Failing Forward? The Euro Crisis and the Incomplete Nature of European Integration

Abstract

The European Union (EU) project of combining a single market with a common currency was incomplete from its inception. This article shows that the incompleteness of the governance architecture of Europe’s Economic and Monetary Union (EMU) was both a cause of the euro crisis and a characteristic pattern of the policy responses to the crisis. We develop a “failing forward” argument to explain the dynamics of European integration using recent experience in the eurozone as an illustration: Intergovernmental bargaining leads to incompleteness because it forces states with diverse preferences to settle on lowest common denominator solutions. Incompleteness then unleashes forces that lead to crisis. Member states respond by again agreeing to lowest common denominator solutions, which address the crisis and lead to deeper integration. To date, this sequential cycle of piecemeal reform, followed by policy failure, followed by further reform, has managed to sustain both the European project and the common currency. However, this approach entails clear risks. Economically, the policy failures engendered by this incremental approach to the construction of EMU have been catastrophic for the citizens of many crisis-plagued member states. Politically, the perception that the EU is constantly in crisis and in need of reforms to salvage the union is undermining popular support for European integration.

Breaking up Is Hard to Do: Why the Eurozone Will Survive

“…Since the Eurozone is a radically incomplete project which is lacking in many of the political and institutional features of a unified currency area, we expect that the future will involve a further embedding of the currency in a broader framework of political institutions involving regulation of banks, national fiscal policies, and mechanisms for balancing out asymmetric shocks across different regions. Here we agree with the analysis provided by Jones, Kelemen and Meunier [33] and their concept of "failing forward", i.e., the incompleteness of the Eurozone will generate pressures to find new equilibria. The new equilibria could logically include both reverting to national currencies and moving forward to a more complete regional political union to accompany the Eurozone currency.…”

Understanding the Political Economy of the Eurozone Crisis

“…Overall, neither the institutions of the European Union, nor the constituent member states, have effectively addressed the crisis (Jones et al 2015). There has been no effective coordinated fiscal response, no debt restructuring for any country but…”

Crisis, learning and policy change in the European Union

“…We have examined the effect of surprise, feedback, and uncertainty in the current responses to the crisis. Integration theorists working on mechanisms (like Jones et al 2015) may benefit from our analysis by incorporating our causal sequence of crisis-contingent learning-changefeedback and conventional policy learning into their wider explanatory accounts of integration. We have not challenged integration theories, but used our claims about learning to fill in the gaps in existing theories of integration.…”

“…Learning can still be dysfunctional in an inter-crisis context: the current responses to the Eurozone crisis may lead to the next crisis, as suggested by the 'failing forward mechanism' of Jones et al (2015).…”