The euro crisis as the revenge of neo-functionalism

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.