Friday

5th Mar 2021

Opinion

The euro crisis as the revenge of neo-functionalism

  • "Many have concluded that the only solution to the euro crisis is some kind of fiscal union" (Photo: European Commission)

The current euro crisis has led to many calls for a European fiscal union. It has also led some to conclude that the process of European integration, as begun in the early 1950s, has gone off the rails.

Yet, if anything, the demands for a fiscal union are a continuation rather than a repudiation of that early history. And it is even something of a vindication for the first grand theory of European integration, developed more than a half-century ago by a political scientist named Ernst B. Haas.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

Haas was a German émigré who spent his career in the United States. He saw himself not an as advocate of European unity but as a social scientist for whom postwar Europe was a laboratory of international cooperation. It was fertile ground for the development of his theory, known as Neofunctionalism.

In his The Uniting of Europe, published in 1958, Haas dissected the process of European integration up to that point. The subject of his study was the European Coal and Steel Community, the institutional seed which eventually grew into today’s European Union.

What Haas found is that once begun, European integration had a self-sustaining dynamic: it tends to create the demand for further integration. This process was driven forward not by popular support for the idea of a united Europe but by people pursuing their self-interest. After a centre of authority was established at the European level, political actors – not just national governments but political parties, trade unions, and industrial associations – reoriented their activities to the new centre.

Spill-over effect

A key concept is “spill-over”: integration in one “functional” area tends to spill over into other areas (hence: “Neofunctionalism”). And so the creation of a common market in one sector, coal and steel, led to demand for the creation of a general Common Market allowing for free trade in all goods. As a result, in 1957 the European Economic Community (EEC) was born.

If that makes it sound like a smooth process, it wasn’t. From the beginning, European integration has been a story of false starts, inertia, setbacks and, finally, incremental progress. The whole enterprise almost failed early on when, in 1954, the European Defence Community treaty died in the French parliament. Even after the creation of the EEC, the integration process was halted again in the mid-1960s by President Charles de Gaulle’s intransigent insistence on full French sovereignty – i.e. a refusal of any further delegation of power to the European level.

Haas acknowledged in later writings that his original theory erred in seeming to depict this process as smooth and automatic, when in fact it was “erratic and reversible.” At one point – in the mid-1970s when the integration process seemed interminably stuck in the mire of “Euro-pessimism,” – Haas even called his own theory “obsolete.”

Neofunctionalism

Yet Neofunctionalist theory saw a revival in the mid-1980s when the integration process was relaunched, as the same dynamic of spill-over was in evidence once again. The EEC had removed tariff barriers that hindered the free movement of goods between member states. This expanded trade created the demand for the Internal Market programme (1985-1992) to remove non-tariff barriers, national laws that discriminate against imports from other EEC countries, and to expand freedom of movement to include people, services and capital. And because the expanded Internal Market was vulnerable to fluctuations of different national currencies, this led to a demand for a common currency, which was the linchpin of Economic and Monetary Union (1992-2002).

Which brings us to today. The common currency and monetary policy has solved one set of problems – it is no longer possible for foreign exchange traders to wreak havoc by betting against individual national currencies, as they did to disastrous effect in 1992-1993. If not for the euro the financial crisis of 2008 would likely have been much, much worse.

But it has created new problems, so that Eurozone members perceived as weaker are subject to punishment by bond markets, forced to pay exorbitantly high interests to borrow; and they can no longer defend themselves with the tools of monetary policy, such as devaluation. The only solution, many have concluded, is some kind of fiscal union. In particular, the argument is made for the creation of Eurobonds, a financial instrument that would allow all Eurozone members to borrow at a common rate. These would be created not out of an ideological commitment to European unity, but out of a simple calculation of self-interest – that the costs of saving the euro, however high, are far less than the costs of its failure, which would be catastrophic.

From the point of view of Neofunctionalist theory, this is not an aberration, but a textbook case of spill-over. Integration in one area, monetary policy, leads to the demand for integration in a related area – fiscal policy. Having a common currency leads inexorably to demands for a common framework regarding spending. Thus the theory is still a powerful tool for explaining the process of integration that began sixty years ago.

However, as we have seen the process is not smooth and automatic. It is now up to European leaders to make a political decision regarding the fiscal future, and they may choose well or badly. A theory such as Neofunctionalism can only point out general tendencies in human affairs, not laws of human behaviour. But if a fiscal union is indeed created, Ernst Haas, who died in 2003, has already identified the underlying logic behind the event.

The writer is a Senior Researcher at ARENA, Centre for European Studies, University of Oslo.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

Spectre of fresh EU treaty returns to haunt ‘incomplete’ Europe

So exhausted were they by the struggle by the time the soap opera ended, European leaders then swore it would be very long indeed, perhaps a generation, before the EU treaties would be opened again. But now, in the last few days, as Europe’s economy and the single currency stand on the precipice, these same leaders have begun to eat their words.

Orbán leaves EPP group - the beginning of a long endgame

Aside from the EPP, Hungary was also protected - at a member states' level - by key bilateral partners; and not only illiberal countries like Poland, Bulgaria or recently Slovenia - but most importantly also by Germany.

The EU's perverse agenda in Bosnia

In its quest for a quick deliverable in Bosnia and Herzegovina, the European Union is trying to broker a deal that risks entrenching the power of Croat nationalists who are resisting moves to make the country more functional.

Belarusian spring: finding hope in dark times

These are dark times in Belarus, with the government tightening the screws like never before. They are preparing for spring just as much as the opponents of the regime are.

What Estonia and Slovakia did to beat AstraZeneca 'hesitancy'

Slovakia has launched a mass vaccination programme aimed at teachers and childcare workers. Estonia, for its part, has begun inoculating frontline workers including teachers, police officers and members of the armed forces ahead of schedule.

Belarusian spring: finding hope in dark times

These are dark times in Belarus, with the government tightening the screws like never before. They are preparing for spring just as much as the opponents of the regime are.

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic Council to host EU webinars on energy, digitalisation and antibiotic resistance
  2. UNESDAEU Code of Conduct can showcase PPPs delivering healthier more sustainable society
  3. CESIKlaus Heeger and Romain Wolff re-elected Secretary General and President of independent trade unions in Europe (CESI)
  4. Nordic Council of MinistersWomen benefit in the digitalised labour market
  5. Nordic Council of MinistersReport: The prevalence of men who use internet forums characterised by misogyny
  6. Nordic Council of MinistersJoin the Nordic climate debate on 17 November!

Latest News

  1. China and Russia abusing corona for geopolitics, Lithuania says
  2. Worries on Europe's infection surge, after six-week drop
  3. EU wants large firms to report on gender pay-gap or face fines
  4. EU Commission cannot hold Frontex to account
  5. Orbán leaves EPP group - the beginning of a long endgame
  6. 'Corporate due diligence'? - a reality check before EP votes
  7. Austrian ex-minister joins list of EU's pro-Kremlin lobbyists
  8. Internal Frontex probe to deliver final report this week

Join EUobserver

Support quality EU news

Join us