is where the crisis will continue to escalate. The ideas I have described here will need to be formulated rst of all at the eurozone level intergovernmentally, but with its own legitimacy
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enabling governments in the eurozone to act. This process then needs to move in the long term towards the Community method. I would like to thank the London School of Economics, Stiftung Mercator and the Hertie School of Governance for enabling this Dahrendorf Symposium to make what I believe is a necessary and important contribution to initiating such a debate. This European debate is the beginning of a new European policy. Thank you very much.
Author Information
Dr Norbert Rttgen served as the German Federal Minister for the Environment, Nature Conservation and Nuclear Safety from 20092012. He is a qualied lawyer, has been a member of the German Bundestag since 1994 and currently sits on the Foreign Affairs Committee.
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Contribution: Changing the European Debate, 2011 Dahrendorf Symposium in Berlin

Contribution
Wolfgang Ischinger
Ambassador; Chairman of the Munich Security Conference; Allianz SE
Let me offer a few observations. One of the lessons that I would like to draw from the last year and a half of crisis management efforts is that what did not work was the effort to turn a small screw to deal with the crisis in a mechanical way, as if it was a big machine but all you needed to do is to adjust the carburettor and then things would run again. Second, I believe that we need to be aware, especially in Germany, of two interrelated but paradox developments that are now confronting us. Let me call this the paradox of the Euro and German power. When you go back in history, in fact, you see that the German government was persuaded by Franois Mitterrand and others to accept and share the idea of the Euro, because it was going to be the best way to make sure that German economic predominance would not turn into German political hegemony in Europe, in this way limiting German power. The paradoxical effect is that the Euro has now turned into an instrument to allow Germany to be the central power in Europe, or at least to be seen that way by most of the other members. This is not healthy or sustainable. How can we redress the balance? If this is going to be a permanent state of affairs Germany in the centre with or without France there must be some element that we need to invent to make sure that everybody will feel happy with this new division of power in the EU. The second paradox is linked to the rst. As we try to create an EU that, from an economic and nancial point of view will function better and more effectively, that will be more disciplined and have more authority to interfere with national nancial and economic decisionmaking, as we establish these torture instruments for the EU, the consequence will be that anti-European and maybe more specically anti-German sentiments will grow in the countries in which these torture instruments will be applied. In other words, as we make the EU better, we will also make it worse in terms of creating divisive forces. Thats something we need to deal with. When I think about how to approach these issues, I am reminded of something Donald Rumsfeld said: If you nd that you cannot solve a problem, enlarge it, put it into a larger context. And I think thats not a bad idea in the present debate on Europe. My own view is that we should change the debate from a negative debate about why we should pay for the Greek debt into a debate about how we can create a better Europe? If we do this Germans will be with us and we will have 80 percent of the German Bundestag behind us! And it appears that there is a lot of support in Germany and probably in most of the other EU countries (lets leave Britain aside for the moment) of the idea of a stronger, more effective and more credible EU as a player in the world. Therefore, enlarging the debate from the debt debate to the Europe in the world debate is an important endeavour. Finally, a couple of thoughts about what should be done. I think we need to dene the enemy. That is the rst job for any general. In this EU debate, I think the enemy is the status quo. If we could agree that we do not like the status quo, that we want to go beyond it, that we want something better and different, we would have achieved a lot. I believe that the German nation has started a love affair with the status quo in the postunication era. Germans loathe change now. But it is a challenge for political leaders to explain to Germans and to other Europeans that, in a world that changes dramatically every day, more dramatically probably than at any other point in the last 50 years, we cannot continue our love affair with the status quo. It is not going to work. Third, I believe I can see among the business leaders in Europe, not just in Germany, an acknowledgement, even an appreciation or awareness of the fact that there is no way back. Some people thought half a year or a year ago: Well, maybe we should just go for something different? Re-nationalisation was the catch word! I believe that it is a very, very good thing that most of the major business leaders and associations now understand that the best strategy for themselves and for their future is to move forward. More and better Europe is,
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I believe, something that the business communities in the EU will be able to support. Finally, and this is really the most important point I wanted to make, I believe we are not courageous enough in the EU. We need to interfere in each others domestic affairs more than we are already doing. We are doing so every day, as you can see by what is going on in Greece and Italy. But we should do it not just in the negative way, making the Greeks feel pressured into something by Germans and others. Chancellor Kohl went to Paris to make a speech during the rather shaky French debate on Maastricht in 1992. We had a long debate about it in the German government: was this a good thing or a bad thing and would it backre? Would the French hate him for interfering in French domestic politics? If you look at what was written and said then,
you can see that it was a successful and very courageous act, which was unprecedented at the time. The French not because of Kohls intervention, but also because of this type of interested intervention said Yes to Maastricht. It is never too late. I am waiting for the moment when Angela Merkel and the French President travel to Greece and give a speech together, and tell the Greeks what they need to do but also that we love them. Yes! The emotional impact is also important; its not just the economic hardware that matters. Emotional elements matter in Europe and we need to tell each other that we love and need each other beyond just looking at the bottom line. Ralf Dahrendorf would have encouraged us to be courageous in order to drive forward the idea of liberty.
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Keynote Address: Changing the Debate on Europe, 2011 Dahrendorf Symposium in Berlin
Keynote Address
Rt Hon Jim Murphy MP

Shadow Secretary of State for Defence
We are living through an important moment for defence policy. Particularly now that the conict in Libya has come to an end and the committed forces are coming home, while in Afghanistan NATO forces are trying to nd the correct balance between enforcement and transition. And while we have a timetable for Afghanistan we are not yet certain that that progress is irreversible. Closer to home, across Europe the major new threats we face, there are major new threats that we face, from terrorism to climate change, to nuclear proliferation, to cyberattack, all of which will require new answers, new technologies, greater cooperation and bolder preventative action. Defence is becoming more expensive, more complicated, more intricate and much more unpredictable. But we live in a global era, and there is no opt-out and in the UK, as across the rest of the world, we must come to a realisation that on defence there is absolutely no opt-out at all. The problems we face are shared and many of the solutions also need to be collective. The events that we have witnessed recently in the eurozone and in the EU have made us all aware of both our interdependence and of the unpredictability of a world in which the events in 2011 have made it almost impossible to plan with certainty what will happen in 2012. Amidst this transformative security landscape there are, I want to argue today, two new issues facing Europe that which will shape defence policy profoundly: one is political will and the other is economic reality. Europes ability to protect the sovereignty of individual nations and our collective security, as well as promote and protect the values and interests that we hold dear, depend both on our commitment and our ability to act so that the challenges of faltering political will and challenging economic reality are threats to both that necessary commitment and that ability. Today I want to argue that greater cooperation between European countries on defence can help overcome some of these challenges. I also want to offer I hope would you accept observations that are the aggregate or settled view of political thinking of those in the UK who are both instinctively and intellectually pro-European. As a former Europe Minister in the Labour government, that is the political terrain that I occupy. Timothy Garton Ash at a dinner last night said that he wished to pose one provocative question, and he did. In my comments I am going to pose three questions: it is for you to decide whether they are provocative or not. The common threats that I have spoken about require common action and shared operations, which are increasingly commonplace as we know: European nations working together in the Balkans, in Chad, Afghanistan and around the world in EU, UN and NATO missions. We have joined objectives and standards, priorities and also interests, but there are three key political challenges that could undermine our ability to continue to maximise this approach. The rst is that the current political and economic turmoil in Europe will undermine calls for greater multilateralism in some populations. To argue for greater cooperation on defence at this moment is difcult but essential. The nancial crisis has ushered in a protectionist sentiment that will shape national identities, not just economic policy, and this is happening at a time when nations are more reliant than ever before on each other for national security. Secondly, many of our publics are wary and many of our publics are weary. There is a widespread public reticence towards international expeditionary action. European public opinion towards Libya demonstrated mixed and impatient reactions. No allied combat casualties and lack of collateral damage from what has been termed a new model of intervention may help persuade some publics availability to act and the value of their doing so. But multilateral proactive action will be hampered by public scepticism and reserve arising from the recent experiences of overseas conicts. I worry that one consequence of Afghanistan combined with the legacy of Iraq will be to make a concept permanently unpopular idea with nations becoming increasingly ambivalent about acting on the responsibilities
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beyond their own borders. In such a state a state of ambivalence, we still believe in the same values, but we just may not so readily stand up for them. The principal danger would be that the drivers of potential conict would proceed unabated. And we must, I believe, make the case, therefore, for the duty to act beyond our own borders. Making that case, we must be aware of false distinctions. I am aware of it particularly in the UK. The current divide in the debate on defence that distinguishes between pro-Europeanism and Atlanticism is unsustainable and unsuited to modern times. For many on the Eurosceptic right of politics in the UK, Atlanticism has become synonymous with a self-defeating, virulent Euroscepticism that is bad for Britain. It is intellectually lazy to force our country into a binary choice of Europe or America. In truth, the UK will need both, if it is to be a nation that seeks to be, and Europe can be stronger through stronger ties of course also with the USA. The third challenge is the recognition that NATO, more so than the EU, will be the forum through which military action is agreed and taken. But for that to be successful a greater contribution is needed from European nations. NATO is the key also to the continued support and engagement with the USA but this depends on NATO becoming more capable, more deployable, and more balanced. The Libya campaign demonstrated each of these factors. Despite the difculties Libya is testament to NATOs enduring relevance. The mission was swift and has so far been successful. The engagement of both UN and NATO in the Arab League and in particular other nations, such as Qatar was full. But it also demonstrated something else about the alliance: that just eight of the 20 members contributing is not enough. So my rst question of three is: how does the European end of NATO take a greater share of the burden? European governments have to be more honest with each other about their capacity. There are too many never to be used battle tanks, unusable fast jets and undeployable army conscripts. In 27 EU member states there are half a million more men and women in uniform than the USA, but the EU can deploy only a fraction of the capabilities that the USA can. And amongst all the provocative talk of the past of coalitions of the willing, infamously from George W. Bush, the active creation of coalitions of the capable may in future be a bigger challenge. That is not sustainable if we want to project power in a world where it is shifting to emerging nations and developing economies. Many, particularly across the Atlantic, have come to the conclusion that the Transatlantic Alliance between the EU member states and the USA will be meaningful only if it is more reciprocal. That means greater burden sharing. France, the UK and Germany account for 65 per cent of all defence expenditure in NATO Europe and 88 per cent of investment on research and technology. That
also means greater deployability, I think, of assets in the future. The EU spends 200 billion on defence a year, more than any other country except the USA. We have two million Europeans in uniform but only 5 per cent are deployable at any one time. And yes, that also means European nations doing more to hit that NATO target on defence expenditure. But it is important to know that this debate is focusing on further cooperation as between European nations rather than the EU. The EU has a crucial role to play in security policy in the civilian crisis management operations in some of the countries that I have already mentioned. The EU is involved alongside NATO and others in tackling piracy off Somalia. Yet, nal decisions in the deployment of forces that are among the biggest possible decisions any government can take will remain the decision of governments in European capitals. But in the face of an argument driven by politics of identity or political Euroscepticism, or political Euroseparatism, which is an increasing pulse and a stronger pulse in the UK, I believe, we can overcome much of the scepticism about wider and deeper European cooperation only if we confront it and if we show we have the means to respond effectively and exibly to todays threats at a time of austerity. Lets be clear. Some of the cuts to defence budgets may impact on what we can achieve overseas in the future. There are levels of cuts and I have argued at home in the UK that we believe the scale and pace of the cuts to our budgets in defence are nothing short of a strategic shrinkage by stealth. And this is in the context of austerity across Europe. Spain has cut spending on defence materiel by more than 50% since 2008. Bulgarian armed forces will shrink by more than 20% by 2015. The Slovenian government has proposed a further 7% cut to the national defence budget. French efforts to ring-fence military funding are positive but the mid-term review may lead to reductions. German defence spending is on course to decline by 10% between 2008 and 2015. In this context of falling investment, the notion that NATO-European nations will consistently ght alongside one another but build their armed forces in separation from one another needs to be reconsidered. In building our forces or dismantling capability greater European cooperation within NATO is essential. Defence procurement is critical, enabling us to maximise our ability to project force and to do so cost-effectively, supporting both the front line and the bottom line. There are many things that we can do there, and the European Defence Agency is an important step. But we believe that the cooperation of the procurement and an open market is the way that Europe can compete in a very expensive technologydriven activity. We also have to look at pooling force structures as well as cooperation and procurement. We
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can do better to cooperate on these structures. This does not take place, not nearly to the extent needed, which means we maximise the real potential for frontline benets. And there is excellent example in the Anglo-French model signed over the past year, which for many people is ushered in what many people are calling une Entente frugale. But it is a commitment to limited interoperability, joint purchasing and sharing of expertise and facilities. This should not be an isolated achievement. We hope that the Northern Group makes similar agreements emerge and other similar groupings can assemble to discuss and take forward this agenda. Where countries can and where it is in their mutual interests, they should work together. This is not about creating what many at home, now Eurosceptics, call creating a Euro Army but it is about pursuing gains where they can be found on a case-by-case basis. Very briey the second questionis: how do we guarantee in the future, the correct balance of capability in a planned way rather than by accident, exploring how reductions in defence expenditure and resulting changes to force and equipment structures in European nations may be better coordinated? This will be controversial for some. But European nations in NATO not only have to work together to build coalitions, as in Libya, but we must also coordinate much more effectively on defence cuts in order to prevent serious gaps in military capabilities. I observe the cuts in other countries rather than criticise them. But in light of the scale of the change taking place it is important that we make efforts to avoid duplication as well as minimise the depth of capability shortfalls. If we accept that we will be operating in partnerships more regularly, capability reduction should be coordinated with a view to having a balanced crossalliance-equipment programme. For example, in Austria thousands of weapon systems are being phased-out, other countries are getting out of the submarine business and still others are mothballing their capability on tanks. But in this context that is not all just about defence. Often the most effective defence policy is not about military hardware or a nations forces or its military strat-
egy. It can be a warrior-class-international-development policy of the type that the EU has done so much on: investment in education, democratic reform and viable economies can hinder the spread of conict. And the careful prevention of development policy can be so much better than the painful cure of military action. Turning to the third of my questions, which is the one that occupies me most: as we look ahead towards the military draw-down in Afghanistan and the end of combat rule at the end of 2014, there are the lessons and the consequences of Afghanistan to consider. When we talk about Afghanistan, lessons and consequences are different things. But my third question is this: how in European populations, European governments and European capitals do we prevent 1.5 unpopular wars creating a permanently unpopular concept? And what I mean by that is that Iraq is undoubtedly unpopular, Afghanistan is at least partially unpopular how do we prevent that contaminating the debate in future? On Libya, in the UK, on the UK governments decision with Labour support, the opposition in the country to what was happening and the decision to deploy was broad, worryingly broad but thankfully shallow. But I think, in the context of Afghanistan we are talking about winning the hearts of Afghan public. In the context of the Arab spring we are talking about winning the minds of the Arab street. But our prerequisite is convincing both the logic and the emotion in Europe in our own European populations rst. This argument is in the balance. I believe in a politics of responsibility beyond our own borders, beyond the borders of our own continent. But because of a combination of genuine concern about military action of the recent past and the understandable hesitation at a time of austerity, it will lead to publics and public opinion preventing good politicians of both the centre left and the centre right from taking action. So I believe, nally, that the stakes are high on this. Time is short and we can no longer ignore the sentiment of the public but we have to engage on a way that is positive about a role in the world, has a clear vision of European states rule in the world, and in a way that honors the public sentiment and takes them with us.
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Too Big To Fail?: The Transatlantic Relationship from Bush to Obama

Michael Cox
Research Article
Professor, IDEAS and the Department of International Relations, London School of Economics and Political Science
Abstract
On September 11 2011 the world commemorated the tenth anniversary of one of the great tipping points in recent international affairs: the successful attacks launched by Al-Qaeda on the USA. In this article, I reect on only one aspect of the global fallout: the impact which the ensuing war on terror had on the transatlantic relationship. Here scholars have divided into broadly two camps, one of which insists that the war did very little to shake the foundations of what remains a remarkably stable relationship, and another which argues that the rst decade of the 21st century effectively witnessed the death of the West. Both views as I will argue are exaggerated. Yet, as I will also show, the relationship was clearly weakened by the fallout from 9 11. This in large part explains why Barack Obamas election in 2008 was greeted with such enthusiasm in European capitals. Yet even his election has not dispelled worries about the long-term health of the relationship. Indeed, with the rise of China and the USAs apparent tilt towards an economically more dynamic Asia, Europe it seems has become less important to the USA and the USA seemingly less interested in Europe. The relationship thus still faces some very real challenges in the years ahead challenges that will test the intelligence and capacities of policy-makers on both sides of the Atlantic.
Policy Implications
The transatlantic relationship has remained central to world order and it is critically important that policy-makers in Europe and the United States continue to recognize this. Policy elites should draw the right lessons from the transatlantic crisis caused by the Iraq war in 2003 and try to ensure that such a rift does not occur again. US policy-makers in their efforts to build new relationships with emerging powers in Asia should be careful not to convey the impression to their European allies that their new interest in Asia and China is the same thing as indifference towards Europe.
In historical terms the relationship between the USA and Europe constitutes one of the most intimate in modern times. Indeed, if the USA, in Irving Howes view (1979, p. 243) began life as a distinctly European project, Europes very own and very bloody thirty years war between 1914 and 1945 brought about a major role reversal. This left the western powers on the continent less masters of their own house and more dependant on an all-powerful, liberal, hegemon situated three thousand miles away across the Atlantic. There was no inevitability about any of this. But as one of the more perspicacious international relations theorists noted as early as 1920, if one global war had already tilted the balance of power towards the USA another which he thought was inevitable would almost certainly nish the job completely. Trotsky did not live to see one of his more brilliant (and
this time more accurate) forecasts come true. Nor can we be sure that he would have been altogether happy with this prospect, given the role the USA then went on to play after World War II (Trotsky, 1984). But as the dust began to settle after 1945, one thing must have been patently clear to all: the continent that in 1900 could claim the title of world hegemon was hegemonic no more. To all intents and purposes, The European age was at last over (Roberts, 2002, pp. 789, 945). In terms of the axis of world power the international system after 1945 was a very differently constructed entity from that which had existed before. In strictly formal terms the USA and its European allies formed part of a voluntary association entered into by self-determining, equal, sovereign states. In effect, the relationship was to be shaped by two realities: a massive imbalance
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in power and strategic dependency by the Europeans on their American protectors from across the ocean. This was not something that brought much joy to the hearts of all Europeans; even less did it please those who for a short time after World War II believed it would be possible to build a third European pole between the superpowers. But the brute facts of the matter meant that the Europeans had little choice but to invite the Americans to become their benign imperial protectors (Ikenberry, 2001; Lundestad, 2008). Even that strategic and political irritant known as de Gaulle accepted that France remained part of something dened as the West. Integration into the military command structure of NATO may have been a step too far for the General. But in the larger international system it was perfectly clear that its protestations of independence, notwithstanding France, was locked into a world underwritten by American power and shaped in the image of the USA (Bozo, 2007). The end of the Cold War was bound to have an enormous impact on the relationship and, not surprisingly, much has been written since about the ways in which the transatlantic relationship has changed since the unexpected collapse of the Soviet system of power. I will not repeat here what has been discussed at greater length elsewhere (Lundestad, 2003). Rather, I will focus on two critical challenges to the relationship. The rst was the attack of 9 11. As I will show, US policymakers responded in many quite contradictory ways to 9 11. But one, quite clearly, was to think of the war on terror as if it were some kind of new Cold War that would help restore certainty to American foreign policy and in the process repair the damage to the idea of a West (Cox, 2011; Macdonald, 2004). The question I then go on to ask, and seek to answer, is how successful was this new narrative in constructing a new ideological point of reference around which a new transatlantic order could be struck. My answer is straightforward: it was not. Indeed, if anything, the war on terror unlike the Cold War probably did more to divide the West than unite it (Cox, 2005). The second part of the article looks at the relationship since Obama took over in the White House. There is little doubt that the election of a quite new US president in 2008 did an enormous amount of good for the transatlantic relationship. Indeed, one might even argue that his election was greeted with as much enthusiasm in Europe as it was in the USA itself. However, in spite of the Obama bounce, the relationship as I will show continued to face challenges that were every bit as signicant as the ones it confronted during the early Bush years. This time, though, the cause was not the unilateral foreign policy of a particular kind of conservative administration but the belief that a tilt was now taking place in the international economic order. As I have suggested elsewhere, I am not sure we should dene this economic
tilt as a true power shift (Cox 2011). What I do argue, however, is that in a fast-changing world, where the future now seems to lie in the East, it follows that the transatlantic relationship is bound to be affected. This will not render the relationship irrelevant. The ties that bind the European and the Americans together will remain. However, the relationship will not be the intimate one it was for the greater part of the post-World War II period. It is, as the title of this article notes, too big to fail. Yet, even if failure is not an option, neither is success guaranteed. Difcult days lie ahead (Cox and Stokes, 2012).
The war on terror as a new Cold War?

If 1989 represented the formal closure on one era, then so too in many American eyes did the attacks on the USA on September 11, 2001 and, as the dust began to clear from the streets of downtown Manhattan, a raft of born-again, mainly conservative, pundits emerged from under the rumble to declare the bloody end to a decade of drift and lethargy. Each crisis in history produces its own particular version of the immediate pastand so it did once again in the days and months immediately following 9 11 when ofcial after ofcial declared the postCold War era had ended and an entirely new phase in the history of US foreign policy had begun. Still, every crisis is also an opportunity and 9 11 represented such a moment. The tragedy was real. But there was no doubting that it had the potential to be exploited. As Dr. Condolezza Rice, a senior member of the Bush foreign policy team, was reportedly said to declare a few days after the attack, the USA in 2001 (like the USA a half century earlier) was once again present at the creation of a new international order. There has been a vast body of literature describing the response by the Bush administration to the attack on the Twin Towers and the Pentagon, the bulk of it highly critical of that response.1 But what has often been left out of the discussion is how much the Bush administration, faced with what it regarded as a quite novel historical conjuncture, constantly returned to history in order to make sense of what it was doing.2 No doubt because it was the rst attack on the American homeland since the beginning of the 19th century, something (though not much) was made of the war between Britain and the USA when the former had the temerity to burn down the White House (Cox, 2002). Much more was made of Pearl Harbour, a surprise attack if ever there was one, carrying the important message that when ruthless men did unspeakable things to the USA they had better beware the consequences.3 But it was the Cold War, more than any other historical experience, that was compelled to do most of the heavy lifting, so much so that in a relatively short space of time a number of
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pundits began to talk of the war on terror as representing something akin to a new Cold War: some because it was the conict they remembered best (Lieven, 2001); a few because most of Bushs key advisers were old Cold War warriors themselves (Mann, 2004) and a good number because national security was now back at the top of the policy agenda (Lieven and Hulsman, 2006). For all these reasons, and no doubt a few more, it was not at all unreasonable for writers to think of this new and uncertain present in terms of a known past. Within the Bush team, however, the purpose of such analogical thinking was less to reect seriously about the past and more to establish frameworks within which it could legitimize policy decisions. In the process, it did what all administrations had done since the end of the World War II: derive the lessons it wanted to draw and ignore those that complicated the telling of a particular tale. That said, the tale it narrated had its own appeal. It began with the end of the Cold War itself. Here the Bush administration was anything but subtle. The defeat of Soviet communism, it repeated, represented a massive victory for the USA and the West. However, it had had the unfortunate consequence of leaving the USA without a purpose. As one well-known American historian close to the Bush White House pointed out at the time, the USA might have won the Cold War but, in the process, had become a nation lacking a grand strategy (Gaddis, 2002). Now, at a stroke, the vacuum had been lled by the challenge posed by global jihad the perfect antidote to Western sloth and what some around Bush viewed as an America grown decadent and abby in an era personied by Clinton. Some were more explicit still. Without a clear and present danger they proclaimed the USA was more likely to decline than to lead. True, the USA may have possessed a preponderance of military power after 1991 (Krauthammer, 1991), and it might have confronted no serious rivals worthy of the name (Ikenberry, 2002). But there was very little the USA seemed to be able to do with all this spare capacity. To all intents and purposes, the USA had turned into a superpower perhaps even an empire without a mission. Now, because of 9 11, the USA appeared to have been presented with a mission (Cox, 1995). If 9 11 provided what looked like a solution to what some regarded as The USAs strategic vacuum, the Cold War also offered the Bush White House a ready-made supply of easy arguments about what to do next (Buzan, 2006). Naturally, Bush himself was highly selective in terms of what he chose to learn and from whom. However, the fact that he felt compelled to learn anything at all says a lot about the power of the past and the hold it had on a president of even his limited intellectual powers (Shapiro, 2007). Unsurprisingly, the Cold War president whom Bush clearly tried to learn from most was Ronald Reagan republican hero, enemy of the
original evil empire (it was no coincidence, of course, that Bush himself later talked of an axis of evil) and ultimate reason (at least according to many on the US right) as to why the Soviet Union had nally been consigned into the dustbin of history. Reagan seemed to be the perfect role model. Like Bush, he fervently believed in the promise of the USA. Like Reagan, Bush also assumed that one only did business with others from a clearly dened position of strength. Moreover, he entered ofce (much like Reagan) after what many saw as being a period of foreign policy drift (Reagan often talked of the 1970s as a decade of neglect). There were also many around Reagan who were anything but realist in international outlook. Indeed, one of the more obvious similarities between these two very different presidents was that both sought to challenge the status quo: one by trying to move beyond containment and the other by questioning the USAs traditional reliance on authoritarian regimes in the Middle East. The cold war warrior Reagan, and indeed the Cold War more generally, thus served as a signicant point of reference for the Bush team in a period of heightened threat. Yet, as many inside the Bush administration readily conceded, having a clear threat was not without its advantages. It would remind Americans that the world remained a very dangerous place. It would permit a very rapid build up of US military power. It would justify a more assertive foreign policy. And, as a bonus, it might even help revive that battered ideological edice known colloquially as the West. Islamic terrorism was not exactly the same thing as communism. But in its own way it might serve a similar purpose.4 Indeed, when a day after 9 11 NATO invoked Article 5, insisting that the attack on the USA had been an attack on all, it very much looked as if the West had never been so united. Even different publics on both sides of the Atlantic at rst seemed to be moving closer together. In fact, for a while it really did seem as if those much divided Europeans and Americans were looking at the world in rather similar ways.5 Still, even in the midst of all this hand-shaking solidarity, cracks began to appear; and as time went by and the war against al Qaeda segued into a wider war against those states that formed part of what Bush termed the axis of evil, relations began to fracture badly. Indeed, by 2003 and 2004, even some of the more sober voices in the foreign policy debate were arguing that this was by far the most serious crisis in the long history of the transatlantic relationship. A few even predicted divorce between the USA and its European allies (Cox, 2005). Of course, this simplistic analysis obscured as much as it illuminated. After all, many European countries did in the end support the war against Iraq. Moreover, in the USA itself there was a powerful current of
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academic opinion that attacked the Bush administration on the distinctly European grounds that Bush was fast destroying the legal and institutional foundations of international society by going to war without UN support. Still, there was no doubting the divide. Indeed, at least one inuential American closely associated with the new Bush doctrine of pre-emption even penned what turned out to be an inuential essay in 2002 discussing the underlying causes of the division (Cox, 2003). As Robert Kagan went on to explain, the divide was not about personalities or policies; rather it was about the different kinds of international entities the USA and Europe (the EU in particular) had become since the end of World War II. The USA, he noted, was the only superpower with global reach, international responsibilities and a military capacity to match its commitments. Europe, on the other hand, was primarily concerned with making peace and building a new kind of Europe. In his own much-quoted words, Americans as result had become Martians willing and able to deploy hard power and Europeans Kantians constitutionally incapable of using force when necessary to address serious international issues (Kagan, 2002). The discussion about the sources of what was now assumed by many to be a profound breach in the transatlantic relationship continued unabated through most of the Bush presidency, with many Americans now accusing Europeans of being almost genetically anti-American, and many Europeans (notably on the left) attacking the USA for its arrogance, the result they concluded of a profound imperial desire to make and remake the world in its own image. But another, equally profound difference, began to emerge too. However, this had less to do with power and more with the very different ways in which Europeans and Americans seemed to construct the threat itself. Terrorism, it was agreed, was a massive problem. But when Bush began to talk of a global war against terror, critical European voices started to be raised. As Michael Howard (2002) pointed out in an early but highly inuential critique, the idea of a war on terror was a dubious one. Not only did it lend legitimacy to al Qaeda; it also presupposed an extended conict that might continue ad innitum. The notion was also strategically incoherent. No state or group of states could declare war on a method and nor should they try to do so. Even the Bush team at times seemed unsure of how to frame the problem. Indeed, at one point his administration even replaced the notion of a global war against terror with the apparently less offensive idea of a long war.6 At one level, such rhetorical framing mattered not one jot. However, it did point to (at best) a lack of strategic clarity and (at worst) to a lack of condence in what the USA and its allies were supposed to be uniting against (Cox, 2002).
This in turn raises a second more theoretical issue about whether or not it is possible to sustain any kind of strategic alliance against something as nebulous as terror. Here the way alliances have been forged in the past and the way this new alliance was being put together bear serious comparison. As different writers have shown, alliances may be formed for many different reasons, but one of these has to do with the existence of a credible threat (Walt, 1987). Herein lay a problem for the war on terror. As Barry Buzan (2006, p. 112) has observed, while serious, the terrorist threat simply lacked the depth of the Soviet communist one and the key reason it lacked such depth was that that it had no tangible reference point in the shape of a welldened state with serious power capabilities (Snyder, 1997). Not only that. In different countries at different times the threat was perceived in very different ways. Thus, immediately after the London bombings of 2005, British opinion was decidedly hawkish. However, it became a good deal less hawkish once the dust had settled (Transatlantic Trends, 2006, p. 4). Meanwhile, in other countries in Europe where no such attacks had occurred (with the exception of Spain), views tended to range from the complacent to the war-weary. To complicate matters even further, there was (until Obamas election) a growing belief on one side of the Atlantic at least, that the Bush administration was manipulating tensions created by the security situation either to build a new US empire (a most popular term in Europe between 2001 and 2008) or to further his own political ambitions. The fact that the war on terror helped get the republicans re-elected in 2004 hardly helped to generate consistent, across-the-board support for US goals, especially in Europe (Jenkins, 2007). Scandals such as Abu Ghraib and Guantanamo did not help either. Indeed, it was not just the decision to go to war against Iraq that caused such consternation in Europe. It was also what looked to most European as being Bushs abandonment of the core values closely associated in their minds with the idea, and indeed the ideal, of the West (Wilkinson, 2005, pp. 1718; 2425). Threat perception is a delicate thing and if ordinary citizens not to mention inuential opinion-makers feel they are being sold something dubious, it makes waging any kind of war much more difcult. This brings us then to the question of Islam itself and the problematic ideological source of jihad. Here again, the global war on terror involving the wider Atlantic community faced signicant, perhaps insurmountable, obstacles in creating anything like a consensus. There were at least three reasons why. Firstly, radical Islam, unlike communism, had and has only limited ideological appeal. It is not, in other words, a universal threat. Consequently it was much less likely to have the same uniting and mobilizing capacity as
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communism. Secondly, most Muslims (unlike most communists during the Cold War) did and do not seek the overthrow of the various states in which they happened to be living. Indeed, as opinion polls in the West have shown, while ordinary Muslims may not approve of Western interventions in the Middle East, only a very small minority is prepared to translate that criticism into militant action. Thirdly, though Islam may be dened by some in the West as the problem, policymakers themselves understood that if jihad was to be successfully contained, the West had to seek some understanding with those states that were themselves Islamic in character. Even the USA was forced by the logic of its war to seek alliances with at least two countries Pakistan and Saudi Arabia whose elites have either displayed some sympathy with the terrorists or have been willing to use them for their own political purposes (on the former, see Zahab and Roy, 2004; on the latter, Wright, 2006). Finally, the war on terror was launched into an international system that was altogether more complex in character than the somewhat simpler world that had been left behind in 1989. As Fred Halliday (1984) reminded us some time ago, the great success of the Cold War in forging accord between potentially fractious and competitive states was not because the USSR was more powerful than the USA. Rather, it was because the USA as the leader of the West was able to construct the world in such a way that other critical issues were either seen as being secondary to it or could be folded into the larger EastWest competition. This nesting of issues was to prove altogether more difcult in the rst decade of the 21st century (Garton Ash, 2004). Indeed, if polls were to be believed, until 2008 as many people in Europe (if not in the USA) viewed global warming to be just as much a threat to world order as terrorism. Then, with the onset of the economic crisis in 2008, the focus shifted again, but not towards terrorism but instead towards the profound uncertainties facing ordinary people as they began to come to terms with the biggest material challenge to their lives since the end of World War II.
Obama and the future

The failed attempt to construct a new foreign policy paradigm that would unite allies and mobilize support on both sides of the Atlantic led to what can only be described as a profound political crisis, most obviously in Europe where political elites continued to confront a tide of anti-Americanism that was doing much to undermine the ideological foundations of the transatlantic relationship, as well as in the USA itself, where many in the foreign policy establishment were becoming only too aware of how much soft power support the USA was beginning to lose in Europe. To be fair, Bush made
several attempts during his second term to repair the damage but to little avail (Quinn and Cox, 2008). It would in the end require a very different kind of US leader to make good the damage. It is difcult to recall a time when the election of a new US President excited as much enthusiasm in Europe as did the election of Barack Obama in November 2008. Indeed, whereas Bush had found it increasingly difcult to visit Europe without a massive police presence to protect him from often violent anti-war activists, Obama on his many early visits across the Atlantic was greeted with quite extraordinary enthusiasm. Even in France, where anti-Americanism had become an integral part of French identity, Obama appeared to be able to do no wrong. In Germany, too, the mood swung back from sullen opposition to US foreign policy to a recognition that someone very different, espousing what many felt was an acceptable world view, was now in charge. Nor did the rapprochement end there. Indeed, a year after his election, a new and inuential book appeared suggesting that, far from being Martians and Venutians with competing world views and different attitudes to the uses of power, Americans and Europeans were in fact remarkably similar in outlook. Some may have liked to stress how different the two were. But they did so not because the differences were especially great but because they were, in fact, fairly minor. As it turned out Americans and Europeans were more like each other than anybody else, and much more like each other than some conservative Americans and certain leftish Europeans would ever dare to admit! (Baldwin, 2009) Obamas efforts in the early months of his administration to revitalize the transatlantic partnership both in word and in deed Secretary of State Hillary Clinton argued in January 2009 that the USA had no closer allies than the Europeans (Clinton, 2009) could not, however, paper over all the cracks. Even Obama himself, with his own very special kind of background an African father and a radical white mother never quite sounded like a natural Atlanticist. Nor did his own world view admit of too much sentimentality when it came to thinking about Europe. Indeed, as he began to think more seriously about the world, not only did he conclude that the USA had to think in fresh ways that did not make it constantly hostage to events in the Middle East but that the world more generally was fast evolving and that in this new world in formation some very new partners would have to be found. Moreover, these partners (note they were not thought of as allies in the traditional sense) were more likely to be found in rising and prosperous Asia than in declining Europe, where profound economic problems were rendering the countries there more of a problem than a solution when it came to restoring health to the world economy. Nor was Obama sentimental when it came to thinking about the role the USAs
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European allies were playing, or rather not playing, in NATO. Indeed, when his own Secretary of Defence stepped down from ofce in June 2011, he expressed quite openly what Obama must have been thinking privately: that NATO had, in effect, become a two-tiered alliance poorly equipped and too divided to deal with the challenges facing the world in the 21st century. The sense that Europe was becoming less useful as an ally and thus beginning to matter less to the USA was made clear in a widely publicized opinion poll published in the USA 2 years into the Obama presidency. The results were very worrying for those concerned about the health of the transatlantic relationship. The problem was not just that Europeans were not doing enough militarily (that was bad enough); it was that Europe as a whole was fast losing its privileged importance in the eyes of most Americans. Indeed, according to Pew, whereas 44 per cent of Americans in 2001 regarded Europe as being of the greatest importance to the USA, 10 years on it was now Asia that was viewed as being more central (Pew, 2011). Moreover, within the state system as a whole, it was now China and not, say, more traditional allies such as the UK or Germany, that was increasingly seen as being more crucial to the USAs long-term national interests. Nor was this new interest in Asia and China conned to the American public. In the academic world, book after book and article after article began to be written about the supposed power transition now underway in Asia. Meanwhile, in the popular press the number one story was fast becoming Chinas rapid economic rise and what this was going to mean for the USA: economic opportunity, strategic threat or perhaps even a combination of the two? Either way, there was no getting away from the fact that in the US views about the world were changing, and changing in ways that were starting to generate some nervousness on the other side of the Atlantic. But it was what American policymakers began to say and do that set alarm bells ringing most and, in particular, it was their repeated reference to a new Asia pivot in what some were predicting would become a new Asian century, that started to concern Europeans most. Secretary of State Hilary Clinton could not have been more explicit. The USA, she argued, had been for too long preoccupied with threats arising from within the wider Middle East. Now it would be turning its attention more and more towards Asia in part because this is where the future lay, in part because it was in Asia where real growth was to be found, and in part because Asia was home to two of the worlds rising superpowers India and China. Clinton also made it clear that she was breaking from tradition (presumably one that hitherto had led Americans always to think of Europe rst) and would now be making Asia her top priority. She
even emphasized how many trips she had already made to Asia by late 2011 (seven in all) before going on to outline in some detail why America had always been, and presumably would always remain, an Asian power. Clintons bold vision certainly made for exciting reading. However, it had the presumably unintended consequence of upsetting two very distinct audiences: the one in Beijing that saw it as nothing less than a manifesto of containment directed against China; and the other one in Europe that felt that Europe had become invisible. Where, they asked, did Europe t into this brand new order of rapidly shifting partnerships? It was not at all clear. Moreover, if the world was going to be dened by what transpired in Asia, as Clinton most clearly suggested, then what exactly was the purpose of the transatlantic relationship? No answers were provided but the implication was clear: in a new international order where alliances were, in her words, being updated to cope with the challenge posed by China, more established relationships would almost certainly become increasingly marginal. A new world beckoned (Clinton, 2011).
Conclusions
In this brief essay I have looked at two great moments in the history of the transatlantic relationship since the end of the Cold War in 1989: one that divided allies badly because one of those allies the USA under President Bush chose to respond to terrorism in ways that many Europeans were unable to accept; and another that has led the same ally to conclude that in a world where economic power is shifting eastwards towards Asia, the transatlantic relationship is bound (at worst) to become irrelevant, or likely (at best) to become far less important. What has also contributed to this feeling in the USA has been the apparently unending economic crisis in Europe itself. It is bad enough, Americans argue, that Europeans fail to deliver anything like enough when it comes to international security. It is almost unforgiveable, they continue, when Europe then fails to do what it could at least claim to have been doing from 1945 onwards: delivering prosperity to its own people while helping engineer growth in the larger world economy. But how seriously should Europeans be taking all this? After all, in spite of their separate economic woes, the economic relationship between Europe and the USA still remains crucially important (Quinlan and Hamilton, 2012). Europe meanwhile shares a whole raft of values with the USA. And for all its weaknesses and inadequacies, the NATO alliance continues to be the only serious multilateral, military alliance in the world today one from which the USA, as much as the Europeans, still derive enormous benet. Still, it would be foolish to ignore the warning signs by hiding behind the old transatlantic
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mantra that in a world of uncertainty the democratic West needs to stay united. Indeed, as we have seen, the West has done anything but over the past 10 years. Nor is there much comfort to be drawn from the current foreign policy debate in the USA itself. Obama may sound acceptable to European ears but he remains a quintessential American president who obviously does not look at the world in traditional Atlanticist ways. Nor, increasingly, do other Americans. In fact, when his political opponents on the right attack him not just for being not American enough, but for being much too like a European, Europeans should sit up and take note. The old certainties, and in part the old diplomacy, that held the western alliance together no longer pertain and the sooner Europeans recognize this, the sooner they will be able to forge a new role for themselves in a fastchanging world.
Notes
Paper presented to the 2011 Dahrendorf Symposium, Berlin, Germany, 910 November 2011, Panel: GLOBAL EUROPE. 1. See in particular Bob Woodwards four best-selling books on the Bush administration, why it decided to liberate Iraq and how then it became dened some would argue undermined by that decision. Bush at War (2002) describes the path to war with Afghanistan following September 11. 2. For the use of analogy in the run up to the war in Iraq, see Record (2007). 3. The Pearl Harbor of the 21st century took place today, Bush noted in his diary on the night of 11 September 2001. Cited in Woodward (2002, 37). 4. Fifty six per cent of Americans and Europeans do not feel that the values of Islam are compatible with the values of democracy, (Transatlantic Trends, 2006, 4). Washington DC. 5. Large numbers of Americans and Europeans agree on the importance of global threats with the largest increase over the year in those who see Islamic fundamentalism as an extremely important threat (Transatlantic Trends, 2006, 4, pp. 78). 6. See Abizaid credited with popularizing the term long war (Washington Post, 3 February 2006). President Bush also sought to place the enemy in the camp of fascism, hence his brief use of the term Islamo-Fascism to describe jihadists of all shapes and sizes.
References
Baldwin, P. (2009) The Narcissism of Small Differences: How America and Europe are Alike. Oxford: Oxford University Press. Bozo, F. (2007) Mitterands France, The End of Cold War, and German Unication: A Reappraisal, Cold War History, 7 (4), pp. 455478. Buzan, B. (2006) Will the Global War on Terrorism Be the New Cold War? International Affairs, 82 (6), pp. 11011118. Cox, M. (1995) US Foreign Policy after the Cold War: Superpower without a Mission? London: Francis Pinter, Chatham House. Clinton, H. (2009) Remarks by Hillary Clinton during Senate Foreign Relations Committee Hearing on January 13. Available from: http:// www.state.gov/secretary/rm/2009a/01/115196.htm.
Clinton, H. (2011) Americas Pacic Century, Foreign Policy. November. Available from: http://www.foreignpolicy.com/articles/2011/ 10/11/americas_pacic_century?page=full. Cox, M. (2002) American Power before and after 11 September: Dizzy with Success? International Affairs, 78 (2), pp. 261276. Cox, M. (2003) Martians and Venutians in the New World Order, International Affairs, 79 (3), pp. 521532. Cox, M. (2005) Beyond the West: Terrors in Transatlantia, European Journal of International Relations, 11 (2), pp. 203233. Cox, M. and Stokes, D. (2012) U.S. Foreign Policy, second edition. Oxford: Oxford University Press. Cox, M. (2011) The Uses and Abuses of History: the end of the Cold War and Soviet Collapse, International Politics, 48 (45), pp. 627 646. Gaddis, J. L. (2002) A Grand Strategy, Foreign Policy, 113, pp. 50 57. Halliday, F. (1984) The Making of the Second Cold War. London: Verso. Howard, Sir M. (2002) Whats in a Name? How to Fight Terrorism, Foreign Affairs, 81 (1), pp. 813. Howe, I. (1979) Celebrations and Attacks: Thirty Years of Literary and Cultural Commentary. London: Andre Deutsch. Ikenberry, J. (2001) After Victory: Institutions, Strategic Restraint and the Rebuilding of Order after Major Wars. Princeton, NJ: Princeton University Press. Ikenberry, J. (ed.) (2002) America Unrivaled: The Future of the Balance of Power. Ithaca, NY: Cornell University Press. Jenkins, S. (2007) They See it Here, They See it There, They See Al-Qaeda Everywhere, The Sunday Times, London, 29 April, p. 16. Kagan, R. (2002) Power and Weakness, Policy Review, 113, 328. Krauthammer, C. (1991) The Unipolar Moment, Foreign Affairs, 70 (1), pp. 2333. Lieven, A. (2001) Fighting Terrorism: Lessons from the Cold War, Policy Brief, 7, Washington DC: Carnegie Endowment for International Peace. Lieven, A. and Hulsman, J. C. (2006) Neo-Conservatives, Liberal Hawks, and the War on Terror, World Policy Journal, 23, 3, pp. 6474. Lundestad, G. (2003) The United States and Western Europe since 1945: From Empire by Invitation to Transatlantic Drift. Oxford: Oxford University Press. Lundestad, G. (ed.) (2008) Just Another Major Crisis? the United States and Europe Since 2000. Oxford: Oxford University Press. Macdonald, D. B. (2004) Thinking History: Fighting Evil. Lanham: Lexington Books. Mann, J. (2004) Rise of the Vulcans: The History of Bushs War Cabinet. New York: Viking. Quinlan, D. S. and Hamilton, J. P. (2012) The Transatlantic Economy 2012. Achool of Advanced International Studies, John Hopkins University. Available from: http://transatlantic.sais-jhu.edu/transatlantic-topics/transatlantic-economy-series.htm [accessed 20 September 2012]. Quinn, A. and Cox, M. (2008) Fear and Loathing in Brussels: The Political Consequences of Anti-Americanism, in R. Higgot and I. Malbasic (eds), The Political Consequences of Anti-Americanism. London and New York: Routledge, pp. 93107. Pew Research Centre for People and the Press (2011) Strengthen Ties With China: But Get Tough on Trade 12 January. Available from: http://pewresearch.org/pubs/1855/china-poll-americanswant-closer-ties-but-tougher-trade-policy accessed 20 September 2012].
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Record, J. (2007) The Use and Abuse of History: Munich, Vietnam and Iraq, Survival 49 (1), pp. 163180. Roberts, J. M. (2002) The New Penguin History of the World, fourth revised edition. London: Penguin Books. Shapiro, I. (2007) Containment: Rebuilding a Strategy Against Global Terror. Princeton, NJ: Princeton University Press. Trotsky, L. (1984) Europe and America: Two Speeches on Imperialism. New York: Pathnder Press. Wilkinson, P. (2005) International Terrorism: the Changing Threat and the EUs Response. Chaillot Papers 84. Paris: European Union Institute for Security Studies. Woodward, B. (2002) Bush at War. New York: Simon & Schuster.
Wright, L. (2006) The Looming Tower: Al-Qaeda and the Road to 9 11. New York: Knopf. Zahab, M. A. and Roy, O. (2004) Islamic Networks: The PakistanAfghan Network. London: Charles Hurst & Co.
Author Information
Professor Michael Cox is a Founding Director of IDEAS, a foreign policy Think Tank at the London School of Economics and Political Science, and a member of the Department of International Relations.
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The EU as a New Form of Political Authority: The Example of the Common Security and Defence Policy
Research Article
Mary Kaldor
Abstract
This article puts forward the argument that the EU should be understood not as a nation-state in the making but as a new type of polity that could offer a model of global governance. It uses the example of the Common Security and Defence Policy (CSDP) to illustrate the argument. It suggests that CSDP is designed to make a contribution to global security rather than to protect borders using military force, as in the case of classic nation-states. It proposes that CSDP should be explicitly based on the concept of human security and should acquire human security capabilities that include both military and civilians operating according to human security principles in a way that is more like law enforcement than ghting wars. To achieve this, the CSDP would require stronger political backing and this would mean increasing the representativeness and accountability of the EU. By the same token, an effective CSDP would increase the legitimacy of the EU.
Policy Implications
The EU should explicitly adopt the concept of human security as a basis for external security policy both at the level of high and low politics. CSDP should be greatly strengthened with more resources devoted to the kind of military and civilian capabilities required for human security missions. New mechanisms, including perhaps a pan-European election for a single president of the Commission and Council should be introduced in order to increase the accountability and deliberative engagement of the Union.
There is general agreement that Europe has to go forwards or it will go backwards. Saving the euro is critical not just for Europe but for the global nancial system. Failure to save the euro could plunge Europe into a new Dark Ages characterised by economic depression, xenophobia and pervasive violence, with ripple effects on the rest of the world. There is also a widespread consensus that to save the euro Europe has to go forwards, although there is some disagreement about what this means. For some, like Angela Merkel, going forwards means tighter rules about the size of budget decits and more effective mechanisms to ensure compliance. For others, going forwards means the creation of Eurobonds, a European scal mechanism, common banking supervision and, above all, a unied and accountable political leadership. At the same time, few people think that either of these options
is possible. The rst requires drastic austerity on the part of indebted countries that may actually reduce revenue and make decits worse not to mention the human cost. Yet there are concerns that the second would imply a further loss of national sovereignty and that the EU might become a new superpower. Within national capitals, politicians have for so long blamed Europe for difcult decisions that they feel unable to mobilise political support for any new steps towards integration. There is currently much handwringing about the decline of Europe. It is true that the rapid growth of China and India has shifted the economic centre of gravity (Quah, 2011). Nevertheless, Europe remains the biggest economic bloc and a continuing source of economic, cultural and political innovation. But its economic weight is not matched by an ability to act politically because of the widespread reluctance to further the European political project.
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In this article, I argue that fears about Europe becoming a superpower and overriding national sovereignty are unfounded because the EU is a new non-state form of political authority, a new type of polity that could offer a model for global governance. Going forward is, therefore, not just critical for Europe but it could also contribute to the development of new political mechanisms capable of addressing the global challenges of our time. Europeans invented the nation-state model a model that had huge advantages in terms of economic development but that also culminated in two world wars and the Holocaust. The EU has been developed through trial and error in reaction to that experience. In developing this argument, I use the example of the Common Security and Defence Policy (CSDP), formerly the European Security and Defence Policy (ESDP), as an illustration, albeit a crucial illustration. I have chosen this example partly because security is at the heart of political authority and partly because it is the case I know best. I will argue that CSDP does represent, in Jolyon Howarths words a radically new discourse (Whitman, 2011, p. 12) but it is constrained by many factors, not least the lack of politics at a European level. I will conclude by suggesting that we need an elected president who could oversee the CSDP and by the same token an effective CSDP that could help to legitimise European political leadership.
The EU as a model for global governance

In a celebrated article in 2002 Ian Manners described the EU as a normative power (Manners, 2002). This term seemed to contain three meanings. Firstly, the EU is a normative actor, acting in global affairs in support of norms rather than interests. Secondly, the EU relies, in Manners (2011) words, on ideational power, what Joseph Nye calls soft power rather than material (economic) or physical (military) power. Thirdly, and intriguingly, it refers to the ability to dene what is normal in international relations (Manners, 2002, p. 253). I suggest that it is this third aspect that has most relevance in understanding the signicance of the EUs role in global affairs. The debate about norms versus interests is paralleled by the debate about geopolitics versus cosmopolitanism or, in international relations terms, realism versus idealism. It can be illustrated by the debate about humanitarian intervention in the aftermath of the Cold War, that is to say, whether it is legitimate to use military force to prevent genocide, ethnic cleansing or the massive violations of human rights in other countries. Those who oppose humanitarian intervention on the left argue that concern about humanitarian issues is not motivated by universal values but is instead a way to legitimise geopolitical interests (Chomsky, 1999). This is an empirical claim about the way that great powers behave. Those
who oppose humanitarian intervention on the right make a normative claim that states ought to act in the national interest and that they should not interfere in the affairs of other countries unless it can full some geopolitical goal. This was the opinion underpinning the advertisement signed by a group of well-known realists opposing the intervention in Iraq (even though this cannot be categorised as a humanitarian intervention) on the grounds that this intervention did not serve the national interest (New York Times, 2002). What the debate illustrates is the difculty of distinguishing norms from interests since interests are always framed in terms of norms. Thus, the dominant US foreign policy narrative is expressed in terms of a moral story about the USA as a global policeman acting in support of freedom on the American model. Foreign policy may or may not be shaped by interests but those interests are given meaning in terms of what is widely viewed as good or evil. The question is therefore not norms versus interests but the way norms are dened. Both the USA and the EU share a commitment to democracy and human rights. Where the EU differs from the USA in terms of norms is in its overriding commitment to peace and the spread of international law. This difference derives from different historical experiences. For the USA the victory in World War II was a foundational moment ushering in a golden age of American hegemony aimed, at least in theory, at the spread of democracy and prosperity. According to this view of the world, military power is an important instrument for the promotion of democracy and human rights. For most members of the EU, World War II is remembered with shame and horror. The founders of the EU were primarily concerned with the construction of a multilateral system that could prevent war, genocide and imperialism in the future. Hence the interest of the EU is framed in terms of preventing war and fostering interdependence and, as I shall argue, the dominant foreign policy narrative is cosmopolitan rather than geopolitical. There is a parallel here with the behaviour of what Asle Toje calls small powers. Small powers do not have the capabilities of great powers but are nevertheless system-inuencing powers. Because they lack the capabilities of great powers they dene their interest in terms of international norms. Or to put it another way, since they could never win in a war with a great power, their interest is the prevention of war. Hence, small powers contribute disproportionately to the construction of international institutions, to peace building and global development; they favour the strengthening of international law. The EU acts in a similar way, not so much because of a lack of capability but because of fears of Westphalian sovereignty and balance of power and of the consequences they had for European stability prior to 1945 (Toje, 2011, p. 55). In other words, if US interests
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are expressed in normative terms, the EU promotion of norms is seen as being in the EU interest. A similar and related difculty arises with the denition of normative power as communicative power (Habermas, 1983) or soft power (Nye, 2004) or power over opinion (Carr, 1939). Both economic and military powers are forms of communication. Is not war wrote Clausewitz merely another kind of writing and language for political thoughts? (Clausewitz, 1997, p. 358). The perception of American military power stems largely from the memory of the American victory in 1945. The huge military arsenal serves to remind us of that victory; it is meant as a signal. The concept of deterrence is a communicative concept. The actual use of military power in Vietnam, for example, or more recently in Iraq and Afghanistan, has hugely dented the perception of military strength and done great damage to the reputation on which American power rests. Those who oppose the acquisition of military capabilities by the EU fear that the EU will become a superpower according to the American model. This presupposes that military power consists of the type of capabilities possessed by the USA, designed for ghting a war against other states. But, as I shall elaborate in the next section, there is a role for military capabilities in enforcing peace and upholding human rights that is very different from classic war. In other words the issue is not military versus communicative power, even though there is a shift in the balance between coercive and persuasive instruments, but what kind of power, that is to say, what is being communicated through the use of military tools. A parallel argument can be made with respect to economic power. In the rst two decades after World War II the US used its massive economic power to spread markets and prosperity through insistence on an open international trading system and through generous aid. As the USA began to lose it competitive edge it increasingly began to act unilaterally, sucking in resources from the rest of the world through growing indebtedness made possible by the privileged role of the dollar. Thus, most of the world now considers that American economic power is used for the sole benet of Americans, whereas earlier it was perceived as a contribution to global development, especially in Europe, the recipient of Marshall aid. So what distinguishes the EU from traditional great powers is not norms versus interests nor hard versus soft power, rather, it is the nature of its political authority and how this inuences the way in which interests are framed or the use of hard power. Manners calls the EU a hybrid polity. It is a new form of regional governance designed not to displace the nation-state but to constrain its dangerous tendencies for both economic and military unilateralism; it adds a new layer of political authority rather than establishing a new pole of political
authority. It is a multilateral institution but goes beyond internationalism (between states) and possesses an element of supranationalism (beyond states). This new form of authority necessarily acts in support of the spread of similar types of authority and therefore its self-identication is expressed in idealist more than realist terms. It has an interest in preventing wars and strengthening international law as well as human rights. And it promotes values that are cosmopolitan (relating to individuals), as Sjursen (2006) argues, as well as multilateral (relating to states). This type of authority also depends more on economic and communicative tools than on military capabilities because its interest is in dampening down and preventing violence rather than winning, although this does not mean that military capabilities are irrelevant. As Manners puts it: The idea of pooling sovereignty, the importance of a transnational European Parliament, the requirements of democratic conditionality, and the pursuit of human rights, such as the abolition of the death penalty, are not just interesting features, they are constitutive norms of a polity, which is different to existing states and international relations. Thus the different existence, the different norms, and the different policies the EU pursues are really part of redening what can be normal in international relations (Manners, 2002, p. 253).
The role of CSDP

From the beginning of the European project there was a tension between the conception of the EU as a future superpower, a bigger nation-state, able to challenge American hegemony, and the conception of the EU as a new type of global actor. That tension centred around the acquisition of military capabilities. The proposal to create a European defence community in 1954 was defeated by a combination of those who wanted to preserve the nation-state and those who opposed militarism. This unholy alliance between old-fashioned nationalists and anti-war activists has been reproduced in recent years in the French and Dutch Noes in the referendum on a European Constitution, which was viewed by those on the left who opposed the Constitution as too militaristic (as well as too neoliberal). The ESDP, now the CSDP, has been in existence since 2003. It was proposed at the Anglo-French summit in St Malo in 1998, during the Kosovo crisis, when the British withdrew their opposition to the acquisition of military capabilities by the EU in frustration at American unwillingness to commit ground troops. From its inception, the ESDP was different in kind from a classic national security strategy. It was conned to the so-called St Petersburg tasks humanitarian and rescue, peacekeeping and crisis management as opposed to classic territorial defence, which was seen as the preserve of NATO
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and of individual nation-states. The European Security Strategy of December 2003 emphasised the multilateral approach of the EU and insisted that in contrast to the visible threats of the Cold War, none of the new threats are purely military; nor can any be tackled by purely military means (European Security Strategy, 2003, p. 7). Since its inception, ESDP has involved military-civilian cooperation; it established a military-civilian planning cell and it has pioneered civilian crisis management. At the time of writing there have been 25 ESDP missions, of which 14 are ongoing. Roughly half of these have been purely civilian, involving monitoring (Aceh and Georgia) or rule of law and policing missions (EU External Action 2012). Where there have been military missions, the military have been used for the protection of civilians as opposed to war-ghting. For example, there have been two military missions to the Democratic Republic of Congo. One, authorised by the UN in 2003, was code-named Artemis and was aimed at stabilising the situation in Bunia and stopping a massacre of civilians. The other was a military operation in 2006 to maintain stability in Kinshasa during the elections. The European forces consulted widely with local citizens and acted robustly to prevent an attack on the opposition, thereby establishing their neutral credentials (Martin, 2010). According to an Oxfam report on the mission to Chad in 2008, the European force has made many civilians feel safer through its activities, which include patrolling known dangerous routes, destroying unexploded ordnance, making contact with local leaders, and positioning itself defensively around civilians during rebel and government ghting (Menon, 2009, pp. 229230). The human security doctrine In the Barcelona and Madrid Reports of 2004 and 2009 (Study Group on Europes Security Capabilities, 2004; Human Security Study Group, 2007) a study group composed of practitioners and scholars from all over Europe that reported to Javier Solana, the then High Representative for Common Foreign and Security Policy and (in the case of the Madrid Report) to the Finnish Presidency, proposed that the EU should explicitly adopt a human security approach. Instead of military forces on the nation-state model, the EUs external security capabilities would consist of combined military and civilian forces under a civilian command, designed to contribute to global security and operating according to a set of principles that contrasted with the way classic military forces are used. The concept of human security was originally put forward by the United Nations Development Programme (UNDP) in its Human Development Report of 1994.1 Human security was dened in terms of the security of individuals and the communities in which they live
rather than the security of states and borders. However there are widely different variants of what is meant by security. The Barcelona and Madrid reports focused on violent situations, in contrast to the original broad UNDP denition that dened security in terms of all life-threatening harm and emphasised the importance of development as a security strategy. But, in contrast to the narrower Canadian denition that focuses on political violence, they addressed a range of interrelated forms of violence (armed conict, human rights violations and organised crime) as well as the ways in which these had to be understood in terms of economic and social factors. What distinguished the study groups concept from other variants of human security was something specically European the notion that internal security is not so very different from external security. For the nationstate, internal security based on the rule of law and policing was sharply differentiated from external security based on the defence of borders and interests using military capabilities. For the EU, security among European states has been achieved through enhanced multilateralism and the extension of cosmopolitan law (international law relating to individuals) and this is what has made it a new type of non-state political entity. Essentially, human security is the outward extension of the EUs internal method of bringing about peace among European states. It involves enhanced multilateralism and the strengthening of cosmopolitan law. It requires capabilities that are more like domestic emergency services (such as the police, reghters and health services) than traditional military forces. But some military skills are required, since what is known as robust policing is necessary if the EU is to contribute to the prevention or dampening down of violence in other parts of the world. It is worth noting here that what is being proposed is a capacity to undertake St Petersberg tasks, including humanitarian intervention. But to carry out those tasks, it is argued, requires a new type of human security capability. To elaborate what such capabilities are supposed to be able to do and to show how different they are from classic military forces, the study group developed six principles of human security. Briey, these are shown in Box 1. These six principles sharply differentiate the role of human security forces from classic military forces. They are also different from classic peacekeeping, which was mainly supposed to separate the sides in a conict rather than protect civilians or uphold human rights. Some suggest that concepts of population security, associated with the new American counter-insurgency doctrine introduced by General Petraeus, are rather similar; but counter-insurgency is a militarily-led (as opposed to civilian-led) doctrine in which population security is a means to an end (defeating enemies) rather than a goal
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Box 1. Principles of Human Security

1. The primacy of human rights. In human security operations, the goal is protecting civilians, not defeating an enemy. This means that human rights, including the right to life, education, clean water, and housing must be respected even in the midst of conict. It also means that so-called collateral damage is unacceptable. If human rights are not respected, outside interventions can fuel insurgencies as happened in both Iraq and Afghanistan. One of the reasons that the IRA never grew to be unmanageable was the fact the British government could not bomb Belfast, where British citizens would have been killed in collateral damage. 2. Legitimate political authority. In the long run, human security can only be provided by local authorities whom people trust. In Afghanistan, Western support for the Karzai government, which includes many former warlords and corrupt police, presents perhaps the largest obstacle to human security. The job of outside forces is to create safe spaces where people can freely engage in a political process that can establish legitimate authorities. In other words the aim of human security forces is stabilisation not victory. 3. A bottom-up approach. The population affected by violence and insecurity must be involved in a human security strategy, and yet the international community often operates in protected enclaves without communicating with people. In the end, it is the people who live in areas of insecurity that are the ones who have to solve their problems, together with those from outside who have contributed to making them worse. That is why rather than working solely with international NGOs and exiles, outsiders must engage local experts and civil society groups. 4. Effective multilateralism. If outsiders are to have the consent of the local population, they must also be seen as legitimate. This means operating within the framework of international law, usually under a UN mandate. Security policies cannot be effective if they are spread out among many different agencies, governments and NGOs. 5. Regional focus. Human insecurity has no clear boundaries. It spreads through refugees and through criminal and extremist networks, through economic and environmental calamities. The violence in Afghanistan, for example, cannot be addressed without also involving not only Pakistan but also Iran and Uzbekistan. 6. Clear transparent civilian command. In human security operations, civilians are in command. This means that the military operate in support of law and order and under rules of engagement that are more similar to police work than the rules of armed combat. Everyone needs to know who is in charge and he or she must be able to communicate politically with local people as well as public opinion in the sending countries. (Human Security Study Group (2007)
in itself (in which it might be necessary to repel enemies as a means). These human security principles should be viewed as a methodology for cosmopolitan law enforcement. There is growing agreement, as Alvaro De Vasconcelos, the Director of the EUs International Institute for Strategic Studies, puts it, that the EUs security doctrine is generally considered to place human security at its heart (de Vasconcelos 2009, p. 17). In the Report on the Implementation of the European Security Strategy in 2008, the Council of the European Union stated (EU 2008, p. 2): Drawing on a unique range of instruments, the EU already contributes to a more secure world. We have worked to build human security, by reducing poverty and inequality, by promoting good governance and human rights, assisting development and addressing the root causes of conict and insecurity. Over the last decade, the European Security and Defence Policy, an integral part of our Common Foreign and Security Policy, has grown in experience and capability, with over 20 missions deployed in response to crises, ranging from post-tsunami peace building in Aceh to protecting refugees in Chad. These achievements are the results of a distinctive European approach to foreign and security policy. (Italics added). The example of Libya The recent Western intervention in Libya can be used to explain what might have been different had the EU
rather than NATO taken the lead. United Nations Security Council Resolution 1973, adopted on 17 March 2011, was a huge achievement just in time to prevent Gaddas forces from overrunning the eastern town of Benghazi that pro-democracy protestors had liberated. For the rst time, the idea of the responsibility to protect moved beyond a Euro-American preserve. It was pushed by the Arab League and both Russia and China abstained. The Resolution called on member states and regional organisations to take all necessary measures to protect civilians and civilian populated areas under threat of attack in the Libyan Arab Jamahiriya, including Benghazi, while excluding a foreign occupation force of any form on any part of Libyan territory (United Nations Security Council Resolution, 2011). Moreover, Resolution 1973 was preceded by Resolution 1970, which referred Libya to the ICC and imposed sanctions. However, the means adopted (air strikes) were quite inappropriate for protecting civilians on the ground. Because the USA initially took the lead and subsequently handed over the command to NATO, it was possible to think only in classic military terms. As in Kosovo in 1999 the international community relied entirely on air strikes and essentially became the military arm of the rebels. The air strikes did prevent an attack on Benghazi and helped, after 6 months, to lead to a rebel victory in Tripoli. But air strikes kill not only soldiers but also the very people that are supposed to be protected. Even if the
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strikes are very precise, there is always some collateral damage especially, since Gadda made use of human shields. And military conict causes suffering. Civilians always get killed in military conicts. Violent regime change also gives disproportionate political power to those with guns. A human security approach, as opposed to a war, would have focused on protecting civilians throughout Libya and guaranteeing their right to peaceful protest. The rst task should have been to declare Benghazi and the liberated areas a UN protected area or safe haven. Such an approach might have included the establishment of internationally protected zones and efforts to arrest those indicted by the International Criminal Court as well as providing humanitarian corridors. An EU plan for a small ground force to protect humanitarian assistance in Misrata failed to get UN authorisation. The original UN resolution ruled out foreign occupation forces but, as Alvaro de Vasconcelos pointed out, a small force with a strict humanitarian mandate to protect aid and civilians and not to engage in war-ghting is very different from a foreign occupation force (Traynor, 2011). The idea would have been to dampen down violence and create space for a political solution. De Vasconcelos was explicit that the strategy must not be predicated on a military solution, i.e. to help the forces of the National Council of Benghazi to victoriously advance on Tripoli (de Vasconcelos 2011, p. 2). In such a situation, human security forces should be drawn primarily from African and Arab countries. The point is that the EU approach offers an alternative both to engaging in a war, as happened in Libya, and to doing nothing, which could have been worse, as we are now seeing in Syria. It represents a possible model, not necessarily unique since African Union thinking is developing in a similar direction. Implications One should not exaggerate the achievements of the CSDP. It is still rather small in scale. The total number of troops currently deployed represents less than a 0.25 per cent of the total armed forces of member states. While European member states account for one quarter of global military spending, a tiny proportion goes towards the CSDP. Most CSDP ESDP missions lack capabilities. This capability gap is not a gap in sophisticated military equipment but consists of the kinds of capabilities required for this type of mission helicopters, air transport and satellite-based communications as well as civilian personnel, particularly police and legal experts (Weis, 2009). There are huge problems of coherence, not only with other international agencies, governments and nongovernmental organisations but also within the EU family, particularly with the Commission that undertakes
many parallel operations. So far, the appointment of Catherine Ashton to take charge of both Commission and Council external policy has not solved the problem. Most importantly, political backing for EU operations remains weak and divided and, indeed, helps to explain both the shortage of capabilities and the lack of institutional coherence. At a political level, external policy remains the province of nation-states. Despite the Lisbon Treaty, the fact that both Catherine Ashton, the High Representative for Common Foreign and Security Policy and Herman van Rompuy, the President of the Council, were appointed behind closed doors greatly weakens their perceived autonomy and legitimacy. Even through they may pursue cosmopolitan objectives they remained tied by the intergovernmental process at the political level. This is why there appears to be such a disjuncture between what the EU does at the level of what might be called low politics and what it does at the level of high politics. In terms of high politics, the EU seems to veer between being a normative, civilian or cosmopolitan power, or being a junior partner of the USA or the mouthpiece of individual European powers. Background studies of individual ESDP missions undertaken for the Madrid Report found that the ESDP operations were often thwarted by high-level politics. This might be for domestic considerations. For example, the mission to the Democratic Republic of Congo was much too short owing to German reluctance to commit forces abroad (Martin, 2010). Or it might be because foreign policy is shaped by other considerations. In the case of Palestine, for example, the European civilian police mission, which was really attempting to support the Palestinian police (as opposed to the various security forces armed by the USA and Iran) in maintaining law and order in the Palestinian territories, or the Rafah mission to help keep open the border with Egypt were frustrated by high-level policies that were aimed more at Israels perceived state security (under the inuence of the American commitment to the war on terror) than at the human security of Palestinians (and Israelis) (Faber and Kaldor, 2010). In Lebanon a serious problem was the contradiction between overall EU policy (largely aid and individual contributions to the UN mission on the border with Israel), which could be characterised as a contribution to human security, and the policy of France, which has been closely allied to the Lebanese government because of the intimate relationship between former President Chirac and the Hariri ruling family (Kaldor and Schmeder, 2010). A nal question is whether and how much Europes distinctive security policy contributes to global security. Can the CSDP make a difference? The Human Security Report 2010 shows that there has been a dramatic decline in wars between states;
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since 2003, what they call civil wars involving at least one state, have declined by 40 per cent; there has been a decline in one-sided violence by states, such as violence against civilians, but an increase in violence against civilians by non-state actors; there has been an increase of 119 per cent in smallscale violent conicts involving non-state actors. The Human Security Report attributes the decline of wars and one-sided violence involving states to the spread of global norms and to the greatly enhanced role of UN peacekeeping and peace-building. Undoubtedly, the revolution in communications has been an important factor in explaining growing human rights consciousness. It can also be argued that the EU as well as individual member states have played a signicant role both in promoting norms against war and human rights violations and in contributing to UN capabilities. All the same, the trend towards increased low-level non-state conicts is of considerable concern and likely to become more so as the effects of the economic crisis spread. While the Human Security Report suggests that such conicts are very localised, they have serious implications for the increase in transnational crime, population displacement or humanitarian need that cannot be ignored. There is a need for global security capabilities that can address this type of conict and it is for this type of violence that the CSDP has been designed.
Conclusion
I have tried to show that the CSDP represents a distinctive approach to global security that could potentially put into practice the kinds of cosmopolitan norms that a hybrid political entity like the EU could be expected to promote. Such an approach has to be seen as part of a wider transition in economic, social and environmental elds that is necessary to address the multidimensional crisis that the world is currently facing (Held et al., 2010). These changes tend to be blocked at a national level where the policies and ideas that have predominated in the post-war period have been institutionalised. The EU as a new type of political authority has the potential to help guide those changes. To do so, however, it needs to overcome its lack of internal coherence (among the member states and the different European agencies) and it needs to demonstrate publicly its relevance and responsiveness to European citizens. New mechanisms for deliberation and accountability are required. One proposal is the election of a president of both the Council and the Commission. Through a pan-European election for a single ofce holder it might be possible to shift discourse from national debates whether to be for or against Europe to a European debate about the kind of polity and the kind
of policies that Europeans favour. As there are huge objections to reopening any Lisbon negotiations, how this would be done would be the subject of further discussion. One starting point could be greater public involvement in the process of appointment of the Lisbon ofceholders by, for example, organising something like American primary elections to engage citizens in the deliberations leading up to the decision. There is, of course, a risk that such an election would be rather like the European parliamentary elections attracting a low turn-out and low interest. Its signicance will depend on the extent to which a broader public debate is generated. There is also a risk that the ofce of the president would reproduce the trappings of a nation-state or even a super power. The EU perhaps needs to invent some new form of representation and debate. The CSDP would be enormously enhanced by effective political leadership. By the same token, a legitimate political leadership would depend on an effective CSDP. People trust their institutions if they believe that they keep them safe. Protection is at the heart of the social contract among citizens, that is, it is the basis of political authority. Military forces are no longer symbols of legitimacy as most people are aware of the shortcomings of military power. Certainly, since the end of the Cold War and the collapse of the soviet threat, deterrence no longer has the same salience as it had and the actual use of military power, as in Iraq or Afghanistan, has often made things worse. According to opinion polls, over 70 per cent of the European population support the CSDP (de Vasconcelos, 2009). Making it clear that the EU does not have an army in the classic sense, that that the CSDP is based on human rather than national security principles and that human security forces are led by civilians rather than the military, could help, along with different economic policies, to overcome the objections of a sizable portion of the left. If the EU were seen to make a visible contribution to global security understood as the extension of international law rather than the defence of borders, it would greatly strengthen the EUs political standing at home and abroad. But that can only happen if something like an elected president is seen to take charge and to pursue a consistent normative politics. In other words, it is possible to envisage an interrelated transition process in which changes in security and politics along with economic changes could set in motion an alternative global dynamic. As a supranational form of regional governance, the EU have the potential both to offer a model of change and to inuence other global institutions like the UN.
Note
1. The Human Development Report 1994 (UNDP, 1994, p. 22) argued that the concept of security has for too long been interpreted
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narrowly: as security of territory from external aggression, or as protection of national interests in foreign policy or as global security from a nuclear holocaust. It has been related more to nation-states than to people.
References
Carr, E. H. (1939) The Twenty Years Crisis, 19191939: an Introduction to the Study of International Relations. London: Macmillan. Chomsky, N. (1999) Military Humanism. London: Pluto Press. Clausewitz, C. (1997) On War. English edition. London: Wordsworth. de Vasconcelos, A. (ed.) (2009) What Ambitions for European Defence in 2020 European Union. Paris: Institute for Strategic Studies. de Vasconcelos, A. (2011) Save Misrata and Help Libya Set Itself Free. EU Institute for Security Studies. Available from: http:// www.iss.europa.eu/publications/detail/article/save-misrata-andhelp-libya-set-itself-free/. [Accessed 24 September 2012]. EU (2008) Report on the Implementation of the European Security Strategy Providing Security in a Changing World. Available from: http://www.eu-un.europa.eu/documents/en/081211_EU% 20Security%20Strategy.pdf [Accessed 24 September 2012]. EU External Action (2012) EU Operations. Available from: http:// www.consilium.europa.eu/eeas/security-defence/eu-operations.as px?lang=en. [Accessed 24 September 2012]. European Security Strategy (2003) A Secure Europe in a Better World. Available from: http://www.consilium.europa.eu/uedocs/ cmsUpload/78367.pdf. [Accessed 24 September 2012]. Faber, M. J. and Kaldor, M. (2010) The Deterioration of Human Security in Palestine, in M. Martin and M. Kaldor (eds), The European Union and Human Security: External Interventions and Missions. London: Routledge Studies in Human Security, pp. 95111. Habermas, J. (1983) The Theory of Communicative Action. Cambridge: Polity Press. Held, D., Kaldor, M. and Quah, D. (2010) The Hydra-Headed Crisis, Global Policy, February. Available from: http://www.globalpolicy journal.com/articles/global-governance/hydra-headed-crisis. [Accessed 24 September 2012]. Human Security Report Project (2010) Human Security Report 2009 2010. Available from: http://www.hsrgroup.org/human-securityreports/20092010/overview.aspx. [Accessed 24 September 2012]. Human Security Study Group (2007) A European Way of Security: The Madrid Report of the Human Security Study Group Comprising a Proposal and Background Report, Madrid, 8 November. Available from: http://eprints.lse.ac.uk/40207/1/A_European_Way_of_ Security%28author%29.pdf. [Accessed 24 September 2012]. Kaldor, M. and Schmeder, G. (2010) Human Security in Lebanon: Consequences of War and Prospects for Peace, in M. Martin and M. Kaldor (eds), The European Union and Human Security: External Interventions and Missions. London: Routledge Studies in Human Security, pp. 7694. Manners, I. (2002) Normative Power Europe: A Contradiction in terms? Journal of Common Market Studies, 40 (2), pp. 235258.
Manners, I. (2011) The European Unions Normative Power: Critical Perspectives and Perspectives on the Critical in R.G. Whitman (ed.), Normative Power Europe: Empirical and Theoretical Perspectives. Basingstoke: Palgrave Macmillan, pp. 226227. Martin, M. (2010) The European Union in the Democratic Republic of Congo a Force for Good? in M. Martin and M. Kaldor (eds), The European Union and Human Security: External Interventions and Missions. London: Routledge Studies in Human Security, pp. 5575. Menon, A. (2009) Empowering Paradise? The ESDP at Ten, International Affairs, 85 (2), pp. 227246. New York Times (2002) War with Iraq Is Not in Americas National Interest. 26 September. Available from: http://www.bear-left.com/ archive/2002/09260ped.html. [Accessed 24 September 2012]. Nye, J. (2004) Soft Power: The Means to Success in World Politics. New York: Public Affairs Books. Quah, D. (2011) The Global Economys Shifting Centre of Gravity, Global Policy, 2 (1), pp. 39. Sjursen, H. (2006) What Kind of Power? Journal of European Public Policy, 13 (2), pp. 169181. Study Group on Europes Security Capabilities (2004) A Human Security Doctrine for Europe: The Barcelona Report of the Study Group on Europes Security Capabilities, Barcelona, 15 September. Available from: http://www.consilium.europa.eu/uedocs/ cms_data/docs/pressdata/solana/040915CapBar.pdf [Accessed 24 September 2012]. Toje, A. (2011) The European Union as a Small Power, Journal of Common Market Studies, 49 (1), pp. 4360. Traynor, I. (2011) Libya Conict: EU Awaits UN Approval for Deployment of Ground Troops. Available from: http://www.guardian.co.uk/ world/2011/apr/18/libya-conict-eu-deployment-ground-troops [Accessed 24 September 2012]. United Nations Development Programme (UNDP) (1994) Human Development Report. New York: Oxford University Press. United Nations Security Council Resolution (2011) Available from: http://www.un.org/News/Press/docs/2011/sc10200.doc.htm# Resolution [Accessed 19 October 2012]. Weis, A. (2009) Improving Capabilities for ESDPs future needs, in A. Vasconcelos (ed.), What Ambitions for European Defence in 2020 European Union. Paris: Institute for Strategic Studies, pp. 101109. Whitman, R. G. (2011) Norms, Power, and Europe: A New Agenda for Study of the EU and International Relations, in R. G. Whitman (ed.) Normative Power Europe: Empirical and Theoretical Perspectives, Basingstoke: Palgrave Macmillan, pp. 122.
Author Information
Mary Kaldor is Professor of Global Governance at the London School of Economics and Political Science and convenor of the Human Security Study Group which reported to Javier Solana.
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Identity Matters: Exploring the Ambivalence of EU Foreign Policy

Thomas Risse
Research Article
Freie Universitt Berlin
Abstract
One cannot begin to understand EU foreign policy without taking identity politics into account. First, the differential Europeanization of national identities explains to a large degree why the current European Security and Defence Policy (ESDP) has not been supranationalized. Second, the gap between the EUs grandiose rhetoric of being a force for good in the world and its inability to put this foreign policy identity at work into practice, largely results from the fact that the EUs construction of a distinct foreign policy identity is inward rather than outward-oriented. Last, but not least, the EU enlargement discourse, particularly about Turkey, has as much to do with contested self-descriptions of the EU and what follows for its boundaries than with any security or economic considerations. The article starts with conceptual remarks on collective identity, followed by three case studies focusing on the lack of supranationalization of the ESDP, the EUs foreign policy construction as a civilian power, and the enlargement discourse, particularly with regard to Turkey. I conclude with some policy recommendations.
Policy Implications
A coalition of the willing should move ahead towards permanent structured cooperation in foreign and defence matters, irrespective of British objections. The more the EU pursues a coherent foreign policy with one voice, the more it will recognize that its foreign policy identity and its vision for the world need to be adjusted. It is more important for European identity creation to pursue a coherent foreign policy than to embark on an identity discourse that cannot be put in practice. We need more rather than less public controversies about the boundaries of the EU and how these borders reect European identity.
Economic giant, political dwarf! The EU does not get its act together The capabilityexpectation gap is widening (on the latter, see Hill, 1993; for a recent criticism of the EUs inability to develop a coherent foreign policy, see Howorth, 2010). These are only a few of the many indictments of the European Unions (EU) foreign and security policy to be found in editorials, but also, occasionally in the scholarly literature. And yet it moves! There have been more than 1000 common strategies, common positions and joint actions in common foreign and security policy (CFSP) since 1993 and more than 2000 foreign policy statements by the EU Council and Presidency between 1995 and 2008. Since 2003 there have been 25 civilian as well as military ESDP missions, 14 of which are ongoing. In addition, the EU adopted its own declaratory foreign policy strategy in 2003 (European Council, 2003, updated 2008). Finally, the Lisbon Treaty has more or less completed the foreign and security portfolio of the EU
including a (sort of) foreign minister and the External Action Service. The EU now commands the whole range of institutional capabilities of a cohesive and strong foreign and security policy. The EU as a foreign policy actor is also increasingly visible in transnational public spheres (Kantner, 2009; Kantner et al., 2008; Risse, 2010, pp. 131132). To discern the visibility of the EU in foreign policy, we carried out a linguistic analysis of a corpus of more than 100,000 newspapers articles in seven EU member states and the USA from 19902005 focusing on military interventions. The data show that the EU is mentioned in 1020 per cent of the articles on average, which is rather surprising, given the limited degree of EU competences in military affairs up to the late 1990s. We can observe some convergence in newspaper coverage from the late 1990s on, with its rst peak in 1999, that is, during and after the Kosovo war which also led to important EU decisions with regard to
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establishing the European Security and Defence Policy (ESDP). The EUs visibility then increases during the 2001 2003 period (post-9 11 and Afghanistan and the Iraq war) before decreasing again to the level of the mid-1990s. All in all, the data disconrm the notion that the EU is simply absent in newspaper coverage on military and security affairs. In other words, cooperation on foreign policy matters is the rule rather than the exception in the EU. The EU has emerged as a foreign policy actor and is able to pursue coherent foreign policies if it wants to, and if the conditions are right. Thus, the EUs agency in foreign and security policy matters is no longer in question (Sjursen, 2006b; Thomas, 2011). This is the good news. But there is also mixed news: Catherine Ashtons appointment as EU foreign minister documents that the member states had no intention of increasing the status of the Common Security and Defence Policy (CSDP) and to weaken their own individual foreign policies. The disagreements among the EU 27 with regard to major foreign policy issues are also legendary. The 2003 Iraq invasion showed the existence of an intra-European split as much as a transatlantic one. The Libyan intervention in 2011 saw Germany, as the third largest military power in the EU, abstaining in the UN Security Council despite the fact that this was a clear case for the responsibility to protect asked for by the domestic opposition and supported by regional organizations in the Middle East.1 Concerning the Palestinian quest for statehood in the UN General Assembly, the EU is, once again, split in the middle. Depending on ones viewpoint, therefore, the glass is either half empty or half full with respect to a common European foreign and security policy. But how do we explain the variation between the EUs ability to speak with one voice in some cases, while expressing a cacophony of opinions in others? And what precisely is the variation? I concentrate on three issues: the refusal of important member states to supranationalize CSDP, which accounts for the inability of the EU to speak with one voice in many cases; the often-noted gap between the EUs grandiose rhetoric as normative or civilian power or force for good2 and its practice of prioritizing geostrategic and security interests over democracy and human rights in many cases (Brzel and Pamuk, 2012; Youngs, 2004); the striking contrast between the EUs consensus on Eastern enlargement during the 1990s and the contestation over Turkish EU membership during the 2000s.3 I argue in the following that we need to look at identity politics in each case, albeit different aspects of it. Before I discuss the three cases, however, I briey clarify my understanding of identity politics; in particular, foreign policy identity.
What is identity politics?4

Identity is not only an elusive concept, it is also essentially contested. However, we can probably discern the following components of collective identities about which most authors agree: 1. Collective identities no matter how essentialized they are (for example, in ethno-nationalist identities) are fundamentally social constructions. The identities of nation-states or Europe are constructed in the discourses of various political and social elites, usually with references to particular historical memories and national symbols. 2. Social identities connect individuals to social groups in the sense of a collective we (Abrams and Hogg, 1990; Turner, 1987). In the case of nations, or Europe for that matter, the we refers to imagined communities rather than social groups with face-to-face interactions (Anderson, 1991). 3. Collective identities usually entail two substantive components. First, they describe what is special about the respective community. Second, they delineate the boundaries between us and them, that is, they dene the boundaries of the communities. In some cases, this leads to negative attitudes towards the out group, even though the others can also be regarded in neutral terms. 4. Since individuals usually feel attached to various social groups and imagined communities they hold multiple identities. Europe is no exception. European and national identities are not zerosum propositions, but one can strongly identify both with ones nationstate and with Europe. In fact, this is precisely what survey data show consistently (see for example, Hooghe and Marks, 2005; Risse, 2010, pp. 3762). 5. Collective identities can be distinguished along various dimensions (Abdelal et al., 2009), including their substantive content, the degree of their contestation and their strength. The stronger the sense of loyalty, the more behavioral consequences we should expect (Kantner, 2006). It follows that foreign policy identities are those parts of the identity constructions of political entities referring to their relationships to the outside world. Once again, they signify what is special about the community and how one can differentiate it from other communities. Take civilian power Europe. It describes the EU as a force for peace and multilateral cooperation and, at the same time, denotes that which European foreign policy is not, namely militarist or nationalist. Finally, I do not claim that we can explain every single foreign policy move by a political entity with reference to its collective identity. However, one would expect that a political communitys collective identity inuences its
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general foreign policy orientation (its grand strategy, so to speak; see for example, European Council 2003). Identity politics is likely to inuence constitutional decisions as well as questions of membership, that is, who belongs to the community and who does not. In the following, I discuss three cases where identity politics is crucial to understanding the EUs foreign policy.
Why there is no supranational ESDP5

In all, 17 of the 27 EU member states have given up core features of their national economic sovereignty and have accepted the Euro as a single currency. Moreover, the current Euro crisis will probably result in more, rather than less European integration, with regard to nancial and economic policies, at least among the EU 17. In sharp contrast to European Monetary Union, which has been fully supranational from the beginning, foreign and security policy remains the one signicant issue in European affairs in which decisions are still made consensually and in an intergovernmental fashion (see overview in Howorth 2007).6 How is this to be explained and what has identity to do with it? International relations theory has a ready-made explanation for the puzzle, of course. Realism (Morgenthau, 1948; Waltz, 1979) tells us that states are unlikely to give up external sovereignty and the ultimate decision over war and peace. When the survival of the nation-state is at stake, as in questions of war and peace, states do not share or pool sovereignty. There are two problems with this argument. First, realism itself is indeterminate over these questions, since one can distinguish a version emphasizing that states primarily seek autonomy and a variant that focuses on inuence-seeking (Baumann et al, 2001). The refusal to extend qualied majority voting (QMV) to decisions over war and peace is consistent with a version of realism emphasizing autonomy. But if states seek to increase their power and inuence in international politics, the unwillingness of some EU member states to give up external sovereignty in foreign and security affairs is outright self-defeating. The less Europe speaks with one voice in world politics, the less EU member states can exert inuence. The European divisions over the Iraq war in 2003, over Palestine in 2011, or over Libya in 2012 only serve to highlight the point. Moreover, and whatever the version of realism one adheres to, balancing is supposed to be the standard behavior of nation-states. If middle and small powers start balancing, however, they need to pool resources and build alliances. In an emerging multipolar world one would then expect the EU to get its act together in foreign and security affairs in order to build a counterweight to US power or against the rise of China. Second, it is wrong that most European states are not prepared to give up sovereignty in the realm of security and defence. There is no agreement among EU member
states that giving up sovereignty in the realm of foreign and defence affairs is a bad idea. Roughly two-thirds of the current EU member states let alone their populations would be more than willing to supranationalize external security and national defence. This includes many of the big member states such as France, Germany, Spain or Italy. In 2007, 72 per cent of EU citizens favored a common European foreign and security policy among them 84 per cent of the Germans and 52 per cent of the British (European Commission, 2007, p.148). Thus, realism seems to apply only to some countries such as the UK which has opposed majority voting in EU foreign policy so far. If we want to account for the puzzle of European foreign and security policy, we must explain the variation among EU member states on their preparedness to supranationalize defence affairs. Rationalist or neoliberal institutionalism at least offers an interest-based account of interstate cooperation under specic conditions (for example, Haftendorn et al., 1999, for an application to transatlantic institutions). In this context, one could posit that the stronger a countrys military forces, the less it has to gain from supranational cooperation in defence affairs. Once again, the argument makes little sense, since it cannot explain the difference in attitudes between France and Germany, who have consistently supported moves toward supranationalizing defence affairs in the EU, and the UK. The difference in military power between the big three of the EU is too small to be able to account for the variation. The only available empirical study that seeks to explain the variation concludes that federal states are more likely to prefer supranational decisions in external security and defence policies than unitary states (KoenigArchibugi, 2004; see also Hooghe, 2001). Thus, domestic institutional features would explain differences in attitudes toward supranationalism in security affairs. The same member states that prefer supranationalism over intergovernmentalism in general are also prepared to supranationalize foreign and defence policies. What is less clear, though, are the causal mechanisms linking territorial structures to preferences for a common European foreign and defence policy. I suggest that the social constructions and collective understandings that come with federalism might be relevant. Countries whose elites and citizens are used to the notion that sovereignty can be divided and or shared between various levels of governance, might also be more prepared to include supranational levels of governance in these understandings. Germany serves as a case in point. Federalism has been constitutive for the German state for centuries; the Federal Republic of Germany is based on cooperative federalism that involves the sharing of sovereignty between the central state and the Lnder.7 Moreover, as argued above, German elites have thoroughly
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Europeanized German collective identity after World War II. No wonder, then, that Germany supported a supranational EU foreign policy from the beginning. German policymakers from the center-left to the center-right were also never prepared to make a choice between NATO membership and a European defence policy. In contrast, France has been a centralized state for centuries so that it does not easily t the bill linking the territorial division of powers to a propensity to accept supranational solutions in defence affairs. It was not until the AngloFrench St Malo agreement of 1998 that the French government recognized that a common European foreign and security policy could not be promoted as an alternative to NATO but that it had to accept the German sowohl als auch (as well as) in order to reach progress in EU foreign policy. The issue at stake for France was not supranationalism but the relationship between NATO and ESDP. This issue has nally been solved when France under President Sarkozy re-entered NATOs military structure in 2009. I suggest that Frances ambivalence with regard to a truly supranational European defence policy has more to do with the halfhearted Europeanization of French elite identities than with the institutional structures of the French state. St Malo also marked the beginning of a British turnaround towards ESDP, which was then enshrined in the 1999 Helsinki agreements of the European Council. In 1998 the British government with Prime Minister Tony Blair had gradually come to accept the notion that NATO and the Anglo-American special relationship were not endangered by closer European defence cooperation. But the British government constantly objected to any move toward supranationalism in EU foreign and security policy, blocking agreement in the Constitutional Convention, the subsequent Intergovernmental Conference, and in the negotiations leading up to the 2007 Treaty of Lisbon. It is hard to interpret this stubborn British position without taking sovereignty considerations into account. The British arguments against supranational decision-making in EU foreign and defence policy closely resemble those against the Euro. But in this case, and in contrast to the single currency issue, Britain exerts an effective veto power. While the Euro is viable with or without the British Pound, a common EU defence policy requires British participation as the country with one of the largest and best trained armed forces in Europe. In sum, it is very hard to explain the variation in member states preferences on supranationalizing CSDP without references to the different Europeanization of elite identities. Note that the identity politics relevant here is not a European foreign policy identity but the variations in the Europeanization of national identities. My argument is underscored by the move of ve EU member states (France, Germany, Italy, Spain and Poland) tasking Catherine Ashton to
examine all institutional and legal options available to member states, including permanent structured co-operation, to develop critical CSDP capabilities, notably a permanent planning and conduct capability.8 In other words, we might well see a core group of EU member states moving ahead towards a truly common security and defence policy, thereby using the newly available options for closer cooperation of the Lisbon Treaty. While such a common ESDP will probably exclude Great Britain, particularly in light of recent events over the Euro crisis, it would strongly enhance the EUs ability to speak with one voice in foreign policy.
Why there is a gap between EU foreign policy words and deeds

The rst case concerns national identities and their different kinds of Europeanization. But the relationship between identity and foreign policy does not end here. Many EU member states that have long supported QMV in foreign and security policy are also those pushing for mostly multilateral and cooperative foreign and security policies. They do not prefer a militarized European foreign and defence policy, but Europe as a civilian power (see Duchne, 1972 for the original concept; Maull, 1990). While a civilian power does not refuse to use military force under exceptional circumstances, it emphasizes cooperative security policy, multilateralism, and the rule of (international) law. This is precisely the foreign and security policy identity which the EU tries to build from the 1990s on, even though it only had the whole range of instruments available in the early 2000s (Anderson, 2008; Brzel and Risse, 2009; Howorth, 2007). There is nothing peculiar about the EU promoting a particular identity in its external relations. Every great power in the history of international relations has tried to promote a certain set of values in its foreign affairs from the Roman to the British empire, from the Soviet Union, which tried to promote Communism on a global scale, to the USA, which countered with its own vision of global democracy and capitalism.9 The more interesting point is that the EU has started behaving like any other great power in this regard, even though its agency in foreign affairs has long been disputed (Hill, 1993; Sjursen, 2006a). This agency is no longer in question, not even in the public spheres (Kantner et al., 2008). With regard to its foreign policy identity, the discourse of the EU as a normative power constructs a particular self of the EU (Diez, 2005, p. 614). Stephanie Anderson (2008) went a step further and argued that creating a distinct foreign policy identity is the whole point of the EUs efforts in external affairs. This foreign policy identity represents the outward-looking version of
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the EUs modern and enlightenment identity, emphasizing the rule of (international) law, multilateral and peaceful conict resolution, as well as the promotion of human rights, democracy and a social market economy. The 2003 European Security Strategy, the rst EU attempt to develop a comprehensive foreign and security policy strategy, was full of references linking what is constitutive of modern and democratic Europe to its vision for international affairs. It started by celebrating the EUs role in establishing an enduring peace in Europe, as a result of which its members are committed to dealing peacefully with disputes and to cooperating through common institutions (European Council 2003, p. 1). The document extensively dealt with the post-Cold War and post-9 11 security threats emphasizing that none of the new threats is purely military; nor can any be tackled by purely military means (European Council, 2003, p. 7). The strategy then promoted an international order based on effective multilateralism (European Council, 2003, p. 9) committing the EU to supporting multilateralism and the United Nations as well as furthering human rights, the rule of law and democracy in its external affairs. In this regard, the document intentionally distanced itself from the Bush Administrations tendencies toward unilateralism and preventive warfare. But the EUs attempt to consciously develop its own foreign policy identity is not conned to a declaratory strategy alone. By about 2000, the EUs foreign and security policy had at its disposal the entire set of instruments necessary for the promotion of democracy and human rights as well as for post-conict peace and postconict state-building (Brzel and Risse, 2009; Magen et al., 2009). Human rights conditionality, for example, has been integrated in all but a few of its association as well as partnership agreements with countries around the world. The European Neighbourhood Policy towards the Southern Caucasus, Central Asia and the Mediterranean includes a set of instruments to promote democracy and good governance. Ironically, when the EU member states were bitterly divided over their stance toward the 2003 US invasion of Iraq, the rst robust EU peacekeeping mission started. However, it is one thing to suggest that the EU actively constructs a particular foreign policy identity. It is quite different to claim that the emerging EU foreign policy can be explained by the EUs collective identity. A whole body of literature criticizes the hypocritical nature of EU foreign policies, which often prioritizes geostrategic and security interests over human rights and democracy concerns (for example, Bicchi, 2006; Pace, 2007; Youngs, 2004). Moreover, multilateralism might be the foreign policy identity of the weak who do not command the necessary economic and military resources to develop a more forceful foreign policy (Kagan, 2003; see also Hyde-Price, 2006).
Thus, the question boils down to (i) whether the EUs foreign policy identity as a civilian power is a matter of choice or of necessity and (ii) how we can account for the gap between the EUs words and deeds. As to the rst point, the lack of QMV in foreign and defence affairs might lead to decisions based on the lowest common denominator, leaving the EU with no other choice than to behave as a civilian power. However, while the EUs military might is no match for the USA, its combined defence expenditure of ca. 200 billion Euro is second only to the USA and exceeds the military expenditures of, say, Russia or China. The individual member states, Great Britain, France and Germany are the second, fourth and sixth, respectively, with regard to defence spending worldwide (Stockholm Peace Research, 2008, Appendix 5A). The EU contains two nuclear powers, France and Great Britain. Finally, the EUs combined GDP constitutes the greatest economic power in the world, which would certainly command the economic resources to become a formidable military power. These data suggest that the EUs self-proclaimed civilian power identity is indeed a matter of choice rather than necessity. As to the second question, how can we account for the gap between EU self-description as a force for good and its deeds, which are often inconsistent with its proclaimed values of promoting human rights, democracy and the rule of law? I would argue that this gap can be explained if we take the EUs self-proclaimed foreign policy goals as a civilian or normative power, not as a prescription for a grand strategy but as a more reexive attempt at conscious identity creation in foreign policy. As Stephanie Anderson argued (2008), this effort is mainly meant for internal consumption. Given that Europe and the EU lack a strong supranational identity, the EUs foreign policy identity can be seen as an attempt to externalize its core values of democracy, human rights and the rule of law. It is part and parcel of the effort at identity creation rather than a prescription for foreign and security policy. As a result, a mismatch or, better, decoupling of words and deeds can be expected. Moreover, a foreign policy identity prioritizing liberal and cosmopolitan values over everything else is likely to fail in the real world. I do not mean to suggest a norms versus interest account, which is problematic on theoretical grounds. Rather, I argue that any major foreign policy actor such as the EU needs to balance security, economic and other material needs with the promotion of core values. A foreign policy identity that does not take into account the fact that states as well as supranational entities such as the EU need to worry about potential security threats or about economic issues in a globalized world is likely to fail in practice.10 Take the Middle East: for all its rhetoric about the promotion of democracy and human rights, the EU foreign policy behavior prioritized stability over
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other values, which meant stabilizing autocratic rulers and applying double standards (Van Hllen, 2010; Youngs and Wittes, 2009). The Arab spring took the EU as much by surprise as anybody else and the EU is now scrambling to regain credibility in the Middle East. In sum, this second case is one in which a specic EU foreign policy identity has been created as an extension of the EUs self-description as a force of enlightenment, human rights and democracy towards the outside world. The primary purpose of this foreign policy identity, however, is directly inwardly as a means to strengthen the EUs sense of community. As a result, this grandiose foreign policy identity inevitably clashes with the reality of EU foreign policy on the ground and the need in any foreign policy action to balance various (legitimate) goals, such as security, economic interests and human rights.
Identity clashes: why the EU is ambivalent on Turkish membership

My third case relates to a crucial component of any imagined communitys self-identity, namely, boundary construction. A community such as the EU needs to delineate who is in and who is out. These issues become relevant with regard to EU enlargement.11 I suggest that one cannot even begin to understand EU enlargement without taking identity politics into account. European identities explain to a large degree the relatively smooth processes of Eastern enlargement, since there it was inconceivable to challenge the notion that Central Eastern Europe (CEE) belongs to modern Europe, as represented by the EU. In sharp contrast, Turkish EU membership has remained contested from the very beginning and identity concerns explain a large part of this controversy. With regard to Eastern enlargement, the EU and its representatives used the community discourse from the beginning to legitimize the CEE countries request to enter the union. The dominant discourse in Europe conrmed that CEE belonged to the community as part of us so that it became very difcult for enlargement opponents to raise objections. The enlargement discourse constructed Europe and the EU as a community of liberal values and market economies, as a result of which the democratizing Central Eastern Europeans acquired an almost natural right to join the EU (Fierke and Wiener, 1999; Neumann, 2001; see also Schimmelfennig, 2003). The 1993 European Council explicitly offered an accession perspective to CEE, provided that they met certain conditions; which again express the self-description of the EU as community of democracies: the Copenhagen criteria enshrining the values of modern and enlightened Europe (human rights, democracy, rule of law and a market economy).
As a result, it took the EU less than 15 years after the end of the Cold War to accept CEE as member states. In contrast, the history of TurkishEU relations is one of slow motion. As early as 1963 Turkey signed an Association Agreement that acknowledged the nal goal of membership. More than two decades later, Turkey applied for EC EU membership in 1987. In 1999 the European Council accepted Turkish membership candidacy. It took another 5 years until the 2004 European Council acknowledged that Turkey fullled the Copenhagen criteria and that membership negotiations should begin in October 2005. Major EU member states such as Germany under Chancellor Merkel and France under former President Sarkozy have opposed full Turkish membership, favoring a privileged partnership instead. The cumbersome and open-ended history of Turkish EU relations demonstrates the deep ambiguity with which both the EU and Turkey have approached the membership issue over the years. Both Turkey and the EU in their respective discourses have constructed Turkey as a metaphor between Europe and Asia, as Nur Bilge Criss has put it (2007). Depending where Turkey is discursively situated in this metaphor, it is either in Europe and, thus, eligible for EU membership, or out. As a result, the contemporary debates about Turkish EU membership is simultaneously about who Europe and the Europeans are, that is, European identity, as it is about who Turkey and the Turkish are, that is, Turkish identity. The discourses about Turkish membership in major EU member states show a profound ambivalence about whether or not Turkey belongs to Europe. The debate about Turkish membership is a discussion about the European borders. Where does Europe end and who, as a result, has a legitimate claim to EU membership? The debate about Turkey involves different conceptions of European identity. To begin with, there is the modern, inclusive and liberal vision of Europe that found its most signicant expression in the Copenhagen criteria. Accordingly, Turkey is seen as a part of Europe as long as it respects the liberal agenda and complies with its norms. As Olli Rehn put it in 2004: A Turkey where the rule of law is rmly rooted in its society and state will prove that, contrary to prejudices, European values can successfully coexist with a predominantly Muslim population. Such a Turkey will be a most valuable crossroads between civilisations (quoted in Lundgren, 2006, p. 137). The more the EU is constructed as a community embracing human rights and the rule of law, the more Turkey is at least eligible to become a member, even though its use of torture and its treatment of the
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Kurdish minority are still criticized. Supporters of Turkish EU membership also allude to Europes historical heritage to which Istanbul, the old Constantinople, [belongs as] a cradle of our civilization (Denis MacShane, 2004, quoted in Madeker, 2008, p. 136). This identity construction connects to the idea of Turkey as a bridge between East and West, the Orient and the Occident, as well as between Catholicism, Orthodox Christianity and Islam (from East Rome to Byzantium and Constantinople to Istanbul). Identity frames that include Turkey as part of the European self are represented in the public discourse by center-left politicians and by Turkish speakers. The vision of a modern and liberal European identity constructing a democratic Turkey as belonging to Europe also dominated debates in the European Parliament (Giannakopoulos and Maras, 2005), and in the British media (Wimmel 2006). In Germany, however, inclusive identity frames with regard to Turkey are minority positions (Madeker, 2008, p. 139; Wimmel, 2006). In contrast, an exclusionary counter-discourse developed in the French and German media constructing Turkey outside Europe and, thus, not eligible for membership (Von Oppeln, 2005). As Madekers quantitative and qualitative media analysis documents for the German public sphere, the construction of an exclusionary European identity according to which Turkey constitutes the Other of Europe, developed in the conservative press but quickly dominated the discourse. Of course, this construction is not new: Turkey as the Other of European identity has a very long history going back to the Ottoman Empire and its struggles with Christian Europe (Icener, 2007, ch. 5). Opponents of Turkish EU membership use geographical, cultural, historical and religious references to construct Turkey as outside Europe. As to geography, Valry Giscard dEstaing, the former French President and President of the European Constitutional Convention, argued in articles published across Europe that only 5 per cent of the Turkish territory and only 7 per cent of its population live in a European enclave, while the remaining parts are located in Asia and Anatolia (Giscard dEstaing, 2004). Such a primordial identity construction constructs a natural European border along the Bosporus, which is then used to exclude Turkey from Europe. The allegedly natural boundary also serves as a cultural and historical boundary sealing Turkey off from a modern Europe of enlightenment and liberalism. As Giscard dEstaing put it: The European Convention sought a clearer denition of the foundations of this entity, which include the cultural contributions of ancient Greece and Rome, the religious heritage pervading European life, the creative enthusiasms of the Renaissance, the philosophy of the Age of
the Enlightenment and the contributions of the rational and scientic thought. Turkey shares none of these (Giscard dEstaing, 2004).12 The statement is remarkable in so far as it uses the historical heritage of a modern European identity as an exclusionary device. It is hard to see why Romania and Bulgaria as new members, as well as the western Balkans with its accession perspective, share this decidedly West European heritage, while Turkey does not. While Giscard did not use Christianity as a demarcation line to exclude Turkey from the EU, others did: Islam which has been built in Turkey on the ruins of a RomanChristian civilization is completely unsuitable to revive the soul of Europe (Die Welt, 10 September 2004, quoted in Madeker, 2008, p. 144). The discourse on Turkish EU membership pitches two European identity constructions against each other in transnational public spheres. The rst concerns the modern, inclusionary and liberal Europe that is open to new members, including Turkey, as long as they comply with the Copenhagen criteria of democracy, human rights and the rule of law. A second and exclusionary identity discourse amalgamates geographical, cultural, historical and religious constructions to keep Turkey out once and for all. In its most sophisticated version it even uses the modern and liberal European identity in a primordial way so that others who do not share the history leading to this identity can never participate in it. This exclusionary Europe represents a noteworthy kind of nationalist, but nevertheless Europeanized, identity construction. It is Europeanized because it pertains to a supranational entity, the EU. It is nationalist at the same time, since it uses the exclusionary building blocks of 19th century nationalism to reconstruct them on the European level. As argued above and in contrast to the case of Eastern enlargement, European identities vis--vis Turkey remain fundamentally unsettled and deeply contested. It might be precisely the lack of clarity and the contested nature of identities and interests in this case which explain why the EU and Turkey have been struggling over the membership issue for the past decades and why the accession talks have been rather cumbersome so far. If this argument holds true the prospects of Turkey joining the union any time soon are rather remote apart from all the other institutional and political obstacles.
(Policy) conclusions
I have argued in this article that one cannot begin to understand EU foreign policy without taking identity politics into account. First, the differential Europeanization
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of national identities explains to a large degree why the current ESDP has not been supranationalized. Second, the gap between the EUs grandiose rhetoric of itself as a force for good in the world, on the one hand, and its inability to put this foreign policy identity at work in its practice, on the other hand, largely results from the fact that the EUs construction of a distinct foreign policy identity is inward-oriented rather than outward-oriented. Last, but not least, the EU enlargement discourse with regard to particularly Turkey has at least as much to do with contested self-descriptions of the EU and what follows for its boundaries than with any security or economic considerations. My analysis leads to the following policy recommendations: A coalition of the willing in the EU should now move ahead towards permanent structured cooperation in foreign policy and defence matters, as foreseen in the Lisbon Treaty. Such a move will exclude Great Britain, which is a pity, given the British military capabilities. But it is unavoidable in order to close the expectationscapabilities gap of EU foreign policy for good. The more the EU pursues a coherent foreign policy with one voice, the more it will recognize that its foreign policy identity and vision for the world needs to be adjusted. While the EU should not give up its goals of making the world a more peaceful place and of promoting human rights and democracy, it must realize that foreign policy is about reconciling conicting goals. In the end, it is more important for European identity creation to pursue a coherent foreign policy than to embark on an identity rhetoric that cannot be put in practice. European elites need to realize that enlargement decisions inevitably involve identity politics. We need more rather than less open and public controversies about the boundaries of the EU and how these borders reect European identity. Silencing identity discourses will achieve the opposite of what is intended, since it will make future enlargement decisions more rather than less difcult.
4. See Risse 2010, ch. 1, for the following. 5. See Risse 2010, 191196, for the following. 6. Note that this pertains mostly to military and defence issues. EU foreign affairs in the areas of environmental policies, human rights and development aid, not to mention external trade, are mostly subject to supranational decision-making, including QMV. 7. This is the crucial difference from US federalism, which is based on a clear separation of powers between the US states and the federal level. As a result, we would not expect the USA to give up sovereignty to supranational bodies as easily. 8. See http: euobserver.com 13 113569 (Sept. 11, 2011). 9. It is, therefore, misleading to call the EU a normative power, given that promoting norms is not what distinguishes the EU from other powers in world history (on this concept see Manners 2002, 2006). 10. In fact, the 2003 ESS does try to strike a balance between diverse values and foreign policy goals. Its main problem is that the EU never made a serious attempt to implement it. 11. The following summarizes Risse 2010, chapter 9. 12. For similar quotes see Madeker 2008, 142148; also Schfer and Zschache 2008; Wimmel 2006.
References
Abdelal, R., Herrera, Y. M., Johnston, A. I. and McDermott R. (eds) (2009) Measuring Identity. A Guide for Social Scientists. Cambridge: Cambridge University Press. Abrams, D. and Hogg, M. A. (eds) (1990) Social Identity Theory. London: Harvester Wheatsheaf. Anderson, B. (1991) Imagined Communities. Reections on the Origin and Spread of Nationalism. London: Verso. Anderson, S. (2008) Crafting EU Security Policy. In Pursuit of a European Identity. Boulder CO: Lynne Rienner. Baumann, R., Rittberger, V. and Wagner, W. (2001) Neorealist Foreign Policy Theory, in Rittberger, V. (ed.) German Foreign Policy Since Unication. Theories and Case Studies, Manchester: Manchester University Press, pp. 3767. Bicchi, F. (2006) Our Size Fits All: Normative Power Europe and the Mediterranean, Journal of European Public Policy, 13 (2), pp. 286303. Bilge Criss, N. (2007) Turkey as a Metaphor Between Europe and Asia, in Goren, N. and Nachmani, A. (eds) The Importance of Being European. Turkey, the EU, and the Middle East. Jerusalem: European Forum at the Hebrew University, pp. 5670. Brzel, T. A. and Pamuk, Y. (2012) Pathologies of Europeanization. Fighting Corruption in the Southern Caucasus, West European Politics 35 (1), pp. 7997. Brzel, T. A. and Risse, T. (2009) Venus Approaching Mars? The European Unions Approaches to Democracy Promotion in Comparative Perspective, in Magen, A., Risse, T. and McFaul, M. (eds) Promoting Democracy and the Rule of Law. American and European Strategies. Basingstoke: Palgrave Macmillan, pp. 3460. Diez, T. (2005) Constructing the Self and Changing Others: Reconsidering Normative Power Europe, Millenium 33 (3), pp. 613636. Duchne, F. (1972) Europes Role in World Peace in R. Mayne (ed), Europe Tomorrow: Sixteen Europeans Look Ahead. London: Fontana Collins, pp. 3247. European Commission (2007) Eurobarometer 67. Public Opinion in the European Union. Brussels: European Commission.
Notes
A draft of this article was presented at the 2011 Dahrendorf Symposium in Berlin, 810 November 2011. I thank my co-panelists as well as two anonymous reviewers for their very helpful comments. 1. I should say at the outset that this analysis offers no good explanation for Germanys voting behavior in the UN Security Council. It is inconsistent with both Germanys approach to CSDP and with German support for the responsibility to protect. 2. Diez 2005; Duchne 1972; Manners 2002; Sjursen 2006b. 3. Strictly speaking, EU enlargement does not really concern the EUs external affairs. However, I discuss these matters here, since the foreign policy consequences of enlargement decisions are obvious.
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European Council (2003) A Secure Europe in a Better World European Security Strategy. Brussels: European Institute for Security Studies, 12 December. Fierke, K. M. and Wiener, A.(1999) Constructing Institutional Interests: EU and NATO Enlargement, Journal of European Public Policy, 6 (5), pp. 721742. Giannakopoulos, A. and Maras, K. (2005) Der Trkei-Diskurs im Europischen Parlament 19962003, in Giannakopoulos, A. and Maras, K. (eds) Die Trkei-Debatte in Europa. Ein Vergleich. Wiesbaden: VS Verlag fr Sozialwissenschaften, pp. 2134. Giscard dEstaing, V. (2004) A Better European Bridge to Turkey, Financial Times, 24 November. Haftendorn, H., Keohane, R. O. and Wallander, C. A. (eds) (1999) Imperfect Unions. Security Institutions over Time and Space. Oxford: Oxford University Press. Hill, C. (1993) The Capability Expectation Gap, or Conceptualizing Europes International Role, Journal of Common Market Studies, 31 (4), pp. 305328. Hooghe, L, (2001) The European Commission and the Integration of Europe. Images of Governance, Themes in European Governance. Cambridge: Cambridge University Press. Hooghe, L. and Marks, G. (2005) Calculation, Community, and Cues. Public Opinion on European Integration, European Union Politics, 6 (4), pp. 419443. Howorth, J. (2007) Security and Defence Policy in the European Union. Basingstoke: Palgrave Macmillan. Howorth, J. (2010) The EU as a Global Actor: Grand Strategy for a Global Grand Bargain? ,Journal of Common Market Studies, 48 (3), pp. 455474. Hyde-Price, A. (2006) Normative Power Europe: A Realist Critique, Journal of European Public Policy, 13 (2), pp. 217234. Icener, E. (2007) Explaining European Union Enlargement: A Comparative Study of Romania and Turkey. PhD. thesis, Faculty of Arts, Humanities, and Social Sciences, Belfast: Queens University Belfast. Kagan, R. (2003) Of Paradise and Power. America and Europe in the New World Order. New York: Alfred A. Knopf. Kantner, C. (2006) Collective Identity as Shared Ethical Self-Understanding. The Case of the Emerging European Identity, European Journal of Social Theory, 9 (4), pp. 501523. Kantner, C. (2009) Transnational Identity-Discourse in the Mass Media. Humanitarian Military Interventions and the Emergence of a European Identity (19902006). Habilitation thesis, Fachbereich Politik-und Sozialwissenschaften, Berlin: Freie Universitt Berlin. Kantner, C., Kutter, A. and Renfordt, S. (2008) The Perception of the EU as an Emerging Security Actor in Media Debates on Humanitarian and Military Interventions (19902006). RECON Working Paper, Oslo: ARENA, University of Oslo. Koenig-Archibugi, M. (2004) Explaining Government Preferences for Institutional Change in EU Foreign and Security Policy, International Organization, 54 (1), pp. 137174. Lundgren, A. (2006) The Case of Turkey: Are Some Candidates More European Than Others?, in Sjursen, H. (ed.), Questioning EU Enlargement. Europe in Search of Identity. London and New York, pp. 121141. Madeker, E. (2008) Trkei und europische Identitt. Eine wissenssoziologische Analyse der Debatte um den EU-Beitritt. Wiesbaden: VS Verlag fr Sozialwissenschaften. Magen, A., Risse, T., and McFaul, M. (2009) Promoting Democracy and the Rule of Law. American and European Strategies, in T. Risse and U. Lehmkuhl, (eds) Governance and Limited Statehood. Basingstoke: Palgrave Macmillan. Manners, I. (2002) Normative Power Europe: A Contradiction in Terms?, Journal of Common Market Studies, 40 (2), pp. 235258.
Manners, I. (2006) Normative Power Europe Reconsidered: Beyond the Crossroads, Journal of European Public Policy, 13 (2), pp. 182199. Maull, H. W. (1990) Germany and Japan: The New Civilian Powers, Foreign Affairs, 69 (5), pp. 91106. Morgenthau, H. J. (1948) Politics Among Nations, brief edition, 1993. New York: McGraw Hill. Neumann, I. B. (2001) European Identity, EU Expansion, and the Integration Exclusion Nexus, in L.-E. Cederman, (ed.) Constructing Europes Identity The External Dimension. Boulder, CO: Lynne Rienner. Pace, M. (2007) The Construction of EU Normative Power, Journal of Common Market Studies, 45 (5), pp. 10411064. Risse, T. (2010) A Community of Europeans? Transnational Identities and Public Spheres. Ithaca NY: Cornell University Press. Schfer, M. S. and Zschache, U. (2008) Vorstellungen ber die EU in der ffentlichen Debatte. Eine Analyse deutscher Pressekommentare zum EU-Beitritt der Trkei. Berlin: Freie Universitt Berlin, Institut fr Soziologie. Schimmelfennig, F. (2003) The EU, NATO, and the Integration of Europe. Rules and Rhetoric. Cambridge: Cambridge University Press. Stockholm International Peace Research Institute (ed.) (2008) SIPRI Year Book 2008: Armaments, Disarmament, and International Security. Oxford: Oxford University Press. Sjursen, H. (2006a) The EU as a Normative Power: How Can This Be?, Journal of European Public Policy, 13 (2), pp. 235251. Sjursen, H. (2006b) What Kind of Power? Journal of European Public Policy, 13 (2), pp. 169181. Thomas, D. C. (ed.) (2011) Making EU Foreign Policy: National Preferences, European Norms, and Common Policies. Basingstoke: Palgrave Macmillan. Turner, J. C. (1987) Rediscovering the Social Group. A Self-categorization Theory. Oxford: Oxford University Press. Van Hllen, V. (2010). It Takes Two to Tango: the European Union and Democracy Promotion in the Mediterranean. PhD. thesis, Berlin: Fachbereich Politik- und Sozialwissenschaften, Freie Universitt Berlin. Von Oppeln, S. (2005) Die Debatte ber den Trkei-Beitritt in Deutschland und Frankreich, Leviathan, 33 (3), pp. 91411. Waltz, K. (1979) Theory of International Politics. Reading, MA: Addison-Wesley. Wimmel, A. (2006). Transnationale Diskurse in Europa. Der Streit um den Trkei-Beitritt in Deutschland, Frankreich und Grobritannien. Frankfurt and New York: Campus. Youngs, R. (2004) Normative Dynamics and Strategic Interests in the EUs External Identity, Journal of Common Market Studies, 42 (2), pp. 415435. Youngs, R. and Cofman Wittes, T. (2009) Europe, the United States, and Middle Eastern Democracy, in A. Magen, T. Risse and M. McFaul (eds) Promoting Democracy and the Rule of Law: American and European Strategies. Basingstoke: Palgrave Macmillan, pp. 93117.
Author Information
Thomas Risse is Professor of international politics at Freie Universitt Berlin, Germany. He co-directs the Research Center Governance in Areas of Limited Statehood and the Research College Transformative Power of Europe, both funded by the German Research Foundation. He is the author of A Community of Europeans? Transnational Identities and Public Spheres (Ithaca NY: Cornell University Press, 2010).
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China and Europe: Opportunities or Dangers?

Arne Westad
Research Article
LSE IDEAS, London School of Economics and Political Science
Abstract
The author seeks to explain and estimate the likely outcomes of growing Chinese interest in European affairs. The author argues that, against the background of a possible decline of the geopolitical importance of the USA and despite internal European problems in the wake of the current nancial crisis, an important change in Chinese foreign policy is needed. With the development towards a multipolar world becoming more and more visible, the SinoEuropean relationship will gain signicance. The future role of China and Europe alike will depend on the shape of their relations. The author analyzes Sino-European relations with regard to economic exchange, security issues, the question of human rights and environmental policy.
Just when parts of the European integration project seem to be in signicant amounts of trouble, Chinese leaders are beginning to open their eyes to the need for more in-depth cooperation with both the Union itself and with individual European countries. After years of relative neglect, during which Chinas main priorities have been the USA, the eastern Asian region and the main developing economies (roughly in that order), Europe is coming into fashion for discussion in Beijing both as opportunity and a threat. There are two main reasons for this. The rst is that the global nancial crisis of 2008 and the recession that followed have shown how dependent the Chinese economy is on European markets. The second is that some Chinese analysts have begun believing that Europe, in spite of its internal instability, may serve as a genuine balancer in international affairs during a period of US decline, helping smooth the transition to a more multipolar world. There are both possibilities and challenges in these perceptions but there is little doubt that for some time at least Chinas interest in Europe will be at an all-time high.
China and the European Union

While the rst generation of Chinese revolutionaries looked to Europe for inspiration, the post-revolutionary generation has been looking to the USA. Those who concentrate on the rivalry that now exists for power and inuence between the two powers tend to forget how deeply China has been inuenced by the USA over the past generation. Ideas, technologies and products have tended to come from across the Pacic the routes to
Europe have been much less trafcked. Analysts in Beijing have correctly, I believe described Sino-American ties as a love-hate relationship: just as Americans like to take credit for introducing capitalist markets to China, they fear the purposes to which the Chinese are putting their new-found wealth. And just as Chinese prefer American products and view the USA as much more advanced than any other part of the world, they resent the US role in East Asia and its hegemonic approach to world politics. Europe has, until quite recently, lagged far behind in the developing Chinese consciousness about the outside world. In the 1980s the countries of the European Community (with Britain as a partial exception) were mainly important to China to the degree that they were willing to confront the Soviets and export technology to China. In the 1990s, as Chinas remarkable economic transformation took off, Europes market signicance increased, but not its political relevance. In the decade that has just ended, economic relations have become crucial and the institutionalization of political and diplomatic contacts has improved but Europe is still not seen as relevant in the bigger picture of Chinas foreign relations. Even on a good day, the Chinese Foreign Ministry spends more than twice the hours and the manpower on dealing with Southeast Asia than it does with Europe. In diplomatic terms, a top Chinese diplomat recently told me, the EU is about as important for China as is Australia.1 Part of the Chinese difculty in interacting with Europe has been the remarkable slowness with which Beijing has caught on to the centrality of the European Union
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(EU) in European and world politics. In spite of having inherited an empire, the Chinese leadership believes in nation-states, not unions or federalism. Far too often Beijing has come up short by interpreting the EU simply as a vehicle for the interests of the key states and not as an integrationist project. In diplomatic terms, China has had some small-scale success with its consistent attempts at dealing with individual states rather than the union as such. But it has failed on big issues such as trade and environmental policies, where the EU has become more integrated and more consistent (much the same pattern can be seen with regard to Beijings policy towards the Association of Southeast Asian Nations ASEAN, where China has had state-to-state inuence on minor matters but failed disastrously in understanding basic ASEAN cohesion on trade and security matters).2 The lack of a more comprehensive reorientation in the Chinese approach to Europe is also inuenced by Beijings view of the continent as a zone of instability after the Cold War ended. The images created by the fall of Communism in Eastern Europe and, especially, of the wars in Yugoslavia, still loom large in China, both among the leadership and among the general public. The extraordinary lack of specic knowledge even at higher levels in China about smaller European countries and their international and EU role plays into this sense of shakiness and unpredictability. In this sense the sovereign debt crises of 2011 play into a pattern already set by the past (Chaban et al., 2007). The increasing Chinese concentration on Germany does not help either, in a broader policy-making sense. Though the Chinese often attach great signicance to the fact that roughly half of EU exports to China are German in origin, Germany does not have the inuence on the Unions foreign policy-making towards the outside world that Beijing often expects. In Europe, as we know, being bigger, richer and more populous does not necessarily translate into the kind of foreign policy prowess that the Chinese expect. Looking at Chinese policy-making in a wider context, this parochial misapprehension is in many ways a symbol of how difcult it has been for Beijing to develop a more sophisticated foreign policy towards Europe (Andretta and Doerr, 2007). Although Europe as a whole is doing better in terms of knowledge about China than vice versa, neither of the two sides shows any of the well-developed mutual comprehension that exists between China and the USA. Without signicant improvement in this regard both through contacts between policymakers and in academia, it is unlikely that the issues in the Sino-European relationship that are dealt with below will move towards a more broad-based resolution. Both sides need to realize that for closer relations to develop, more knowledge much beyond the pro forma is essential.
Economic issues
At present economic interaction between Europe and China is by far the most important part of the relationship. The EU has since 2004 been Chinas largest trading partner and overall economic relations have been expanding rapidly. EU foreign direct investment in China is at an all-time high and EU exports to China are growing faster than its imports. Chinese investments in Europe are also growing, but more slowly than most Europeans would like to see, and is concentrated in only a few sectors of the European economy. The sovereign debt crises have led China to invest in European bonds both for political and economic reasons. But even these investments are fewer and further between than Eurozone governments would like to see (Andreosso-OCallaghan and Nicolas, 2007). The present situation provides Europe with great opportunities in its economic relations with China. European products have substantial market potential in China and the Chinese have the funds needed to invest in Europe. But the EU needs to prove that it is capable of developing a trade policy that responds to the present situation. As Franois Godement has correctly argued, the Union should respond to Chinas interestdriven economic policy with an interest-driven policy of its own. It should demand access on equal terms for European companies in bidding for large public projects in China, it should attempt to stimulate Chinese investment to where it is needed in Europe and it should work with the emerging economies (and not just the USA) in developing trade policies with regard to China (Godement and Parello-Plesner, 2011). In order to be successful, such a realist approach to dealing with Chinas growing economic inuence will depend on the development of the necessary instruments and on a high degree of inner cohesion. Europe today seems to be wanting in both respects. Chinese observers marvel over the fact that the Eurozone is dependent on bonds issued by the various governments rather than by the European Central Bank. They know, of course, that Europe would be in a much stronger position vis--vis China if there were Eurobonds covering the whole common currency area (and they also suspect that some of the current crises could thereby have been ameliorated, if not avoided). Beijing also benets from the lack of coordination between European member states and between them and Union ofcials on issues related to China. Although steps have been taken to improve the EUs international coherence on Asian matters, the current set of crises in EU structure will not help in creating a more coherent and coordinated EU policy. But in addition to realist aims, the EU also needs to grasp what the deeper background is for Chinese policies on trade and investment. The Chinese Communist
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Party (CCP) needs to deliver growth in order to stay in power. In order to do so it must have access to foreign markets, of which the EU at the moment is the largest. But the CCP does not want to be seen as giving up political positions in the process of acquiring what it needs. On the contrary, the EU needs to be prepared for a China that does not always act in strict conformity with its immediate economic aims, as the country has shown in its recent relations with ASEAN and the Southeast Asian region. Issues concerning human rights, environmental issues and not least the relationship to the USA in international organizations, may all affect Chinas economic policies, and it is important to have enough knowledge to be able to identify Chinas political preoccupations and if need be turn them to Europes advantage with regard to trade and investment. As history often shows, the challenge for a realist economic policy will be handling the middle-term perspective, ve years or so down the road. As Chinas economic power grows, so will its appetite for getting political concessions in return for economic cooperation. But such policies will not necessarily be something that China will gain from. On the contrary, one of Chinas big problems will be how to integrate its immediate interests with its growing global power in Europe and elsewhere.
has taken place over the past several years. If the EU is not seen as being consistent and honest on the issue, it will be very easy for Beijing to conclude that its governments lack of respect for citizens rights is a matter of no consequence to its relations with Europe. Such a mistaken conclusion will necessarily lead to further difculties in the European-Chinese relationship at a later stage.
Arms embargo
The arms embargo that the EU imposed on China after the Tiananmens events of 1989 has become an embarrassing example of EU political impotence. While the embargo had a political effect in the 1990s it is very doubtful whether that is the case today. On the contrary, it has come to undermine parts of the EUs political leverage with regard to China and a prime exhibit in the CCPs domestic presentation of the outside worlds hostility. But because of the different positions taken by the member states it has been impossible to do what Catherine Ashton has suggested, which is to remove the embargo in return for the deepening of cooperation with China on security issues, including those that relate to Chinas policies towards its neighbors in Korea and Southeast Asia and its policies on Taiwan.4 The most important link that the EU could make to lifting the embargo would be Chinese compliance with international efforts to prevent Iran from becoming a nuclear weapons power. Although Chinas support of Iran is not in itself at this stage crucial for the Iranian nuclear program, such a change in Chinese policies would send a very strong signal to the regime in Teheran. And even if it would slow down rather than end Irans efforts, it would give EU external policies a new relevance both in the Middle East and in East Asia. Removing the embargo would also be a way for the EU to get out from the shadow of the USA on its China policy. This is no aim in itself on the contrary, US-European cooperation in many China-related issues is important and wise. But the sense that has developed over the past ve years that individual European governments are keeping the embargo in place rst and foremost to please the USA is unhealthy. Americans and Europeans can only truly cooperate on China if each acts out of political conviction rather than expediency. The embargo does not at present serve Europes own security interests. Europe does not want to see a closer Sino-Russian partnership on advanced weapons systems, which seems to be in the making in part because of the US and European embargos. And while nobody believes that China will turn to European arms manufacturers for imports immediately after the embargo comes to an end, such a decision would at least prevent Russia from getting unnatural advantages in terms of its arms industry.
Human rights
Current European policy on human rights in China is in a shambles. Instead of having a positive effect in China, it is seen by the CCP and its critics as inconsistent and self-serving, neither of which are far from the truth. In practice, the EU is split down the middle on how to deal with the issue, with France and Germany having given up its public criticism of Chinas human rights violations in the late 1990s in favor of quiet diplomacy. Other European countries are taking the lack of elementary rights in China seriously but are proceeding in a largely uncoordinated manner.3 In practice, member states are very happy to leave the heavy lifting on human rights issues in China to the common EU institutions. In spite of efforts made recently by the European External Action Service (EEAS), there is neither the capacity nor the power in that department to deal with both policy development and coordination. Instead, a further harmonization between the EEAS and the human rights units in the Council Secretariat and the European Commissions China desk is needed to present a viable policy and help convince member states to adopt it. The political core of such a policy must be for all member state to speak with one voice on the Chinese governments violations of international norms and of its own laws. Such practices have not disappeared with the overall strengthening of the Chinese legal system that
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Climate change
EU leaders know that if Europes global position is going to become more signicant, they need to play a leadership role on key issues such as climate change policies. They also know that dealing with China is the main arena for now in this sector, and will remain so as long as the USA remains gridlocked internally. In spite of its lack of leadership during the Copenhagen summit, the EU has real opportunities to inuence China on environmental issues, both in technological and policy terms. What remains to be seen is whether European leaders are wiling to invest enough in their direct relations with China in this eld to make use of these advantages.5 While still being the worlds largest polluter, China has come a long way in realizing the need for energy efciency and the reduced use of fossil fuels. The new 5-year plan from 2011 sees sustainable growth as a real priority, and the potential for working with Europe and European companies in furthering this aim will be seen by Beijing as very large indeed. In technological terms, the European shift towards decarbonization has led to China now looking much more to Europe than to the USA for the means to further its own goals. There are, of course, signicant difculties in the relationship between the two in this eld as well. China will not give up its main polluting energy production or industries as long as the USA is not willing to reach reasonable and comprehensive international deals. The EU is rightly critical of Chinese double-talk, in which it pledges long-term support for lofty international aims, while opening new coal power stations every day. And the EU still has internal problems with support for some of the aims that the Union has already signed up to. Even so, climate change policy is an almost unique eld in which Sino-European cooperation may lead the way towards broader international deals. While the US position shows how impotent the Americans have become on some global issues, Beijing and Brussels are increasingly leaning in similar directions both in terms of their view of the current situation and on at least some of the remedies. There is reason to believe that further progress may be made in direct talks over the next two years, unless other bilateral issues get in the way. And if European negotiators dealing with China (and to a lesser degree India) are able to arrive at measures that will later become binding targets for multilateral solutions, then some of the experience of the EU as an integrationist project will have come to use on a global scale.
tions over the next decade will ironically be played by the USA. How Washington behaves towards both regions during a time in which its political leadership will be tested and its relative economic position weakened will be of crucial importance for the future. But American behavior will also dene much of the room for maneuver between the two other main poles in world politics. If the USA attempts to reassert its hegemony in Europe in wake of the economic crisis, the institutions of the EU may be further weakened, and differences within the Union including those on foreign policy exacerbated. If leaders in Washington over the next decade, on the contrary, try to build more cooperative relations with the EU as an institution both on economic and political issues, and avoid any whiff of protectionism, currency wars and limiting access to technology as the world exits from its present crisis, then a more coherent European approach to the rise of China may be expected. Internal factors will also play key roles. How the sovereign debt crises in Europe are solved will set some of the pattern of interaction with China for the next decade or more, especially given the Chinese predilection for viewing the continent as a crisis zone. The solution to the Chinese governments problems with a lack of internal political legitimacy will also be crucial. If the CCP allows a gradual introduction of political pluralism and participation, then its interaction with Europe will be much easier to develop in the medium term. But while these obstacles are key to the future, neither of them should stand in the way of the kind of deepening interaction that the two sides need over the coming decade both in political and economic terms. The global shift in wealth and power from west to east seems at the moment to be happening faster than most experts believed only a year ago. For Europe, even more than for the USA, such a change is an immense challenge to its future prosperity and stability. The solution will be found in developing, on a global scale, the knowledge in terms of growth and technology that Europe has accumulated over generations. But for such an approach to be fully implemented, the EU will need a much larger direct engagement with China, and with other emerging economies, than it has had up to now.
Notes
1. For an overview from a Chinese perspective, see Chengyuan (2009). 2. I am grateful to the LSEs Marie-Julie Chenard for discussions of this matter. 3. For a general overview of the human rights issue, see Men and Balducci (2010). 4. For an excellent overview of the arms embargo issue, see Casarini (2009). 5. For an overview of the issues, see Holzer and Zhang (2008).
Conclusions and uncertainties

Some of the development of the relationship between China and Europe will be not be decided by either of the two themselves. A key role in Sino-European rela-
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References
Andreosso-OCallaghan, B. and Nicolas, F. (2007) Complimentarity and Rivalry in EU-China Economic Relations in the Twenty-First Century, European Foreign Affairs Review, 12 (1), pp. 1338. Andretta, M. and Doerr, N. (2007) Imagining Europe: Internal and External Non-state Actors at the European Crossroads, European Foreign Affairs Review, 12 (3), pp. 385400. Casarini, N. (2009) Remaking Global Order: The Evolution of EuropeChina Relations and Its Implications for East Asia and the United States. Oxford: Oxford University Press. Chaban, N., Holland, M. and Ryan, P. (eds) (2007) The EU through the Eyes of Asia. Singapore: World Scientic. Chengyuan, G. (ed.) (2009) Lingjulijie du Oumeng: waijiaoguan de qianyan baogao (Studying the EU Up-front). Beijing: Zhongguo renmin daxue. Godement, F. and Parello-Plesner, J. (2011) The Scramble for Europe. European Council on Foreign Relations Brief. Available at:
http://www.ecfr.eu/page/-/ECFR37_Scramble_For_Europe_AW_ v4.pdf. [Accessed 23 September 2012]. Holzer, C. and Zhang, H. (2008) The Potentials and Limits of ChinaEU Cooperation on Climate Change and Energy Security, Asia Europe Journal, 6(2), pp. 217227. Men, J. and Balducci, G. (eds.) (2010) Prospects and Challenges for EU-China Relations in the 21st Century: The Partnership and Cooperation Agreement, Brussels: P.I.E. Peter Lang.
Author Information
Professor Odd Arne Westad is Professor of International History, Director of LSE IDEAS, London School of Economics and Political Science.

Changing The Debate On Europe

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Changing The Debate On Europe

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Global Policy Volume 3 . Issue Supplement 1 .

Lord Ralf Dahrendorf (19292009)

Global Policy (2012) 3:Suppl. 1 doi: 10.1111/1758-5899.12037

Global Policy Volume 3 . Supplement 1 . December 2012

Introduction: A Moment for European Sturm und Drang?

London School of Economics and Political Science

Global Policy (2012) 3:Suppl.1 doi: 10.1111/1758-5899.12009

European Sturm und Drang

Global Policy (2012) 3:Suppl.1

Global Policy Volume 3 . Supplement 1 . December 2012

The 1980s: Quelques lueurs despoir dans un ciel sombre

Setting the Stage

The early 1990s: The European Revolution of 1989

Challenges and tensions

The late 1990s: European reform is imperative if the EU is to survive

The 2000s: How is democracy in Europe possible?

Helmut K. Anheier and Gesa-Stefanie Brincker

The 2011 Dahrendorf Symposium

Global Policy (2012) 3:Suppl.1

Global Policy Volume 3 . Supplement 1 . December 2012

The Educational Competence of Economic Policymakers in the EU

Hertie School of Governance

Global Policy (2012) 3:Suppl.1 doi: 10.1111/1758-5899.12006

Mark Hallerberg and Joachim Wehner

2. EU Policymakers in Comparative Perspective 1. European Integration and Economic Competence

Mark Hallerberg and Joachim Wehner

present, if less dramatic, for nance ministers and central bankers.

Mark Hallerberg and Joachim Wehner

Global Policy (2012) 3:Suppl.1

Available from http://www.unesco.org/education/information/ nfsunesco/doc/isced_1997.htm [Accessed 21 October 2012].

Global Policy (2012) 3:Suppl.1

Global Policy Volume 3 . Supplement 1 . December 2012

Global Policy (2012) 3:Suppl.1 doi: 10.1111/1758-5899.12012

2. New Keynesianism and neoliberalism the argument in brief

Waltraud Schelkle and Anke Hassel

3. What was the economic consensus of the last two decades?

Waltraud Schelkle and Anke Hassel

4. What were the attractions of this economic policy consensus?

Waltraud Schelkle and Anke Hassel

Waltraud Schelkle and Anke Hassel

5. Conclusions: the continuing political attractions of a discredited consensus

Waltraud Schelkle and Anke Hassel

Global Policy (2012) 3:Suppl.1

Global Policy (2012) 3:Suppl.1

Global Policy Volume 3 . Supplement 1 . December 2012

About break-ups and leaps forward

Institutional Change in the Crisis

1. Creeping institutional change in the rst decade of EMUs existence

Institutional Change in the Crisis

Institutional Change in the Crisis

3. Shifting power relations and the new German dominance

4. The role of the ECB

Institutional Change in the Crisis

5. Ad hoc crisis mechanisms a permanent change of game in the EMU

6. Reforming economic governance of the euro area

Institutional Change in the Crisis

7. Conclusions: the eurozones new governance framework is taking shape

Institutional Change in the Crisis

Global Policy (2012) 3:Suppl.1

Institutional Change in the Crisis

Global Policy (2012) 3:Suppl.1

Global Policy Volume 3 . Supplement 1 . December 2012

The Political Economy of the Crisis: The End of an Era?