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Economic and monetary union: pillar of a federal polity.

The Masastricht Treaty commitment to the economic and monetary union (Emu) follows a lengthy process of building up monetary integration, starting with the European Monetary System (1979), then, in the 1980s, the free movement of capital and integration of financial markets. Emu, representing the final stage of this process, is seen by most federalists as a pillar in the structure of the European Union, contributing to its development by stages into a federal polity. With the economic and monetary union, the European Union's economic and environmental powers are becoming comparable to those of some federations, and with institutions that have over time acquired substantial federal elements, further reforms may well make the European Union into a federal system. This article identifies the forces, interests, and methods involved in an incremental process that may be called a new federalism.

The project of economic and monetary union is a response to the interdependence of European currencies and financial markets. As transactions across frontiers increased, the currencies of European states became less efficient in economic terms, and their monetary autonomy declined. Support for a single currency grew, both from economic interests that stood to gain through the greater efficiency, and from governments that wished to exchange the shadow of separate sovereignties for the substance of a shared autonomy. Political forces also saw economic and monetary union (Emu), and the single currency that is at its heart, as a contribution to stability and security more generally, reinforcing the guarantee of peace among the participants and the safe anchorage of Germany among its neighbors.

This article argues that both the economic and the political motives were essential in securing the adoption of the Emu project, and that significant among the political motives was the resolve of some key players to put in place what they saw as a potential building block for a federal union. Federalists such as these saw Emu not just as a one-off response to a particular challenge, but also as part of a process of movement toward a federal polity, responding to a secular rise in interdependence among states.

Interdependence also undermines the autonomy of European states in fields other than money: notably trade, security, and the environment. If they fail to move toward common governance in these fields, they risk a slide into impotence or, at best, a system of intergovernmental cooperation that tends to inefficiency, bureaucracy, and hegemony of the strongest. A federal polity is proposed by federalists as the democratic and effective alternative. It provides for common government over such fields, and to control the resulting concentration of political power, the form of such a government favored by federalists is based on the principles of constitutional democracy, including the rule of law and representative government. The rule of law, respecting fundamental rights and freedoms, is ensured by a federal judiciary; the laws are enacted by a two-chamber legislature, comprising a house of the citizens and a house of the states; and the federal executive is responsible to the legislature or, in a presidential system, to the citizens directly. The member states retain their own democratic systems of government for matters that are not transferred to federal competence.

The establishment of a European federation in one great leap has not been feasible. Governments have not accepted it, and citizens have shown no inclination to overrule them. Federalists have therefore resorted to the development of the European Community, and now the European Union, putting in place successive building blocks for a federal system. Some of the building blocks, such as the powers with respect to the single market, the single currency, and the external economic policy, construct what can be seen as pillars of an emergent federal system. Others, such as the Court of Justice, the European Commission, the European Parliament representing the citizens, and the Council representing the states, can be seen as components of a pre-federal institutional architecture. This process has resulted in the Union of today, which includes many elements of a federal structure. Emu can be seen as a key element in the process which may well, though by no means inevitably, lead to what can properly be called a federal polity.


Federalism has been defined as "both process and strategy," with "the recommendation and (sometimes) the active promotion of support for federation."(1) This definition was broadened to include the recommendation and promotion of building blocks that may become significant elements of a federal polity. The idea of building a European federation block by block was first put into practice by Jean Monnet, who initiated the creation of the European Coal and Steel Community (ECSC) as the "first concrete foundation of a European federation which is indispensable to the preservation of peace."(2) He saw the opportunity to create the ECSC as a system of governance for industries that were then essential for military power, with institutions autonomous enough to work effectively and be capable of further federal development. The project had, as he put it, "an essential political objective: to make a breach in the ramparts of national sovereignty which will be narrow enough to secure consent, but deep enough to open the way towards the unity that is essential to peace."(3) Altiero Spinelli, the charismatic federalist leader who came to believe that a federal constitution should be drafted without delay by elected representatives of the European people, helped Monnet to draft his inaugural speech as president of the ECSC's High Authority, which underlined the federal features of the new Community.(4)

The ECSC was followed at intervals by the European Economic Community (EEC) in 1958, the Single European Act (SEA) in force in 1987, and the European Union Treaty (EUT), finally ratified in 1993, each one adding new pillars to the Community structure: notably the common market and customs union with its internal free trade and external trade policy, established by the EEC; the single market, by the SEA; and the Emu project, by the EUT. Meanwhile, many lesser building blocks were put in place, including the European Monetary System (1979) with the Exchange Rate Mechanism at its center. The contemporary jargon uses the term pillar for the two structures set up in the European Union alongside the Community for the fields of Common Foreign and Security Policy and of Cooperation injustice and Home Affairs. Yet, they lack federal instruments and federal elements in their institutions. They are scarcely pillars in the sense relevant here, of substantial federal elements in the construction of the Community.

Conditions Underlying the Process

These developments were motivated by a range of forces, policies, and ideas which responded to the problems posed by the secular growth of interdependence. The more dynamic business interests have promoted economic integration because of their need for a wide, stable, and secure market. Governments have supported them in this in order to satisfy business needs and enhance citizens' prosperity. Governments have also sought, through such integration, to regain a share of their lost autonomy in economic policymaking and to reinforce the security to which this new type of relationship can lead. Beyond the governments' interest in economic integration, they can have an interest in defense integration, as separate defense efforts become more costly and less effective. Yet, the most profound motive for the development of the Community and then Union has been the determination to establish a system within which, after two terrible world wars, France and Germany could be reconciled and, together with their neighbors, provide a safe political anchorage for Germany and other European powers. This has underpinned the economic motives for federal developments, such as Emu, and may motivate defense integration.

A number of European statesmen and many political actors and thinkers have seen the need to respond radically to the rise of interdependence, following the disastrous international anarchy that preceded World War II. Some have been "prepared to sign for part of the journey" envisaged by the federalists, through supporting or promoting specific building blocks or pillars.(5) Others have been federalists, sensing a need for a more general response to a crisis of the independent nation-states. Thus, Jean Monnet saw the ECSC as the first foundation of a federation. More recently, Jacques Delors, on being appointed president of the Commission, deliberately sounded out the current political feasibility of major developments required to build the Community into a federal Union.(6) In January 1985, in his first speech to the European Parliament, he explained how he had visited the capital of each member state to find out whether the government would accept the single market, the single currency, or institutional reform. He found that only the single-market program, with elimination of frontiers by 1992, would be generally acceptable.(7) So he promoted the Single European Act, which gave the Community the powers required to enact the legislative framework for the single market. Economic and monetary union, with the powers to create and manage a single currency, would respond to the loss of autonomy caused by monetary interdependence. The single currency was next on his list. Although the attribution of such federal powers has usually been accompanied by the addition of federal elements to the institutions, the federal development of the institutions has lagged behind that of the powers. Economic and political interests have been more inclined to support development of the powers than of the institutions.

Federalists have generally secured the alliance of particular interests to put the powers in place, and Jacques Delors was no exception. Although the federalists would not have succeeded without the support of the particular interests, those interests would not have secured the various federal powers they wanted without the initiatives, strategies, and institutional knowhow of the federalists. Neither the particular interests nor the federalists on their own would have been likely to overcome the often powerful resistance to their projects.

Foremost among the leaders of resistance to federal projects have been nationalists such as General Charles de Gaulle and former Prime Minister Margaret Thatcher. There have also been many lesser defenders of positions of political, bureaucratic, or market power bound up with the sovereign powers of the nation-state. Their ability to resist the federal developments has depended in part on economic and political circumstances. During periods of recession, such as those following 1973 and 1992, attitudes have been defensive and new developments hard to bring about. Divergences between member states can also stand in the way, as when differing French and German monetary policies impeded monetary integration in the early 1970s. Subsequent policy convergence was to favor the Emu project, as was the period of prosperity leading up to agreement on the Maastricht Treaty. The process of integration of member states' policy instruments under the control of democratic common institutions can never be automatic. Each development can succeed only if there is a favorable balance of forces for and against, together with statesmen of a federalist inclination ready to take advantage of the conjuncture.

These are some of the principal factors and conditions that underlie the incorporation of federal elements in the Union. The process may be seen as a new form of federalism, whereby successive building blocks comprising elements of federal powers and institutions are put in place, which may together eventually form a federal union, and are intended by federalists to do so. While the whole structure would doubtless finally be defined by a federal constitution, this federal process is distinct from a classical federalism where the focus is the adoption of a federal constitution drawn up by a constituent assembly.(8) Emu admirably illustrates the process: both as a pillar in the building of the Union and as an example of how the pillar itself has been constructed with its own series of building blocks.


Soon after the Treaty of Rome to establish the European Economic Community had been signed in 1957, Monnet asked two of his close collaborators to design a European monetary system.(9) That treaty had focused on trade and trade-related powers, but Monnet saw monetary union as a necessary further step toward federation. His Action Committee for the United States of Europe issued declarations in 1959 and 1961 calling for monetary integration.(10) In 1962, the EEC Commission proposed that exchange rates among the member states be permanently fixed and that a reserve currency be established by the end of the decade.(11) These proposals and speculations, however, were among the federal projects that General de Gaulle put in the freezer until 1969, when he ceased to be president of France.

The Emu Project of the Early 1970s

In 1969, de Gaulle was succeeded as French president by the more pragmatic Georges Pompidou, and Willy Brandt became the German chancellor. Monnet advised Brandt to propose a combination of monetary union, political union, and enlargement of the Community to include Britain and some other countries.(12) Brandt, who was a long-standing federalist, saw matters in the same light and made these proposals to his Community partners at a summit meeting in December 1969. In addition to his federalist convictions, he wanted to reassure France and other western partner countries with this demonstration of a Westpolitik to accompany the Ostpolitik he was launching at that time.

France needed reassuring. Since 1950, France's great European project had been to anchor Germany solidly within the Community. German acceptance of that project remained the basis of the Franco-German partnership that has lasted from the foundation of the ECSC up to the present and has been a central motivating force for the Community's development. Beyond that fundamental political motive, France had other reasons for supporting monetary union. The French policy sought monetary stability, which had been disrupted following the events of 1968; France contested the dominance of the dollar and saw European monetary union as an instrument to counter it; and, more mundanely, the French set great store by the common agricultural policy, whose price system was threatened by exchange-rate fluctuations. Such reasons, together with the view that the single currency would lock Germany yet more irrevocably into the Community, attracted France to the monetary union project and have continued to do so ever since.

Brandt, Pompidou, and their colleagues agreed on the idea of monetary union, and a proposal was designed in 1970 for the Community to achieve economic and monetary union by 1980, with complete freedom of movement of capital and convertibility of money among the member states, together with a single currency or the permanent locking of exchange rates (which can amount to much the same thing), and with a "centre of decision" to ensure that the necessary policies for the Emu could be pursued.(13) When the ministers in the Council discussed this proposal, however, it soon emerged that France and Germany disagreed about the economic policy philosophies and the institutional implications. The Germans wanted a strict control of economic policies to prevent inflation, and enough federal elements in the institutions--to wit qualified majority voting in the Council and powers for the European Parliament--to ensure that the policies were determined effectively and democratically.(14) France, strongly influenced by the recently departed De Gaulle, rejected such federal elements in the institutions and claimed that, if monetary union were first established, the coordination of economic policies would follow inevitably. Germans feared that such policies could be inflationary unless sound money had already been established in the member states. The most that could be agreed upon was a vague commitment to the goal of Emu and a weak mechanism for exchange-rate coordination, which was blown apart by the international monetary storms of the early 1970s.

The idea of monetary union had nevertheless been implanted in the minds of policymakers and economists. A leading American economist observed that close cooperation "builds close ties and more homogeneous preferences as well as reflecting them, a point well perceived by the advocates of the economic route to political unification of Europe."(15) A European monetary economist noted the need for "a transitional period ... with an increasing amount of supranational powers and a decreasing degree of autonomy in domestic fiscal and monetary instruments," until the move could be completed "from the compromises of making a federal structure for a unified economy" to the federal structure itself.(16) Before the 1970s were out, the idea of monetary union and the practice of progressing by means of building blocks had combined to produce a very significant element of monetary integration: the European Monetary System (EMS).

The European Monetary System and Exchange-Rate Mechanism

In 1977, Roy Jenkins became president of the Commission. Before becoming a leading British politician, he was vice-chairman of Federal Union, the British federalist movement. Although the British political climate had turned against federalism, he remained inspired by Monnet's example, seeking a development of the Community that would "take Europe over a political threshold."(17) He lighted on the monetary union project, which he launched when delivering the first Jean Monnet Lecture at the European University Institute in October 1977 and, with the help of the ever-federalist Belgian presidency, got onto the Community's agenda at the meeting of the European Council in December.(18)

Helmut Schmidt, the German chancellor, and Valery Giscard d'Estaing, French president, had worked together for a number of years, initially as finance ministers, and had much confidence in each other. Both men were influenced by Monnet. Giscard had, on becoming president, followed Monnet's advice in promoting direct elections to the European Parliament and the establishment of the European Council.(19) Schmidt was writing a foreword for the German edition of Monnet's Memoirs at the time when he was germinating the shift in policy that was decisive in the establishment of the EMS, and was equally impressed by Monnet's approach.(20) The facts of monetary interdependence were then inducing Schmidt to favor European monetary integration for economic as well as the traditional German political reasons. The dollar was weak and the mark strong, and the United States administration was urging Germany to reflate and thus become a "locomotive" for international and, in particular, American economic recovery. This confronted Schmidt with a dilemma: reflation could endanger Germany's cherished monetary stability, while refusal to respond to American demands could weaken the all-important security and political alliance. European monetary integration offered a way through, by shifting to the Community as a whole the strain stemming from the dollar's weakness and by diluting the risks of reflation. French policy remained consistently in favor of monetary union. The political class in the Community, apart from Britain where reservations about federal developments remained prevalent, tended toward enthusiasm for political reasons. The scene was set for the creation of the EMS.

The EMS was established in 1979, with the Exchange Rate Mechanism (ERM) as its central element. The ERM provided a fairly strong system of intervention by the central banks to keep the fluctuations of participating currencies within 2.5 percent on either side of a central rate, set in terms of a European currency unit (ecu) based on a weighted basket of the currencies. The central rates were not to be changed without the unanimous agreement of the participating governments: a truly radical reform, given that the exchange rate is at the core of monetary sovereignty. Britain took part in the EMS but not, until 1990, in its principal element, the ERM.

The EMS was a remarkable success. It continued to firm up exchange-rate stability for more than a decade and induced close cooperation among the central banks and finance ministries.(21) It encouraged a convergence of policy objectives, which the hard experience of the early 1970s had shown to be a necessary condition of the establishment of monetary union. Along with the direct elections, it helped move the Community toward the revival of its dynamism in the mid-1980s. The EMS and the ERM "pushed the Community along the federal path."(22) In particular, they paved the way for further progress toward economic and monetary union, helped on its way by the Single European Act and consummated by the Maastricht Treaty.

The Single European Act and the Free Movement of Capital

When Delors addressed the European Parliament after becoming president of the Commission in January 1985, he explained that monetary union was not yet possible because there were "fundamental problems, particularly among the central banks."(23) Evidently, the Bundesbank in particular had told him of its opposition. He also said that although all the governments had agreed that the institutions worked badly, there was no agreement as to how they should be reformed. This was a sensitive point for the Parliament, which had recently, led by Altiero Spinelli approved a Draft Treaty for the European Union that would reform the Community so as to give it federal institutions: a final installment of Spinelli's long struggle to achieve a federal union. But, Delors said that the next project should be, rather, the abolition of frontiers and the creation of the single market by 1992. European industry was "fighting for its life" and the governments agreed that the single market was needed to help it survive.(24)

At that time, Europe was full of talk about eurosclerosis: the decline of competitiveness with the United States and Japan in the new technologies and with the newly industrializing countries in the old ones. Governments agreed that strong medicine was required. Similar worries had led in the 1950s to the program to establish the customs union in order to compete with the United States, which had been followed by a striking economic success for the Community in the 1960s. Nontariff barriers had, since then, again fragmented the Community's internal market. It was not hard to reach agreement that a program was now required to create the single market by means of Community legislation designed to eliminate the nontariff barriers. The idea was supported by leading industrialists and by the main business associations,(25) and the Delors Commission drew up a detailed proposal to put to the European Council in June 1985.(26)

Delors had political as well as economic motives: to further the federal development of the Community. Spinelli's draft treaty proposed by the European Parliament also had widespread support in parliaments and political parties of a number of member states. Most important, it was given backing by President Francois Mitterrand during France's turn in the presidency of the European Council, and a committee of representatives of the heads of state and government was appointed to make recommendations to the European Council of June 1985.(27) Those recommendations, drawing on the Parliament's draft treaty, came before the European Council together with the Commission's single-market program. With Helmut Kohl, a federalist, as German chancellor, Francois Mitterrand, supportive of many federal initiatives, and a number of other federalist heads of government in the European Council, it was agreed that the treaties should be amended to make possible the single market and strengthen the Community in other ways. Margaret Thatcher, objecting on grounds of national sovereignty, was outvoted. The resulting Intergovernmental Conference drafted the Single European Act, which committed the Community to the single-market program and to the institutional reforms required, including qualified majority voting in the Council for the huge program of single-market legislation and a "cooperation procedure" that would give the Parliament considerable influence. Thus, a combination of federalist initiatives, from Delors and the European Parliament, and support from economic interests led to the Single European Act,(28) which proved crucial for the development of Emu, both in generating a boom that offered a favorable context for further federal initiatives and in securing the freedom of capital movement across frontiers.

The single-market program was expected to lead to a surge of investment as business responded to the new opportunities of the large open market,(29) and this indeed occurred. Phases of the Community's development had usually coincided with periods of economic success, and the boom of 1987-1991 was such an occasion. More specifically germane to Emu, the single-market program included provision for the free movement of capital within the Community and for the integration of financial markets. The significance of this for Emu is that it is one of the two main elements of monetary union, the abolition of exchange-rate fluctuations being the other. Free capital movement also strengthens the case for the single currency, because the ability to move huge amounts of capital from one currency into another can destabilize the exchange rates, as was forcibly brought home in the crises affecting European currencies in September 1992 and August 1993. Delors, who had been the French finance minister, saw the opportunity to take a decisive step toward Emu and pressed ahead with capital liberalization, securing Community legislation in 1986 and 1988 to free the movement of capital within the Community and in 1989 to integrate the market for banking services. Once again the scene was set: this time for Emu and the Maastricht Treaty.

Emu and the Maastricht Treaty

For Delors, Emu was the next federal pillar to be put in place. The support of the main business interests was available, including that of the Association for the Monetary Union of Europe, comprising many of Europe's leading financiers and industrialists. Grounds for such support were explained in a report issued by the Commission:(30) "static" gains from removing the costs of exchanging from one currency to another and potentially much greater "dynamic" gains from the encouragement given by currency stability to investment throughout the single currency area.

Business support was very important and reassured politicians that the principle of Emu was economically sound. But political interests were fundamental. Germany, with its exceptionally strong currency, had less economic interest in the project than most countries. Kohl, however, as a convinced federalist, gave weight to the political merits of developing the Community and cementing the partnership with France. Presiding over the European Council in June 1988, he secured its agreement to set up a committee, chaired by Delors, to draw up a plan for "the creation, in stages, of an economic and monetary union within the Community."(31)

With a fair wind from Germany, the project was under way. Whereas in the 1970s Germany had been isolated in its insistence on hard monetary policies as a precondition for Emu, the success of German monetary policies through the 1970s and 1980s had convinced most of Germany's partners that they should follow suit.(32) This convergence and the success of the EMS had, as Delors told the European Parliament, been mutually reinforcing.(33) This not only removed an obstacle to German support for Emu, but also gave France an added political motive for it, because the convergence and the EMS were characterized by the domination of the mark and the Bundesbank. France, having made the franc also into a sound currency as a result of its hard monetary policies, wanted to share control over a European currency rather than being subordinate to the Bundesbank. Emu offered a way to contain German monetary power.

In 1988, France also had its traditional motive for promoting monetary union as a means of locking Germany more firmly into the Community. The events of 1989 added urgency to this concern. As Poland and Hungary, followed by other states, broke away from the Soviet bloc, the scope for German involvement in Central and Eastern Europe expanded, evoking old French fears of Germany's potential role as dominant power in the center of Europe. German unification in the following year, bringing Germany's population to more than eighty million, intensified these fears. The containment of the enlarged Germany became a top priority for France. Fortunately for Europe, Germany shared this concern. The four decades in the Community had been the most secure and prosperous period of German history, in stark contrast to what had gone before. While American protection and NATO had played a large part in this, Germans also gave much credit to the Community. German political leaders shared the French desire to strengthen it. Moreover, while Kohl was securing French agreement to the German unification (essential because France was one of the four occupying powers), he evidently committed himself to deliver unequivocal German support for strengthening the Community in the way that meant the most to the French: through economic and monetary union. Thus, the Franco-German partnership once again lined up on a policy for a fundamental development of the Community, and once again the other governments of member states, with the exception of Britain, agreed to it.

Given Germany's monetary strength and success, German ideas about the shape of Emu prevailed. The president of the Bundesbank set them out in an annex to the Delors committee's report, and the report itself was guided by them.(34) The central bankers played the principal part in drafting the monetary part of the Maastricht Treaty. They too went along with the German formula for sound European money: An independent European Central Bank at the center of a European System of Central Banks of the member states, each one of them likewise independent, and "convergence criteria" that the member states must fulfill, limiting budget deficits and public debts, and ensuring price and exchange-rate stability. The governments largely accepted the central bankers' draft, with only a few political decisions remaining to be taken. Britain wanted to reserve its right not to participate in Emu. This right was granted, as it was for Denmark too. France wanted introduction of the single currency to be swift and automatic, while Germany insisted that the convergence criteria must be fulfilled first. The result was a three-stage program. In the first stage, all member states would participate in the EMS and ERM. In the second stage, starting in 1004, the European Monetary Institute would be set up to pave the way for the European Central Bank. It was agreed that the third stage would start by 1 January 1909 at the latest, with the establishment of the European Central Bank and the irrevocable fixing of the exchange rates of those member states that fulfill the convergence criteria, to be followed as soon as practicable by their adoption of the single currency. Other member states would participate later.

The currency upsets of 1902 and 1993, the subsequent continuation of high unemployment, and the difficulty for some key governments to respect the convergence criteria, widely seen as sharply deflationary, without provoking too much popular discontent, raised doubts as to whether the timetable would be respected. However, France, Germany, and a number of their partners are not only bound by treaty to establish Emu but also have a powerful political commitment to the project. It remains likely that they will adopt a single currency in 1999, or at the latest by the early years of the next century. Provided they do so, the core of economic sovereignty, the federal power over money, will have been transferred to the Union, following a series of acts initiated by federalists, responding to the facts of interdependence, supported by political and economic interests aware of those facts, and based on the success of earlier building blocks--or in the case of the EMS, also on the desire to recover ground lost by an earlier, premature effort. Nationalist and bureaucratic resistance, led by Thatcher and the Bundesbank respectively, was not so powerful as the forces in favor that gathered strength with the growth of monetary interdependence and then the unification of Germany. Thus, Emu became the central element in the Maastricht Treaty, just as the single-market program had been in the Single European Act and the customs union in the treaty establishing the EEC. Along with the single currency, the European Central Bank and European System of Central Banks comprise a federal banking system. The Maastricht Treaty also, as the Single European Act had done, strengthened the European Parliament's powers. But the questions now arise, whether the Parliament will be further strengthened to the point where the Union can be, said to have federal institutions, and whether the Union's competences will be further extended, particularly in the field of defense.


With Emu, the Union will have completed the process whereby it has acquired, block by block, the essential economic powers of a federation. The common market and the single-market program have given it powers over internal trade as great as those of the United States federal government. The common external tariff and commercial policy are the basis for its external trade pillar. The budgetary powers are more or less adequate for the Union's present needs. Beyond these economic powers, the Union has the competence to legislate for the member states' common environmental problems. However, while these might be called the powers necessary for a federal union, because they respond to the main elements in the member states' interdependence in the fields of economy and environment, the European Union lacks effective power in the other key field of interdependence, namely, security. The Maastricht Treaty provided for "the eventual framing of a common defense policy, which might in time lead to a common defense."(35) Even so, the Union is not likely to be given much power in the field of defense unless there are strong federal institutions to exercise it. Nor, indeed, is the Emu project likely to be successful without further reform of the Union institutions in a federal direction. The Emu pillar can be seen by European federalists as the culmination of the process of giving the Union federal economic powers. But what is its bearing on the development of more federal institutions - and hence later, perhaps, of significant defense powers?

Toward Federal Institutions?

The Union's institutions already have many federal features. Given some further reform, most European federalists would regard them as adequate for a federal union.

The Community has a federal legal system, even if its jurisdiction does not yet extend to the other elements of the Union, that is, the Cooperation injustice and Home Affairs and the Common Foreign and Security Policy.(36) It also has the political institutions required for federal representative government. Yet, federalists criticize the structure of the relationship between these institutions as making them insufficiently democratic and effective.

The composition of the Council is similar to that of the Bundesrat in the German Federal Republic: representatives of the governments of the member states, with votes weighted according to population, and with a bias in favor of the smaller states. A procedure of voting by majority, qualified to require some seven-tenths of the weighted votes, applies in the Council for most fields of Community legislation, though unanimity is required for some crucial decisions and with respect to the Common Foreign and Security Policy and the Cooperation injustice and Home Affairs. As far as Community legislation is concerned, however, the success of the single-market program has shown that the voting system is workable. The federalists' criticisms are directed not so much at the Council's composition or voting system as at its relationships with the Parliament and the Commission.

Thus, the relationship between Council and Commission is criticized as preventing the latter from being a sufficiently effective federal executive for the Community because the Council exerts detailed control over many of the Commission's executive actions through a dense web of committees of member-states' officials. A federal reform would make all these committees advisory only. But the Maastricht Treaty has already introduced a reform that may be the key to changing the relationship between Commission and Council. The Parliament's new right to approve the appointment of each new Commission may be used to transfer the Commission's main line of responsibility from the Council to the Parliament, more consonant with the system of representative government within the member states.

With respect to the other main attribute of representative government, the enactment of laws, the powers of the Parliament are again crucial. Although the Parliament now has powers broadly equivalent to those of the Council in relation to the budget, and "codecision" with the Council in fields that account for about a quarter of the volume of Union legislation, most of the legislation can still be enacted by the Council overriding the will of the majority of elected representatives.(37) Here then, for most federalists, the essential reform is full legislative codecision between Parliament and Council, so that all laws would have to be approved by the house of the people as well as the house of the states. Emu lends urgency to the case for this key federal reform of the institutions. It will greatly enhance the power of which the institutions dispose, and it is not likely that the citizens of the member states, in all of which political power is controlled according to the principle of representative government, could long tolerate the exercise of such power without such a political framework.

Forces For and Against Federal Power For The European Parliament

The enhancement of the Union's powers through Emu and its prospective enlargement to over twenty, perhaps thirty, member states, with the danger that this will weaken the institutions, reinforce for federalists the case for completing its federal institutions. But this will not happen without sufficient political support.

The European Parliament and Commission are naturally on the federalist side. Experience with respect to previous reforms has shown that many other political forces are too. Thus, supporters of the European Parliament's draft European Union Treaty, which proposed a federal reform of the institutions, included the three main European party groups and six of the member states' parliaments, including those of France and Germany, together with the European Trade Union Confederation and the Conference of Local and Regional Authorities, as well as many other nongovernmental organizations.(38) But this is not enough without the support of governments and leaders of member states. For strengthening the Parliament's powers, German support is crucial. Chancellor Kohl and the mainstream German political parties are broadly federalist. Germany promoted codecision in the negotiations leading to Maastricht. The chairman and foreign affairs spokesman of the CDU/CSU governing parliamentary party called in 1994, in a seminal policy paper, for "a new institutional balance, according to which the European Parliament will increasingly become a genuine law-making body with the same rights as the Council."(39) Views in the Bundestag will be decisive because it will insist on its right to approve, or not, the move to the third stage of Emu, and it is not likely to approve unless the European Parliament's powers are strengthened significantly. The president of the Bundesbank has repeatedly emphasized that Emu requires a strong framework of democratic institutions to take the decisions needed to support monetary integration. The German Constitutional Court, in its judgment on the case brought against the constitutionality of the Maastricht Treaty, found it "crucial ... that development of the democratic foundations of the Union keeps pace with integration" and that "increasingly as the European nations grow together, democratic legitimacy is conferred within the structure of the European Union by the European Parliament".(40) In short, Germany will insist on a real move toward codecision around the time of the transition to stage S of Emu. Fear that enlargement to the East, which is a fundamental German priority, could weaken the Union's institutions serves to reinforce this requirement.

France prefers to strengthen the Council and the European Council rather than the Parliament, but is not likely to resist greater codecision as a condition of German agreement to move to stage 3 and of continued German commitment to the Franco-German partnership. The extension of codecision was favored by a "large majority" of the governments' representatives in the Reflection Group that the European Council mandated to prepare for the 1996-1997 Intergovernmental Conference on treaty revision.(41) The British government, defending national and (Westminster) parliamentary sovereignty, has been against any increase in the European Parliament's legislative powers, and because unanimity is required for treaty amendment, this could prevent federal reform of the institutions. Responding to this prospect, there have been proposals that a group of member states should move ahead to form a federal core within the Union.(42) The British Labour Party, however, approved unanimously at its annual conference in 1995 a policy paper which accepted that legislative decisions to which the procedure of a qualified majority applies in the Council (that is, the bulk of such decisions) should be subject to codecision with the Parliament.(43) So the policy of the party which is quite likely to be the next British government is close to that of the German government. The move toward federal institutions is not assured. Even so, unless the Emu project fails and the Union stagnates or disintegrates, it is not at all improbable.

Federalists, Neofunctionalists, and Intergovernmentalists

This article has sought to show how Emu, being constructed with a series of building blocks, can itself be seen as a pillar in the design of a federal union.

This way of seeing the integration process has been subject to various criticisms. One is that federalists do not explain how the federal union can be achieved.(44) We have, however, explained above how the treaty commitment to Emu has been brought about, supported by a combination of economic and political forces and impelled by federalists such as Delors. It can equally be demonstrated that similar forces drove the establishment of the original European Coal and Steel Community, then of the customs union and of the single market, each of which can be seen as a substantial pillar in the construction.(45) We have also suggested that the European Community will, when Emu is completed, have all the essential powers that should enable a federal union to deal with the problems that arise from the economic and environmental interdependence among the member states, and that full codecision of the Parliament with the Council, which is the principal reform required to provide the Community with a system of federal representative government, is supported by powerful political forces as a corollary of the completion of Emu, as well as of the forthcoming enlargement of the Community to include Central and East European countries.

One reason for the difficulty that many scholars appear to experience in accepting this perspective may be the failure of influential integration theories to give due weight to some of the most significant factors that have driven the process. Neofunctionalists overemphasized the "spillover" from one sector of integration to another and neglected the far more powerful exogenous forces of interdependence in the fields of the economy and the environment, which have led the member states to share powers in these fields.(46) They failed to appreciate how much this process of power sharing was buttressed by the urge to construct a political framework strong enough to keep the peace between France, Germany, and other states that suffered grievously from the two world wars. They also ignored the constitutional significance of such power sharing, which undermines the principles of representative government unless the loss by the member states' parliaments of effective powers to enact legislation and control the executive is compensated by the grant of such powers to the citizens' elected representatives at the level at which the power is shared, in this case the European Parliament. Citizens who value their democratic rights are likely sooner or later to reject the power sharing unless it is effectively controlled by these elected representatives. Intergovernmentalists have also neglected the question of whether intergovernmental institutions can make power sharing effective, ignoring the fact that the Community was unable to deliver adequate single-market legislation before the principle of majority voting began to prevail, following the Single European Act.

Another obstacle to understanding this perspective of "new federalist" construction through a series of building blocks is the assumption that the only federalist strategy is to demand the constitution of a federal state. Some federalists, lacking patience for the long haul, have doubtless encouraged this assumption. But, it is belied by the development of the Community from the 1950s to the Union of today, with the incremental addition of many federal elements. The current "new federalist" strategy is to ensure that the Emu is indeed completed and that the institutions are endowed with the elements required to make them into an effective system of representative government, thus developing the Community into what may be called a federal union. The integration of armed forces under the federal institutions, thus transforming the federal union into a federal state, is not at present on the agenda of these federalists. It may be reasonable to argue that the political forces that resist the reforms to complete the federal union will be stronger than those that favor them. However, there are also grounds to suppose that the favorable forces may prevail. Neither federalists, neofunctionalists, intergovernmentalists, neo-realists, realists, nor any combination of these should claim to be sure about the outcome. But the present author, whom the reader will doubtless have identified by now as a federalist, would venture to predict that if Europe fails to master the challenge of interdependence by continuing the process of federal construction, its future will not be bright.

(1) Michael Burger, Federalism and European Union: Political Ideas, Influences, and Strategies in the European Community 1972-1987 (London: Routledge, 1989), p. 12; Burgess, "Federalism and Federation: A Reappraisal," Comparative Federalism and Federation: Competing Traditions and Future Directions, eds. Michael Burgess and Alain-G. Gagnon (Hemel Hempstead, England: Harvester Wheatsheaf, 1993), p. 8.

(2) Declaration by Robert Schuman, French Foreign Minister, 9 May 1950; Jean Monnet was responsible for drafting it.

(3) Jean Monnet, Memoirs (London: William Collins Sons & Co., 1978), p. 296.

(4) Altiero Spinelli, Diario europeo 1948-1969, ed. Edmondo Paolini (Bologna: il Mulino, 1989), p. 142; Jean Monnet, les Etats-Unis d'Europe ont commence (Paris: Robert Laffont, 1955), pp. 52-58.

(5) Lord Jenkins of Hillhead, "Foreword," Federal Union: The Pioneers-A History of Federal Union, Richard Mayne and John Pinder, with John Roberts (Basingstoke, England: Macmillan Academic and Professional, 1990), p. viii.

(6) The ways in which the Union falls short of a federal polity are analyzed in John Pinder, "The Community after Maastricht: How Federal?" New European Quarterly Review 5 (1992): 5-47.

(7) Jacques Delors, "Introduction of the New Commission" (debates of the European Parliament 1984-1985, report of proceedings from 14-18 January 1985), Annex to Official Journal of the European Communities, No. 2-231, pp. 5-11.

(8) See John Pinder, "The New European Federalism: The Idea and the Achievements," Comparative Federalism, eds. Michael Burgess and Alain-G. Gagnon; John Pinder, "European Community and Nation-State: A Case for a Neofederalism," International Affairs 62 (January 1986): 41-54; John Pinder, European Community: The Building of a Union, 2nd ed. (Oxford: Oxford University Press, 1995).

(9) Pierre Uri, "Reflexion sur l'approche fonctionnaliste de Jean Monnet et suggestions pour l'avenir," Jean Monnet et l'Europe d'aujourd'hui, eds. Giandomenico Majone, Emile Noel, and Peter Van den Bossche (Baden-Baden: Nomos Verlag, 1989), p. 76.

(10) Action Committee for the United States of Europe, Statements and Declarations 1955-1967 (London: Chatham House and PEP, 1969), pp. 46, 60-62.

(11) See Pinder, European Community, pp. 128-129.

(12) Monnet, Memoirs, pp. 194-195; Loukas Tsoukalis, The Polities and Economics of European Monetary Integration (London: George Allen & Unwin, 1977), p. 84ff.

(13) Werner Report, Report to the Council and the Commission on the Realisation by Stages of Economic and Monetary Union in the Community, Bulletin of the European Communities, Supplement 11/1970, p. 26.

(14) Tsoukalis, The Politics and Economics, pp. 88-89.

(15) Richard Cooper, "Worldwide versus Regional Integration: Is there an Optimum Size of the Integrated Area?" Economic Integration: Worldwide, Regional, Sectoral, ed. Fritz Machlup (London: The Macmillan Press, 1976), p. 53.

(16) Francesco Forte, "Domestic Policy, Fiscal, and Monetary Variables in a Common Market: Which Should be Frozen and Which Should be Free?" Stabilization Policies in Interdependent Economies, eds. Emil Claasen and Pascal Salin (Amsterdam: North-Holland Publishing Company, 1972), p. 231.

(17) Roy Jenkins, European Diary 1977-1981 (London: William Collins Sons & Co, 1989), pp. 22-23; Peter Ludlow, The Making of the European Monetary System (London: Butterworth Scientific, 1982), pp. 4749.

(18) Roy Jenkins, Europe's Present Challenge and Future Opportunity, Jean Monnet lecture (Florence: European University Institute, 1977); Jenkins, European Diary, pp. 180-181.

(19) Monnet, Memoirs, pp. 512-513.

(20) Bundeskanzler Helmut Schmidt, "Vorwort," Erinnerungen eines Europaers, ed. Jean Monnet (Munich: Hansa, 1978).

(21) Andrew Britton and David Mayes, Achieving Monetary Union in Europe (London: Sage Publications, 1992), p. 11.

(22) Burgess, Federalism and European Union, p. 111.

(23) Delors, "Introduction of the New Commission," 8.

(24) Ibid., 6.

(25) See, for example, Wisse Dekker, Europe--1990 (Eindhoven, The Netherlands: Philips NV, 1985).

(26) Commission of the EuroPean Communities, "Completing the Internal Market" (white paper presented by Commission of the European Communities, Brussels, June 1985).

(27) See Otto Schmuck, "The European Parliament's Draft Treaty Establishing the European Union (1979-1984)," The Dynamics of European Union, ed. Roy Pryce (Beckenham, England: Croom Helm, 1987), p. 209.

(28) See Richard Corbett, "The 1985 Intergovernmental Conference and the Single European Act," The Dynamics of European Union, ed. Roy Pryce, pp. 238-272.

(29) See Paolo Cecchini, with Michael Catenat and Alexis Jacquemin, The European Challenge 1992: The Benefits of a Single Market (Aldershot, England: Wildwood House, 1988).

(30) Commission of the EC, One Market, One Money: An Evaluation of the Potential Benefits and Costs of Forming an Economic and Monetary Union, No. 44 (Brussels: Commission of the European Communities, 1990).

(31) Committee for the Study of Economic and Monetary Union, Report on Economic and Monetary Union in the European Community, Delors Report (Luxembourg: Commission of the European Communities, 1989), p. 11.

(32) Tsoukalis, The Politics and Economics, pp. 107-108.

(33) Delors, "Introduction of the New Commission," 9.

(34) Karl Otto Pohl, "The Further Development of the European Monetary System," Report on Economic and Monetary Union, pp. 129-155.

(35) Treaty on European Union, Article J.4.1.

(36) T. C. Hartley, The Foundations of European Community Law (Oxford: The Clarendon Press, 1984), p. 47.

(37) See Richard Corbett, "Representing the People," Maastricht and Beyond: Building the European Union, eds. Andrew Duff, John Pinder, and Roy Pryce (London: Routledge, 1994), pp. 207-228.

(38) See, for example, Corbett, "The 1985 Intergovernmental Conference and the Single European Act," 242-244.

(39) Wolfgang Schauble and Karl Lamers, "Reflections on European Policy, reproduced in English, Karl Lamers, A German Agenda for the European Union (London: Federal Trust and Konrad Adenauer Stiftung, 1994), p. 15.

(40) Federal Constitutional Court, Urteil des Verfassungsgerichts uber die Verfassungsbeschwerden gegen den Vertrag von Maastricht am 12 Oktober 1993 (Karlsruhe: Federal Constitutional Court, 1993), C.I.b2. See also, Common Market Law Report, 1 CMLR 57, 1994.

(41) European Commission, Reflection Group's Report, SN 520/95 (Brussels: European Commission, 5 December 1995).

(42) See, for example, Schauble and Lamers, "Reflections on European Policy," 17-18.

(43) Labor Party, "The future of the European Union," report on Labor's position in preparation for the Intergovernmental Conference 1996 (London: Labor Party, 1995).

(44) Philippe C. Schmitter, "Alternatives for the Future European Polity: Is Federalism the Only Answer?" Democratie et Construction Europeenne, ed. Mario Telo (Brussels: Editions de l'Universite de Bruxelles, 1995), p. 357.

(45) See Pinder, "European Community."

(46) See, for example, Leon N. Lindberg and Stuart A. Scheingold, Europe's Would-Be Polity: Patterns of Change in the European Community (Englewood Cliffs, NJ: Prentice-Hall, 1970), p. 284.

John Pinder is a Visiting Professor at the College of Europe and Chairman of the Federal Trust. He served as Director of the Policy Studies Institute in London for twenty-one years. He has written extensively on European integration and on the history of federalism. His recent books include Federal Union: The Pioneers with Richard Mayne (1990), The European Community and Eastern Europe (1991), and European Community: The Building of a Union, 2nd ed. (1995).
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Title Annotation:Federalism and the European Union
Author:Pinder, John
Date:Sep 22, 1996
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