Karina rd thesis-how do financial crises affect the process of regional integration-14-08-2013

How do financial crises affect the process of regional integration?

Explaining the evolutions of the EU and ASEAN after the European sovereign

debt crisis and the Asian financial crisis

MA International Relations: EU Studies (2012-2013)

Leiden University

August 2013

Supervisor : Prof. Dr. J.Q.T. (Jan) Rood

Karina Rinaldi-Doligez (s1139711)

Words count: (main body text) 12775

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Acknowledgments

What an adventure! It would be unconceivable to submit this thesis without thanking

those who have been involved in it.

First and foremost, Professor Jan Rood. Thank you so much for your precious

comments and advice, but also for your generosity, patience and availability.

Dr. Bas van Bockel for your support and comments on the literature review.

Dr. Dennie Oude Nijhuis for your advice on the economic part of the thesis and for

reviewing the final version.

Mr. Georges Lantu. Terima kasih banyak pak untuk waktunya, dan juga untuk

kebaikan bapak.

Dr. Pingtjin Thum and Kerstin Radtke for your availability and for your comments

and advice.

Miss Linn ten Haaf for your availability and for the great administration.

My friend Sarah Merette, whom I met in Portugal after so many years. Comme quoi,

le hasard fait bien les choses. Thank you so much for your comments and advice.

My friends and colleagues in Leiden, especially Bahana, Willem, Abi, Rianne,

Julinta, Ravando, the PPI Leiden, Jong, Demi, Elena, Pav, Tedy, Dimitar and Rosi. It was a

great pleasure to know you all. Thank you for being so understanding. I do wish I could

spend more time with you.

Last but certainly not the least, my family and relatives for their valuable supports and

advice. Mama, Papa, dan Rama, you are the heart of this thesis. Opa et Oma, merci pour

votre soutien et pour vos précieux conseils. Mon grand Bassie, your support has been

tremendous, and that is the reason why the only sentence in Dutch that I understand and can

pronounce perfectly well is ‘Dankjewel schat!’. Jeanette and Ger, hartelijk dank voor uw

steun en vrijgevigheid. Tante Nelly and Kak Sandra, terima kasih banyak untuk semuanya.

Leiden tidak akan sama tampa tante dan kakak.

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Table of Contents

Introduction…………………………………………………………………………………………2-6

I- Institutional evolution in the EU and the ASEAN following the European sovereign debt crisis

1- Institutional evolution in the EU………………………………………………………………..10-16

1.1- The roles of supranational institutions……………………………………………….10-12

1.2- The prevailing influence and power of the member states…………………………...12-15

1.3- Conclusion……………………………………………………………………………15-16

2- Institutional evolution in the ASEAN…………………………………………………………..17-23

2.1- Evolution within the ASEAN………………………………………………………...17-19

2.2- The AFC: an impetus for an East Asian integration?...................................................20-22

2.3- Conclusion……………………………………….............................................................22

Conclusion of part I……………………………………………………………………………………23

II- The strength of regional norms in the EU and the evolution of the principle of sovereignty in the

ASEAN

3- The strength of the ‘doxa of an ever closer union’ in the EU……………….………………….25-30

3.1- Challenges to the idea of European integration……………………………………...26-28

3.2- The strength of the idea of European integration…………………………………….28-30

3.3- Conclusion…………………………………………………………………………….…30

4- The strength of the principle of sovereignty in the ASEAN countries………………………....31-35

4.1- Divisions between the member states……………………………………………...…32-33

4.2- Some evolutions……………………………………………………………………...33-35

4.3- Conclusion……………………………………………………………………………….35

Conclusion of part II…………………………………………………………………………………..36

Analysis and conclusion………………………………………………………………………….37-39

References list……………………………………………………………………………………..40-43

Appendix………………………………………………………………………………………….44-53

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Introduction

In Europe, the adoption of the euro was seen as a major step to regional integration.

Since the emergence of the nation state in the 17th

century, no other region in the world has

reached this level of integration. A currency is indeed a strong symbol of sovereignty and the

adoption of the euro within the Eurozone implies an even stronger economic and political

interdependency between the members. Less than a decade after the adoption of the euro, the

European Union was faced with a sovereign debt crisis which led to the necessity to reform

the European Monetary Union (EMU), notably by increasing the convergence of the member

states’ economic and financial policies. However, the shock of the crisis also put in doubt the

credibility and the legitimacy of the EU and the common currency. The idea of ‘an ever

closer union’ (that is enshrined in all European Communities and the European Union treaties

since the Treaty of Rome and expresses the tacit understanding in Europe that the process of

European integration is a reality will always move forward) was therefore put under strong

pressures.

In developing countries, changes in world politics and technology by the end of the

Cold War have led to a high growth of capital flows. The Asian financial crisis (AFC) in the

end of the 1990s has shown that these flows of capitals can also bring serious problems. In

Southeast Asia, the crisis reached a scale that had never been attained since the creation of

the Association of Southeast Asian Nations (ASEAN) in 1967. It affected four ASEAN

founding countries in particular: Thailand, Indonesia, the Philippines and Malaysia. The role

of the ASEAN at the time was wholly insufficient, not to say non-existent. Indeed, ASEAN

was created as an association of countries without any legislative power and which role is

limited to co-operation between member states. It was never created to further integrate. Yet,

the necessity to regulate capital flows, the flight of foreign investors to China and India (two

emerging economies and ASEAN neighbors) and the pressures from the IMF and

international communities for trade liberalization led ASEAN member states to consider

further economic (and political) co-operation between them.

This thesis is an attempt to assess the extent to which these pressures have led to

further regional integration in both institutions. The word ‘integration’ should be considered

differently in both cases. For the EU, it means further sharing of competences between the

member states. For ASEAN, it refers to further economic, political, or financial co-operations

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between member states. The process of integration in both regions should also be considered

differently. The EU process of integration is quite clear, in that it is understood to be in a

constant forward movement. Thus, the effects of the crisis on the EU can also be assessed by

finding out whether the crisis has affected this process. In the pre-crisis ASEAN, it was (and

some would argue that it continues to be) based on the strong principle of sovereignty,

meaning the autonomy of the member states to exercise their powers (economic, political or

cultural) in their own territory. It also means that member states cannot interfere in each

other’s affairs. It is one of the basic principles of the ‘ASEAN Way’, in which human

relations (dialogues and networking) are considered to be more important than bureaucracy.

It is why the model of regional integration in ASEAN is called an ‘open regionalism’.

Therefore, the effects of the crisis on the ASEAN can be assessed by finding out whether the

crisis has affected this strong principle of sovereignty.

In other words, it will answer the research question: ‘How do financial crises affect

the process of regional integration? Explaining the evolutions of the EU and ASEAN after the

European sovereign debt crisis and the Asian financial crisis’.

Methodology

The thesis will assess the effects of financial crises (independent variable) to the

process of regional integration in the EU and ASEAN (independent variable). It will

investigate two different forms of regional integration – the EU supranational union and the

ASEAN ‘open’ regionalism.

Two features of regional integration will be analyzed in each region. First, the

structural evolution of each regional institution. Second, the evolution of the norms that

characterize each regional institution (the principle of ‘an ever closer union’ for the EU and

the principle of ‘sovereignty’ or ‘non-interference’ for the ASEAN). These are the two units

of analysis for this study.

Concerning the first unit of analysis this thesis will look at the institutional evolutions

observed in each region during the crises (part I of the thesis). For the EU, it will assess the

evolution in the EU distribution of competences (chapter 1). Has dealing with the crisis

resulted in more (or less) competences being given to the Union ? In ASEAN, the assessment

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would be about the evolution in the structure of ASEAN following the Asian financial crisis

(chapter 2). Has the crisis led to further ASEAN economic, political and social co-

operations?

To measure the extent to which the evolution on the structure of the EU and the

ASEAN can be considered as an evolution in the process of the EU and ASEAN integration,

this thesis will also assess the strength of the normative power that characterize each regional

institution (part II of the thesis). This will be the second unit of analysis. On the one hand, the

analysis of the crisis management in the EU will reveal the strength of principle of ‘an ever

closer union’ (chapter 3). Has the principle of European integration resisted the sovereign

debt crisis? Or, on the contrary, has the crisis undermined this principle? On the other hand,

the analysis of the different reactions of the member states in ASEAN during the AFC will

reveal the strength of the principle of sovereignty in the region (chapter 4). Has the AFC

affected the principle of sovereignty of the member states? Or, on the contrary, has this

principle resisted the AFC?

Hypothesis

The hypothesis is that both in the case of the EU and in the case of Southeast Asia

(supranational union and “loose” regionalism) there have been some institutional movements

towards regional integration.

In the EU, these movements can be explained by the proactive role of the EU

supranational and independent institutions, as well as the bigger member states, especially

Germany and France. However, this was limited because of some factors. The crisis

management has tilted the balance of power towards the member states and has divided the

EU into different groupings. Thus, the movements only concern some groups of states

(especially the Eurozone countries) but not the EU as a whole. By the same token, national

pressures and divisions between member states have strongly challenged the principle of ‘an

ever closer union’, therefore limiting the progress of European integration.

In ASEAN, the institutional movements were created by strong external economic

pressures and a process of dialogues and networking that avoided confrontations and conflicts

between ASEAN member states. The symbolic value of this regional integration is

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significant, but the process of regional integration was limited by the predominance of the

principle of sovereignty and the strong dependency of the member states’ economies to

foreign investments from outside the region.

The conclusion will verify the accuracy of this hypothesis and suggest (if possible) (a)

common feature(s) of regional integration between the two regional institutions.

8

I- Institutional evolution in the EU and the ASEAN following the

European sovereign debt crisis

The shock over the realization that the EU system of economic and monetary union

contains some failures was deeply felt by EU leaders and citizens. Pressured by the economic

and political downturn that had started in Greece but rapidly expanded to other EU periphery

countries (such as Portugal, Ireland and Spain), EU decision-makers understood that the

prevailing system could not be maintained, and some emergency -as well as mid-term and

long-term- responses were vital to the survival of the common currency and the entire project

of European integration. Most importantly, the EU member states needed to harmonize their

economic and financial policies. A structural reform, which would involve a further sharing

of competences, is needed to address these issues. Chapter 1 will assess the evolution in the

distribution of competences between the member states and the EU supranational institutions

following the crisis.

In Southeast Asian countries, the Asian financial crisis (AFC) has shown that the

increasing flows of capitals can represent dangers. As the AFC unfolded, it was clear that

ASEAN was too weak to provide solution. Therefore, further co-operations between the

countries of ASEAN are needed to address these issues, implying a certain reform or

restructuration of ASEAN (by giving it more power). How did member states in ASEAN

responded to these pressures? Chapter 2 will assess the structural evolution of ASEAN

following the crisis.

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Chapter 1- EU Institutional evolution

The EU institutional system is based on the logic of balance of power between on the

one hand the intergovernmental institutions (represented by the Council and the European

Council) and on the other hand supranational institutions (represented by the Commission,

the European Parliament and politically independent institutions such as the European

Central Bank [ECB] and the European Court of Justice [ECJ]). This logic is strongly

safeguarded under the proportionality and subsidiarity principles enshrined in Article 5 of the

Treaty on European Union (TEU).

The Treaty of Lisbon defines the distribution of competences regarding the EU’s

economic policies. Article 3 of the Treaty on the Functioning of the European Union (TFEU)

gives the ‘Union’ (meaning the EU intergovernmental and supranational institutions)

exclusive competences in policies regarding customs union, competition rules, monetary

union and commerce. Article 4 gives the Union and the member states shared competences1

in the areas of internal market; some aspects of social policy; economic, social and territorial

cohesion; agriculture and fisheries; consumer protection; and transport and energy. Article 5

leaves the coordination of the member states’ economic, labor and social policies to the

member states and the Union:

‘1. The Member States shall coordinate their economic policies within the

Union. To this end, the Council shall adopt measures, in particular broad

guidelines for these policies.

Specific provisions shall apply to those Member States whose currency is the

euro.

2. The Union shall take measures to ensure coordination of the employment

policies of the Member States, in particular by defining guidelines for these

policies.

3. The Union may take initiatives to ensure coordination of Member States’

social policies.’

1 Meaning that the member states can legislate and adopt legally binding acts in these areas as long as the Union

has not done so.

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This distribution of competences in economic policies reflects the complexity of the

EU system and can explain the challenges facing the EU when the sovereign debt crisis

wreaked havoc. If the articles 3 is clear enough in that it defines the areas in which the

member states have given up their sovereignty, the articles 4 and 5 are not so clear. This

means that the legislation and adoption of legally binding acts in the areas defined in the

articles 4 and 5 would depend on the power relations in negotiations between the

intergovernmental and supranational institutions.

Yet, multiple reports and analyses have demonstrated that it would be difficult to

maintain a monetary union without the willingness of the member states to cooperate and

harmonize their economic policies (the ‘chacun pour soi’ or ‘beggar-thy-neighbor’ attitude).2

This attitude would plunge the affected member states further into debt spiral, precipitating

the contagion effect of the sovereign debt crisis.

Thus in this regard, the crisis has created economic and political pressures on the

competences of the member states since it has revealed that the EU economic and fiscal

coordination are not sufficient and has reinforced the fact that the EU economic and fiscal

problems cannot be solved without a strong harmonization of economic, labor and social

policies within the member states, and especially within the Eurozone countries.

By looking at the policies and the roles played by the EU institutions during the crisis

management, this chapter will discuss the extent to which economic and political pressures

have affected the powers of member states vis-à-vis supranational institutions. It is to be

noted that ‘member states’ here refers to the EU intergovernmental institutions (the European

Council and the Council) and the national parliaments. First it will assess the roles of

supranational institutions during the crisis management, then it will describe the way member

states have managed to keep their competences.

2 See for instance De Larosière Report (The de Larosière Group, 2009), and Hix (2012).

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1.1- The roles of supranational institutions

The necessity to converge financial and economic regulations at the EU level has

pushed member states to give more power to supranational institutions to supervise and

coordinate the member states’ finance and economy.

Indeed, the measures detailing the member states’ decisions were achieved through

negotiations between the EU institutions using the Ordinary Legislative Procedure (OLP).

According to this procedure, the Commission has the power to issue proposals (‘the power of

initiative’) and recommendations. It did use this initiative power in the case of the European

Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism

(EFSM) and it also used its right to issue recommendations in the cases of the Six Pack, the

Two Pack, and the two necessary measures for the creation of a Eurozone (and possibly an

EU) Banking Union: the Single Supervisory Mechanism (SSM) and the Single Resolution

Mechanism (SRM).

For its part, the EP has also made some achievements: It supported the financial

transaction tax under the enhanced cooperation procedure; it played a role in adopting and

amending detailed rules contained in the broad guidelines of stringent regulations such as the

Six Pack3, the Two Pack (see appendix I), the SSM and the SRM; it was successful in

imposing reverse QMV for sanctions against the Eurozone countries who contravene the debt

and deficit rules (stipulated in the preventive arm of the strengthened Stability and Growth

Pack) despite oppositions from all Eurozone countries (except the Benelux) (Dinan, 2012: 92-

93); it managed to pressure the European Council to agree to let the Commission run the

European Stability Mechanism (ESM) rather than the Member States (EP Press Release,

2011); finally, it managed to incorporate medium-term growth and unemployment prospects

and insert social dimensions into the Six Pack and the Two Pack (see appendixes III and IV).

The crisis has also reinforced the roles of the politically independent ECB. The

Outright Monetary Transactions (OMT), which was decided by the ECB Governing Council

in September 2012, is an exceptional measure aimed at easing the global financial market. It

was taken independently of the member states’ national government and the EU decision-

makers. Although outright purchases had already existed as one of the ECB monetary policy

instruments since 1999, it remained unused until June 2009 (ECB, 2013). The ECB has also

3 Although, as we have previously seen, only 4 out of the 6 measures were adopted.

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created the Securities Markets Programmes (SMP) in May 2010, which implies the purchases

of distressed government bonds of the European periphery (the GIPS countries). The SMP

lasted until September 2012, the same day as the OMT was announced. These measures are

exceptional due to the fact that the ECB is not given the power by the Treaty of Lisbon to

finance the Eurosytem member states (see the ‘no bail-out’ provision of Art. 125 TFEU).

However, it can use some financial instruments, such as the purchase of bonds via the

national central banks, to guarantee price stability in the Eurosystem member states.

Therefore, outright purchases remain a non-standard measure (Ibid.). In contrast to the SMP,

the OMT contains ‘strict and effective conditionality attached to an appropriate EFSF/ESM

programme’(Ibid.). In addition to this, the ECB could be given stronger roles through the

SSM and the SRM. This is a major leap considering the fact that the ECB has consistently (at

least every year) warned about the growing financial imbalances since its 2005 Financial

Stability Review (ECB, 2005) without being responded clearly and boldly by the member

states. Thus, the ECB’s role has been enhanced through the crisis, although it is still early to

find out whether such bold a measure as the OMT would be approved by all the member

states, especially Germany (Pop, 2013).

Another politically independent EU institution which also played an important role in

the decision-making during the crisis management is the European Court of Justice. Indeed,

it has intervened in the EU economic and financial coordination by allowing the ESM to be

effective even before the necessary amendment of the Art. 136 TFEU was effective (see the

ECJ’s judgment of the Pringle case).

There are similarities and differences between the EU supranational institutions in

terms of their importance during the crisis management. Both types of institutions have been

given more importance in the coordination of the member states’ economy and finance.

However, what makes the ECB stand out from the rest of the EU institutions is its political

independence, its technocratic approach to the crisis and its connection with the financial

market. These factors have given the ECB more room for maneuver and stronger influence.

The President and the boards of the ECB are members of the Eurogroup and the Eurosummit

meetings and they exert strong influence during negotiations. Dinan observes that the

President of the ECB (Jean-Claude Trichet or his successor Mario Draghi) ‘faced fewer

political constraints and were able to provide more decisive leadership’. ‘They did not

hesitate to tell political leaders what they should be doing, while protecting the independence

of their own institution’ (Dinan, 2012: 96-97). Moreover, the ECB’s direct link with the

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financial markets makes it the most influential and effective institution to deal with one of the

main origins of the crisis: the instability of the financial markets. Mario Draghi’s speech at

the Global Investment Conference in London on July 26th

, 2012 (ECB, 2012) in which he

confidently guarantees that the ECB was ready ‘to do whatever it takes to safeguard the

euro’, was responded positively by the market and contributed in regaining the much-needed

confidence in the common currency.4 However, the divisions within the ECB’s governing

board, which can hamper both the efficiency and the credibility of the ECB decisions, are the

reflection of the still important influence of the nation state in steering the European

integration. The Bundesbank itself, and most and foremost its Head Jens Weidmann, is

‘openly critical to the ECB’s efforts to provide a back-stop in European sovereign debt-

markets’ (Jones, 2013: 91). These are the reasons that make Erik Jones point out that

‘Cyprus5 is not a template!’ and that ‘the buck does not stop with the ECB’ (Ibid. :89-91).

1.2- The prevailing influence and power of the member states

The harmonization of the economic and fiscal governance of all the member states

touches upon the very important issue of sovereignty, and the heads of state/government

know that it would be very difficult to achieve concessions on such sensitive matters as labor,

social policy, and budget reforms at the EU level. It is therefore necessary for them to discuss

and put these matters at the top of the agenda of the European Summits. Dinan (2012)

describes 2011 as a year when ‘economic governance was the most important item on the

agenda’ (Ibid.: 85) and when a ‘surfeit of summits6’ took place. This tendency implies the

politicization of the decisions and the increasing exposure of the heads of states/government

4 Eric Jones stated the effects of this announcement: ‘European bond Markets have moved into a period of

relative calm. The spread between long-term Italian and German government interest rates is back down to

levels last seen when Silvio Berlusconi was Italian prime minister. The spread between Spanish and German

debt is higher, but not by much. Moreover, nothing in the news seems to rattle the markets significantly. The

near collapse of the banking sector in Cyprus caused only a blip; the imposition of capital controls by the

Cypriot government had little impact either. The small Mediterranean island country suffered huge losses

(which augur even greater economic suffering to follow) and yet the threat of crisis spreading from one country

to another has not materialised.’ (Jones, 2013: 81).

5 Referring to the Cyprus bailout (Jones, 2013: 89-90).

6 When counting the European Summits’ conclusions, one would notice that the frequency of summits has

indeed increased since 2008 (from around 5 per year in average to 7). However, the number of summits has

never reached that of 2011 (10) (data retrieved from the European Council website: http://www.european-

council.europa.eu/council-meetings/conclusions).

14

to the control of their national parliaments. In this regard, the crisis has pushed member states

to retain their powers vis-à-vis supranational institutions.

What is clearly visible when one observes the EU crisis management is that measures

decided through non-ordinary procedures- such as the Simplified Revision Procedure (SRP),

the Special Legislative Procedure (SLP), and Enhanced Coordination- have multiplied since

the crisis. National leaders have used these tools as a way to enhance the EU economic and

financial co-ordination without affecting the distribution of competences enshrined in the

Treaty of Lisbon.

The multiplication of non-ordinary procedures reflect the tilt of the EU balance of

power towards the member states. One illustration of this is the adoption of

intergovernmental treaties which naturally marginalizes the European Parliament (EP) while

strengthens the roles of the national parliaments who have the power to ratify treaty reforms

and are thriving for more influence in the EU decision-making process (Dinan, 2012: 94-95).

Indeed, the adoption of the Treaty Establishing the European Stability Mechanism (T/ESM),

for instance, only necessitated the amendment of Article 136 TFEU (see appendix II). This

allows member states to use the SRP rather than the Ordinary Revision Procedure (ORP).

Unlike the ORP, the SRP does not require the convening of the Intergovernmental

Conference (IGC) which would include the EP. Furthermore, the role of the EP under this

procedure is limited to consultation, which means that the Council is obliged to consult the

EP before voting on a proposal by the Commission but is not bound to adopt the latter’s

position. Although the EP has nonetheless managed to negotiate the involvement of the

Commission in the ESM (see the achievements of the EP described above), the amendment

of the Article 136 TFEU and the adoption of the T/ESM still reflect the predominance of the

member states. Indeed, despite the fact that the ESM has a permanent character, it only

applies to the Eurozone and ‘will not create any liability on the EU budget or on Member

States outside the euro’ (Foreign and Commonwealth Office of the UK, 2011). Moreover,

since the mechanism is based on loans rather than aids or “bail-outs” (not permitted under

Article 125 TFEU), it does not constitute a transfer of competence to the Union. It is for these

reasons that the European Union Committee of the UK Parliament and the UK government

have agreed to the amendment of article 136 (European Union Committee of the UK

Parliament, 2011). Another illustration of how intergovernmental treaties affect the power of

supranational institutions is the process of adoption of the Treaty on Stability, Coordination

15

and Governance (TSCG or the so-called Fiscal Compact), an intergovernmental treaty

existing separately form the Lisbon Treaty which did not even involve the EP.

In addition to this, the powers of the member states are also strengthened through the

multiplication of differentiated integration, an EU strategy which allows for the deepening of

integration for only a certain number of member states while the rest of the member states

either choose not to join or do not fulfill the necessary conditions to do so. This means that in

times of divisions, this strategy allows for the deepening of the EU integration (more transfer

of sovereignty to the Community Method) without the participation of those who do not wish

to or are not yet ready to join. In this way, the EU member states are divided into different

groupings in which each group adopts its own pace of integration. The EMU and the

Schengen Area are the most known measures resulting from this strategy. It can be achieved

through multiple tools (opt-outs, enhanced co-operation, accelerator clause, simplified

revision procedure, intergovernmental negotiations and so on) and can cover all EU policies

such as monetary union, fiscal policy, area of freedom, security and justice, human rights and

many others.

This method can be seen in the light of the European sovereign debt crisis by

analyzing the measures taken by the EU. Indeed, tables 1.1 and 1.2 in the appendix I show

that most of the measures are only applied to the Eurozone or do not include all the member

states. The EU has been divided into different groups such as the 11 members of the financial

transaction tax, the 17 members of the Eurozone, the 23 members of the Euro Plus Pact, the

25 members of the Fiscal Compact, and so on. Over the course of the crisis, this strategy has

become ‘an important –and most probably- permanent feature of European integration’

(Hollzinger and Schimmelfenning, 2012: 293). Indeed, the multiplication of differentiated

integration during the crisis management and the permanent character of the measures would

make it hard for the EU leaders to avoid this strategy in the future. Von Ondarza even

considers that there has been such an increase in the use of this strategy that he calls it a

‘plethora of differentiated integration’ (Von Ondarza, 2013: 24-5).

The effects of this strategy on the EU supranational institutions are considerable,

especially for the EP. Indeed, it brings the EP into the issue of ‘political dilemma’ (Von

Ondarza, 2013: 24-25). In other words, it is faced with the dilemma of whether to represent

itself as an entity which defends the interests of all EU member states (in which case it will

lose legitimacy as MEPs from non-Eurozone countries will vote for legislative measures that

16

are not binding to them) or to separate by creating a Eurozone sub-committee or a separate

Parliament for the Eurozone countries (which would be politically disastrous)7. This internal

dilemma cannot be at the advantage of the EP, since it can further feed doubts about its

legitimacy.

The Commission, on the other hand, is not faced with such a dilemma. Nonetheless,

these divisions have created such a complex EU configuration with multiple interests. As a

result, the tasks of the European Commission President and the Commission Vice-President

for Economic and Monetary Affairs (which consist in defending the EU interests during the

negotiations in the European Council, the Euro Summits and the Eurogroup) have become

more difficult. Jacques Delors’s success in advancing the Single market was helped by rather

favorable conditions: The Community economic situation was not as difficult as during the

current Eurozone crisis, and the political willingness of French President François Mitterand

and German Chancellor Helmut Kohl to reunite Europe following the reunion of Germany

and the end of the Cold War certainly contributed to the progress of the agenda and the

creation of the common currency. Yet, even under these favorable conditions, Delors faced

many challenges and had to make important concessions (the UK rebate, the UK and Danish

opt-outs, the non-adoption of the pact for economic coordination among others). In the case

of the present crisis in which the EU credibility and legitimacy has been strongly challenged,

the conditions are not so favorable.

Conclusion

In sum, the European sovereign debt crisis (which has raised the sensitive issue of

how to refinance the accumulation of sovereign debts in some Eurozone countries and how to

harmonize the member states’ economic and financial regulations) do not create a favorable

environment for the EU supranational institutions -and especially the EP- to get the upper

hand and be included in the adoption of some important measures (such as the T/ESM and

the TSCG), although they have played major roles in designing some main measures and

even managed to gain some concessions form the member states. The statement of the

German Constitutional Court in a public hearing that it was not going to judge the OMT on

7 The reaction of the European Parliament Committee on Constitutional Affairs to the suggestion of the French

socialist MEP Pervenche Beres to create a sub-committee for the Eurozone countries was clearly negative (EP

Committee on Constitutional Affairs, 2011: point 11). The Eurozone sub-committee has never been created.

17

its ‘efficiency’ but rather on its ‘legality’ (Pop, 2013) echoes the still vivid confrontation

between national governments and supranational institutions and the way a nation state puts

some limits to further political integration.

Therefore, it is safe to conclude this chapter by stating that there has been a certain

evolution in the European integration which is expressed by the emergence of the ECB, some

achievements of the EP in negotiating some conditions for some measures (see above) and

the power given to the Commission to supervise member states’ budgets through the

European Semester. However, it is also important to note that it has not majorly affected the

EU distribution of competences. Indeed, the only change in the Treaty of Lisbon is the

amendment of the Article 136 TFEU, which does not constitute an increase of the Union

competence.

Chapter 2: Institutional evolution in the ASEAN

18

As previously mentioned, the role of the ASEAN was very limited during the crisis.

The ASEAN Free Trade Agreement alone, created in 1992 and accelerated in 1994, surely

was not sufficient in addressing the economic issues resulting from the crisis. There was

indeed a currency swap arrangement agreed in August 1977 between the central banks and

the monetary authorities of the five founding ASEAN countries. It created a financial safety

net of $100 million which was further increased to $200 million a year later (ASEAN

Century Institute, 2013). However, the amount was far too small compared to the scale of the

crisis. Thus, ASEAN needed to restructure itself. By looking at the decisions taken following

the crisis, this chapter will discuss the extent to which the AFC has affected the structure of

the ASEAN following the crisis. Interestingly, the AFC also triggered another momentum in

East Asia that may mark the beginning of a process of regional integration.

2.1- Evolution within the ASEAN

On December 1st, 1997, the finance ministers of the ASEAN states held a special

meeting discussing about the effects of the Asian Financial Crisis. The joint statement of the

meeting highlighted the importance of enhancing cooperation in four areas: regional

surveillance, economic and technical cooperation, measures ‘[to support the strengthening of]

the IMF’s capacity to respond to financial crises’ and support to other cooperative financing

arrangements ‘that would supplement the IMF’s resources’ (ASEAN, 1997a). As a result, the

ASEAN Surveillance Process (ASP) was created a year later. The Asia Regional Integration

Center (ARIC), an ongoing technical assistance project of the Asian Development

Bank’s Office of Regional Economic Integration, described the ASP as follows:

‘The ASP reviews global, regional, and individual country developments, and

monitors exchange rate and macroeconomic aggregates as well as sectoral and social

policies. It facilitates consideration of policy options, encouraging member countries

to develop prompt individual or collective responses to prevent crises. The ASP also

provides a mechanism for sharing information and for developing early warning

19

systems. To carry out these objectives, ASEAN Finance Ministers meet annually with

ministries of finance and central bank deputies meeting semiannually.’8

Therefore, the ASP is an informal mechanism that allows member states to share

information and therefore encourage them to work in cooperation and identify issues that

need to be tackled in order to prevent future crises.

Another process of a deeper regional integration is the adoption of the Hanoi Plan Of

Action by all ASEAN member states. It was adopted under the framework of the ASEAN

Vision 2020 which was decided at the second ASEAN Informal Summit held in Kuala

Lumpur on December 15th

, 1997. The main measures of the ASEAN Vision 2020 (ASEAN

1997b) were, among other things:

- the strengthening of macroeconomic and financial surveillance;

- the acceleration of the implementation of the ASEAN Free Trade Agreement

(AFTA), especially in trade of services, investments (setting goals for an ASEAN

Investment Area by 2010 and the free flow of investments by 2020) and customs

harmonization (the implementation of the ASEAN Harmonised Tariff Nomenclature

Procedure by 2000);

- more directional roles for the Secretary of ASEAN.

- a further strengthening of the links between the member states through economic

and socio-cultural activities such as the implementation of ASEAN Plan of Action on

Social Safety Nets or the creation of an ASEAN satellite Channel (ASEAN Hanoi

Plan of Action: par. 4.2 and 9.3).

The ultimate sign of the deepening of ASEAN institutional co-operation is the signing of the

Declaration of ASEAN Concord II (Bali Concord II) on October 7th

, 2003 which saw the

engagement of the ASEAN leaders to create an ASEAN Community based on three pillars:

Political-Security, Economic and Socio-cultural. A year later, they agreed to work towards

the development of an ASEAN Charter at the Tenth ASEAN Summit in Laos on November

29th

, 2004, through the adoption of the Vientiane Action Programme (ASEAN 2004). The

Charter will be ratified by all member countries 4 years later (ASEAN 2008). This process of

8 Retrieved from the ARIC website:

http://www.aric.adb.org/initiativetable.php?iid=62&ssid=2&title=ASEAN%20Surveillance%20Process%20(AS

P) (accessed June 10th

, 2013).

20

integration (which has already started before the crisis through the ASEAN Free Trade

Agreement or AFTA in 1992) is aimed at increasing the competitiveness of ASEAN, now

faced with the two most rapidly rising exporter economies in its neighborhood: China and

India.

These economic measures cannot be compared with the EU measures decided during

the European sovereign debt crisis management. First, they are not binding and reflect the

ASEAN ‘loose’ form of cooperation: the goals of these measures are stipulated in joint

agreements and declarations rather than concrete measures. Second, they were clearly pushed

by the conditions attached to the IMF bailout. Indeed, the influence of the IMF on the

decisions of the December 1st, 1997 ASEAN Finance Minister meetings and on the ASP was

clear (see above). The preamble of the Framework agreements on Enhancing ASEAN

Economic Cooperation signed on January 28th

, 1997 states the commitment of the signatories

to the GATT rules and the advantages of trade liberalization (ASEAN, 1997).

Just around 6 years after the AFC wreaked havoc, member states signed the

agreement of Bali Concord II, engaging themselves to create an ASEAN Community based

on three pillars including politics and security, economy, and culture. This project is indeed

ambitious. Further, the creation of ASEAN Charter in 2008 as well as the ASEAN Political

Community blueprint, ASEAN Economic Community blueprint and ASEAN Socio-cultural

Community blueprint (also in 2008) reflect the real commitment of the member states to

enhance co-operation. The ASEAN Community is expected to be fully realized by 2015.

Therefore, the AFC triggered a structural evolution of ASEAN, since member states

agreed to enhance their economic co-operations. Although the agreements reached by the

member states are not binding regulations and are still based on the member states’

commitments, it nonetheless represents a significant step for an association of member states

that is strongly based on the principle of sovereignty.

Interestingly, the AFC also led to another evolution in the region. It triggered

economic and political co-operations in East Asia between ASEAN and its three big

neighbors: China, Japan and South Korea. It is important to mention and to develop this fact

in the thesis in order to better understand the evolution of ASEAN due to the crisis. The AFC

did lead to an impetus for economic and political co-operations between ASEAN and the

three East Asian countries, forming a regional entity called the ASEAN+3.

21

2.2- The AFC: an impetus for an East Asian integration?

The idea of an East Asian regional integration had been suggested prior to the crisis,

but it had never been realized. The creation of APEC, the failure of the Uruguay Round in

1990, incited Malaysia Prime Minister Mahathir Mohammad to propose the creation of an

East Asian Economic Caucus (EAEC) or East Asia Economic Group (EAECG), a regional

free trade zone encompassing ASEAN member states and the Plus Three countries (China,

Japan and South Korea). The aim of the caucus was to counterbalance the Western influence

in the region by grouping ASEAN countries and its Eastern neighbors together. However, the

idea was strongly opposed by the US and received cool reactions from Japan and some of the

ASEAN members and APEC partners.

Interestingly, the East-Asian co-operation really kicked off with the preparation of the

Asia-Europe meeting (ASEM), a platform of negotiations initiated by Singapore Prime

Minister Goh Chock Tong in a speech in Paris in 1994 and agreed by ASEAN and the EU in

1995. The ASEAN members then asked China, Japan and the Republic of South Korea to

join and to represent Asia. China and Japan had reservations, but all the three finally accepted

to meet for the preparation of the first ASEM held in Bangkok, in March 1996. Several

meetings that ensued in 1996-1997 increased coordination and discussions among ASEAN

and its Northeastern partners. Japan and China eventually requested regular summit meetings

with ASEAN members to discuss about economic co-operations (Stubbs, 2007: 84).

During the preparation of the 1997 ASEAN annual summit in Kuala Lumpur, the

ASEAN members, taking advantage of the newly forged link with their Northeast neighbors,

invited the leaders of the Northeast Asian states (Ibid.). China agreed, as it was willing to

take advantage of its economic expansion to invest in Southeast Asia and find a partner as it

was preparing to join the WTO. Japan cannot leave China leading this process of cooperation

alone, and therefore agreed to join as well. The latter represents a counterbalancing force to

China’s leadership.

Thus, the first APT summit took place in December, 1997, at the same time as the

ASEAN Kuala Lumpur Summit. The post-crisis period sees the emergence of the APT

project (ASEAN Plus Three, meaning China, Japan and South Korea), with multiplications of

summits that are hold annually and at the same time as the ASEAN Annual Summit

Meetings. It includes regional financial co-operations under the framework of the Chiang Mai

Initiative, which created the ACU (Asian Currency Unit) and later developed to AMU-wide

22

(including Australia, New Zeeland and India). Further negotiations on bi-lateral free trade

agreements ensued (table 2), but also the development of the Asian Bond Initiative (ABI) and

the creation of AMRO (ASEAN + 3 Macroeconomic Research Office), a macroeconomic

surveillance unit. These co-operations are important, in the sense that it marks the beginning

of a regional co-operation in East Asia.

Japan suggested the idea to set up an Asian Monetary Fund (AMF) at the G7/IMF

meeting in Hong Kong, China in September 1997. The proposal was strongly rejected by the

IMF and the US, since it came just after the IMF was already implementing the rescue

package for Thailand, but also due to the absence of background work, informal discussions

and lobbying by the key stakeholders (Sussangkarn, 2010: 4). Although not adopted at the

time, the region still continued looking for another initiative. As a result, the idea of setting a

‘New Framework for Enhanced Asian Regional Cooperation to promote Financial Stability’

or the so-called ‘Manilla Framework’ was agreed at a meeting of Asian Financial Central

Bank Deputies in Manilla, Philippines, on November 18th

-19th

, 1997. It is the precursor of the

Chiang Mai Initiative. Chalongphob Sussangkarn observed that the US and the IMF’s

influence in these decisions was predominant (Ibid.: 4-6). However, he believes that the idea

‘of East Asia having its own financial and monetary organization’ has not ‘disappeared

completely’, and that ‘twelve years after the original AMF proposal was made, such an

organization may eventually still emerge’ (Ibid.).

Therefore, the AFC represented a watershed in the East Asian regional governance.

Today, the Chiang Mai Initiative has developed from ASEAN and Bi-lateral Swap

Arrangements (ASEAN Swap Arrangement/ASA and Bilateral Swap Arrangements/BSAs) to

‘multilateralized self-managed reserves pooling scheme governed by a single contractual

agreement, or the Chiang Mai Initiative Multilateralized (CMIM)’ (Ibid.: 8). The broad

decision-making mechanism was also strengthened, with ‘fundamental issues (review of size,

contributions, and borrowing multipliers, readmission, membership, terms of lending, etc.)

[…] decided through consensus of the members of ASEAN+3, while the lending issues

(lending, renewal, default) […] decided by majority vote’ (Ibid.). Moreover, Mahathir

Mohammad’s EAEC project continues to be discussed, and the APT meetings have expanded

into several ministerial level meetings in other areas such as agriculture, ICT, energy,

environment and transnational crime (Ibid.: 4). Richard Stubbs observed that, ‘among the

Northeast Asian states [China, Japan and South Korea], the crisis changed the way business

and political leaders viewed their relationship with Southeast Asia and increased recognition

23

of the need to develop formal relations to deal with any future crisis and ensure continued

economic growth’ (Stubbs, 2007: 84-5).

Conclusion

In sum, the AFC did trigger further economic, political and cultural co-operations in

ASEAN, an unprecedented situation in the history of the region. However, there are limits to

these co-operations. First, the exclusively state-led process of the ASEAN integration.

Indeed, the ASEAN secretariat was given a more directional action according to the Hanoi

Plan of Action, but this is the limit of competence that the Secretariat was allowed to have.

Second, the measures taken are non-binding, and therefore rely on the member states’

commitments. Finally, these co-operations seem to be driven by exogenous ‘liberal forces’

such as the IMF (that imposed a strict agenda of trade liberalization and stringent measures)

and the emergence of competition from its neighbors (mostly China and India).

The AFC also triggered economic and political co-operations between ASEAN and

China, Japan and South Korea, which is also an unprecedented in the history of East Asia.

24

Conclusion of part I

Therefore, the analyses of the institutional evolutions of the EU and ASEAN

following the crisis show that financial crises do trigger some institutional evolutions towards

further co-operations both in the EU and ASEAN.

As a supranational Union with a common currency, the proactive role of the

supranational institutions shows the strength of institution in shaping the EU process of

integration. However, the crisis has increased divisions between the member states

(especially between the Eurozone and the non-Eurozone countries) and has not affected the

EU distribution of competences that are defined in the Lisbon Treaty. This can be explained

by several factors. First, the Treaty of Lisbon was only effective in 2009, just when the crisis

started to wreak havoc. It was therefore too early to reform the treaty. Second, the principles

of subsidiarity and proportionality are strongly applied in the EU. With the increasing role of

the national parliaments during the crisis, these principles are more and more subject to

control. Finally, the fact that competences in economic policies are dispatched and not yet

clearly defined has resulted in the divisions of the member states into different groups, each

having its own pace of integration.

In the ASEAN, the institutional evolutions are much slower than in the EU.

Moreover, the measures decided by the member states are non-binding and based on the

commitments of the member states. Furthermore, the influence of external factors such as the

strong economic link between the US and Japan also prevented a further development of the

process of integration in East Asia. Nonetheless, they constitute a watershed in the history of

the region, since it has shifted the ASEAN member states’ focus and strong dependency on

the US and Europe (their former colonies) towards each other and their neighbors.

25

II- The strength of regional norms in the EU and ASEAN

countries

The effect of the European sovereign debt crisis on the EU can also be assessed

through the normative power of the European integration. To this aim, this thesis will assess

the strength of the ‘doxa’ of ‘an ever closer union’ following the crisis in chapter 3. This doxa

means the ‘tacit understanding (in a given society) operating as if it were the “truth”’, or ‘the

idea that Europe must continue to move forward’ (Adler-Nissen, 2011: 1099). This is the

starting point of the process European integration, that it continues to move forward.

By contrast, the ASEAN was never intended to further integrate. It was created in

1967 as an association of state which aim was to assure the security of the region (ASEAN,

1967), and the principle of sovereignty was at the very heart of its foundation. No economic

co-operation was mentioned in the ASEAN Declaration. (Ibid.) Therefore, in chapter 4 the

thesis will assess whether the AFC did affect this principle of sovereignty.

26

Chapter 3: The strength of the ‘doxa of an ever closer union’ in the EU

The term ‘ever closer union’ has been enshrined in the EU Treaties since the Treaty of

Rome. It is a formula coined by one of the main negotiators of the Rome Treaty, Jean-

François Deniau. As previously mentioned, it expresses the idea that European integration

should always continue to move forward. Adler-Nissen (2011) took this expression to study

its accuracy under the system of differentiated integration. As previously seen in chapter 1,

the method of differentiated integration has multiplied since the crisis and would probably

become a permanent feature of the EU integration. Her analysis finds that although there are

divisions created by the strategy of differentiated integration, member states are, in practice,

bound by the doxa of an ‘ever closer union’. Indeed, by analyzing the UK and Danish opt-

outs from the EMU, she found that these opt-outs reflect ‘a retreat from national sovereignty

rather than an expression of it’. (Adler-Nissen, 2011: 109). She justifies this view by

analyzing the different concepts of sovereignty and by looking at the extent to which national

officials have adopted this doxa. Using this approach to the UK and Danish opt-outs, she

finds that both governments and officials ‘work within a doxa of European integration and

are convinced of its concrete legal and practical benefits’ (Ibid.: 107). In this sense, the

British and Danish opt-outs do not portray the strength of their sovereignty, but rather the

‘strength of the idea of European integration and the difficulty of practicing national

sovereignty in the EU’. (ibid.)

Her analysis can be observed in the light of the current crisis, in order to see whether

the crisis has affected this doxa. The focus will be directed to the EMU, to see whether the

crisis has affected the strength of the idea of European integration. In other words, this

chapter will assess the strength of the doxa of an ever closer union by looking at the extent to

which the idea of European integration still prevails despite strong economic challenges

resulted from the crisis. These challenges will be discussed in the first subpart. How the idea

of European integration has prevailed despite these challenges will be explained in the second

part.

27

3.1- Challenges to the idea of European integration

The main challenge facing the the doxa of an ever closer union due to the sovereign

debt crisis is the division between the Eurozone countries over the debt financing and the

regulation of the financial system.

For instance, the division between the Eurozone member states over the Financial

Transaction Tax have led the Dutch government to take a step in affirming its position

against further sharing of competences. The most striking example is the Dutch government’s

decision to propose an extensive list of powers that should not be given to Brussels.

According to the Financial Times in an article entitled ‘Time for “ever closer union” in

Europe over, say Dutch’, the list contains ‘54 specific competencies, from taxation to coastal

management, that the Dutch believe should remain at the national level, following the […]

“subsidiarity” principle (Steinglass and Parker, 2013). According to the article, ‘the document

reiterated Dutch opposition to several EU-wide financial initiatives, such as a transaction tax

and a separate EU budget for countercyclical “shock-absorption”’. It further quotes the

statement of Dutch Prime Minister Mark Rutte at a press conference:

‘I find it important that Europe not continue to get more and more tasks, as is

happening now […] This is the first time that a member of the EU says, we’re making an

inventory of points that should not go to the European level’ (Ibid.)

The austerity measures that were imposed on the affected member states have also

played a role in the hampering the strength European integration. The conditions attached to

the bailout funds addressed to the Eurozone affected economies are based on rules aimed at

liberalizing the market through stringent measures such as wage reductions, tax cuts, cuts in

social benefits, and labor reform. As the common currency has deprived member states of

monetary policy that would cushion the effects of the crisis (by, for instance, increasing their

foreign reserve through devaluation), the affected member states had no other choice than to

apply ‘internal devaluation’ (such as budget cuts, spending cuts and more flexible

employment policies) to meet the criteria stipulated in the Stability and Growth Pact (SGP).

As a result, unemployment rate rose and growth slowed down, plunging the affected

countries even further into the debt spiral. Their leaders had then no other choice than to

accept the conditions attached to the bailout fund, a situation that fed the resentment of their

citizens. These conditions are imposed by the ‘Troika’ (The IMF, the Commission and the

28

ECB) and have stirred political unrests in the affected countries: Greece, Ireland, Portugal

and Spain especially (GIPS).

Moreover, as the crisis progressively reached the core Eurozone countries, the EU

solution and the benefits of the euro became more and more contested. For instance, the crisis

has affected the outcome of the presidential elections in 2012 in France, the second economy

of the Eurozone.

Indeed, the crisis had not spared France as its unemployment rate continued to rise

and reached 9.6% in the first semester of 2012,9 its purchasing power declined and its credit

rating downgraded by Standard & Poor. German Chancellor Angela Merkel reacted by

multiplying efforts to support the incumbent French President Nicolas Sarkozy during the

campaign and by refusing to meet his Socialist opponent François Hollande. To no avail.

Meanwhile, the French media took advantage of this situation by exposing Sarkozy’s

luxurious way of life, his alleged involvement in the embezzlement of funds in the Karachi

case and his budget minister’s alleged involvement in the Bettancourt case.10

Nicolas Sarkozy

had to face the consequence of losing the 2012 Presidential elections. A month later the

Socialist Party not only won a majority in the French Assembly, but also in the Senate –an

unprecedented situation in the history of the French 5th Republic. The Socialist candidate

Hollande won the elections with the promise of preserving the public status of companies

whose shares are in large part owned by the state, incite inshoring to limit the departure of

businesses, preserving jobs in the public sector (especially in the education) 11

, and imposing

high taxes for people whose revenues are superior than one million euro. He also expressed

his willingness to renegotiate the TSCG by adding an extra chapter on growth. As soon as he

took office, he created a ministerial post called ‘Industrial Renewal’ which he gave to Arnaud

Montebourg, his socialist rival who managed to reach the 3rd position in the Socialist

primaries elections (right after Hollande and Martine Aubry) and defeated Sarkozy’s formal

rival Ségolène Royal. Montebourg is famous for his close relationship with French

9 Data from INSEE, the French Institute of statistics and economic studies. Retrieved from:

http://www.insee.fr/fr/themes/info-rapide.asp?id=14 (accessed June 29th

, 2013).

10

Eric Woerth’s wife was accused of receiving bribes from Mrs. Ingrid Bettancourt, a cosmetic industry

magnate (she is heir of of the founder of the cosmetic brand L’Oreal) and the richest woman in France.

11

Taken from Francois Hollande’s manifesto. Retrieved from: http://www.parti-

socialiste.fr/articles/engagement-3 (accessed June 29th

, 2013).

29

intellectuals who are part of a movement called the ‘de-globalization’12

and for claiming that

globalization has threatened the French economic model and welfare system.

Thus, the economic downturn and the agitations surrounding the crisis have led to

political instabilities in many countries, as reflected by the resignation or the shift of the

incumbent governments in ten Eurozone countries (Greece, Portugal, Ireland, Finland, Spain,

France, Slovenia, Slovakia, the Netherlands and Italy). The circumstances are different for

each country, but the discussions over the austerity measures and economic convergence are

proved to be sensitive and that the EU solution has not been effective in addressing the

economies of the affected countries.

Outside the Eurozone, the main challenge comes from the UK. The experience of the

crisis has strengthened the UK’s stance in proposing another alternative EU economic model,

implying a more liberal economy and a retreat of the Union competences. UK Prime Minister

David Cameron famously suggested a referendum on the UK membership in the EU and a

further consideration of the European integration. In joint interviews with five European

newspapers, he also stated:

‘[The EU] sometimes overreached itself with directives and interventions and

interference […]What I want to do is achieve a reform of the European Union. We're in a

global race where we have to compete with [countries such as] India, China, Indonesia and

Malaysia. We need a Europe that is more open, that is more competitive, that is more

flexible, that thinks more about the cost that it's putting on businesses, particularly small

businesses. We want a world that wakes up to this modern world of competition and

flexibility. That is the aim.’ (cited in Sparrow, 2013).

The extent to which the Euro and the EU has managed to resist these pressures will

unveil the strength of the idea of European integration.

3.1- The strength of the idea of European integration

Despite the fact that the general support for the euro within the EU has slightly

declined since the beginning of the crisis (European Commission, 2013), the Eurobarometer

12

A movement launched by the Filipino intellectual Walden Bello in his book Deglobalization: Ideas for a New

World Economy (Global Issues, 2004). To see his involvement in the Asian Financial Crisis, see chapter 4.

30

surveys conducted during the crisis (from 2009 to 2013) indicate that a majority of Europeans

still support the European economic and monetary union within a single currency, the euro

(European Commission, 2013, 2012, 2011, 2009)13

. This public perception can be explained

through different factors. For instance, the proactive role of the EU supranational and

independent institutions (especially the ECB) but also the leaders of the Eurozone countries,

that have manage to secure the survival of the euro (see chapter 1). Moreover, the prospect of

a referendum or a member state’s exit from the common currency are expressed by the media

as economically and politically disastrous and would deeply affect the EU’s credibility on the

world stage. The general perception is that an exit of a country from the euro would lead to a

domino effect and could further lead to the collapse of the entire euro project. In this regard,

some five years after the crisis, there has not been a backward movement of the EMU nor the

European integration, even in the affected countries.

Another assessment that one can make to see the effect of the crisis on the doxa is

how the pre-in countries (the EU member states who are still in the process of joining the

euro such as Poland and Lithuania) have reacted to the crisis. The more stringent measures

decided during the crisis management (mostly for the Eurozone) make it harder for the pre-

ins to get accepted in the Eurozone since they have to deal with stricter criteria. Their

frustration and the way negotiations between the Eurozone and the non-Eurozone leaders

during the European Council Summits took place are described in the studies of Nicolai Van

Ondarza (2013) and Desmond Dinan (2012). And yet, the crisis has not prevented the

Croatian entry into the European Union with a prospect of joining the Euro. Not only that, but

three Baltic countries have decided to join too: Estonia joined in 2011, Latvia will join in

January 2014, and Lithuania has claimed its willingness and efforts to join the common

currency and use its EU Presidency to put this issue forward on the agenda (Pop, 2013). Their

main argument is that their monetary policies are already tightened to the euro, due to the

massive flow of the currency in their banks (Thomson, 2013). Thus, these countries are

already bound by their economic ties and dependency to the Eurozone countries and therefore

the monetary union would only constitute a confirmation of this relationship.

Concerning the Dutch position (to clearly delimit 54 competences that it will not share

to the Union), it is an exaggeration to state that it marks the end of the era of ‘an ever closer

union’. Indeed, the Dutch government is opposed to giving competences back to the member

13

It is to be noted that there is a large difference between the member states and more generally between the

Eurozone and the non-Eurozone countries.

31

states, as suggested by David Cameron, therefore isolating the latter’s position. Moreover,

considering that it is a unilateral and single initiative, its effects on the strength of the idea of

European integration are still too small.

As regards to the UK, the referendum on the UK membership do not reflect the

strength of the UK sovereignty, but rather confirms ‘the strength of the idea of European

integration and the difficulty of practicing national sovereignty’ as suggested by Adler Nissen

(2011: 109).

Conclusion

Thus, despite some serious challenges triggered by the crisis, the idea of European

integration still prevails within the EU.

This doxa is strongly defended by politicians and intellectuals: Professor Jürgen

Habermas delivered a lecture on April 26th, 2013 at the Catholic University of Leuven

calling for more solidarity within the EU during the crisis; 14

on his visit to Montesquieu

institute in The Hague on October 4th, 2011, German Foreign Minister Guido Westerwelle

insisted in explaining the EU achievements and the importance of a unified Union, while

inciting students to further spread the values of Europe; 15

on his recent visit to Leiden

University on June 12th, 2013,16

Polish Foreign Minister Radoslaw Sikorski made a

discourse that was clearly pro-Europe, emphasizing the importance of labor mobility and the

Polish positive contribution to the EU economy.

14

Retrieved from: http://www.kuleuven.be/communicatie/evenementen/evenementen/jurgen-

habermas/en/democracy-solidarity-and-the-european-crisis (accessed June 29th

, 2013).

15

Attended by the author. A summary of the visit written by a former student can be retrieved here:

http://www.hum.leiden.edu/history/eu-studies/news1/seminar-westerwelle.html (accessed June 29th

, 2013)

16

Attended by the author.

32

Chapter 4- The strength of the principle of sovereignty in the ASEAN

countries

The ASEAN approach of regional integration is different than that of the EU. If the

EU regionalism is based on institutional arrangement and the existence of the doxa of an

‘ever closer union’, ASEAN’s form of regional integration is based on a solid principle of

sovereignty. Therefore, in order to assess the extent to which the AFC led to further

integration in the ASEAN, one can look at whether the crisis affected the concept of

sovereignty of its member states.

The ASEAN was first created in 1967 with the Declaration of Bangkok, signed by the

Foreign ministers of the five founding countries: Indonesia, Malaysia, the Philippines,

Singapore and Thailand. Southeast Asia is a vast region comprised of very diverse ethnic

groups, governments, religions, geography (continental and insular) and resources. This

diversity, the Southeast Asian contacts with its Eastern neighbors and more than three

centuries of colonization17

have shaped the politics, economies and societies of the region

today. Considering this diversity and the context of the creation of the ASEAN depicted

above, it is not surprising that the principles of sovereignty (in the sense of autonomy of the

state to exercise its powers in its own territory) and non-intervention (or non-interference) are

highly respected. They are now deeply anchored in the ASEAN Charter (ASEAN Charter).

These principles form the very bases of the ASEAN regionalization. Furthermore, ASEAN in

the 1990s was also a highly diverse region, ranging from one of the wealthiest nation in the

world (Singapore) to one of the poorest (Cambodia and Lao People’s Democratic Republic),

therefore expressing various levels of industrialization and development. Did the AFC affect

these principles? Although most of the literatures suggest that the AFC did strengthen the

divisions between the ASEAN member states, and therefore strengthened the member states’

stance to defend their sovereignty, this part argues that there was nonetheless some evolution

in the Asian countries’ relationship following the AFC.

17

All Southeast Asian countries, with the exception of Thailand, have experienced colonization by different

European countries (Portugal, Spain, The Netherlands, Great Britain and France), Japan and to a certain extent

the US and the USRR. Thailand, despite never being colonized, has also been deeply influenced by its

neighbors’ experience of colonization and has been involved in the process since the beginning (see Ricklefs et.

al: 134-362). To see the struggles of Southeast Asian countries for independence in the decades after 1945 and

their process of ‘nation-building’ (1945-1990s), see Ibid.: 318-424.

33

4.1- Divisions between the member states

The period of Asian financial crisis was filled with events marked with social and

political turmoil in a scale that is even higher than what is currently facing the EU today.

In Indonesia, the devastating effects of the economic crisis triggered students

demonstrations in some important cities and mob violence against the Indonesian Chinese

ethnic community18

in most of the main Indonesian islands. It culminated in the episode of

the May 1998 riot that killed more than a thousand people and hundreds of other victims

(rape and injuries). Pressured by the social upheaval and abandoned by a certain fraction of

the elites, President Suharto was eventually forced to resign one week after the riot had

reached an unprecedented scale of violence. In Thailand, the mass unemployment and

poverty initiated political instabilities (the year of 1997 was marked by the two consecutive

resignations of the Thailand Finance Minister, but also that of the Prime Minister Chavalit

Yongchaiyudh). In Malaysia, the crisis provoked a conflict between the Prime Minister

Mahathir Mohammad and his Deputy Anwar Ibrahim. The latter, favorable to the IMF

solution, called the government to end its ‘crony capitalism’. The former responded by

sacking Anwar from his cabinet under charges of ‘abuse of office, corruption and sexual

misconduct’ (quoted in Roberts, 2012: 92) and getting him arrested. This resulted in

criticisms by Thailand, the Philippines and Indonesia, creating a conflict between them and

Malaysia (Ibid: 92-94).

In addition to this, the 1997-1998 haze problem, ‘the most acute in terms of economic

costs and life-threatening consequences’ (Roberts, 2012: 88), led Singapore and Malaysia to

publicly pressure the Indonesian government to address the issue. Singapore, for instance,

uploaded satellite imagery of the fires on the Internet (Ibid.: 90). The crisis has therefore

triggered some tensions and incited member states to close in on itself further.

Christopher Roberts argued that ‘a further consequence of the crisis was the

degeneration of relations between the ASEAN members together with an associated decline

of the ASEAN Way’ (Ibid.), and went even further by saying that ‘the economic crisis had

also contributed to a decline in other aspects of regional relations leaving the impression that

18

In most of the countries of Southeast Asia, has maintained trade contacts with China ever since the pre-

colonial era. During the colonial era, most of the Chinese community served as trade intermediary. After the

1949 Chinese Revolution, their number increased as many Chinese migrated to Southeast Asia and chose to

settle there. In Indonesia, the ethnic Chinese was a victim of the peoples’ resentment against the corrupt

practices of the Suharto government, as the Chinese were directly associated in the mass consciousness with

businesses protected under Suharto.

34

the “only shared regional value” was recourses to a Darwinian notion of the survival of the

fittest”’ (Ibid.: 93).

Jorn Dosch found that ASEAN responses to the crisis ‘has been seen as ineffective in

and outside the region’, and cited an inside source who warned about the danger of

depression and disintegration (Dosch, 2003: 40):

‘ASEAN will definitely become less cohesive and more distracted, and longstanding

rivalries within the grouping may resurface. This will make the association a whole more

susceptible to penetration by external powers or actors… ASEAN is not only at the

crossroad, but it is also on the brink of depression and disintegration’ (Bantarto Bandoro,

cited in Ibid.)

Jürgen Rüland (2000) goes even further by saying that there has been a collapse of the

Asian identity after the crisis. In a later paper (Jetschke and Rüland, 2009), he further

observed the dichotomy between the ASEAN rhetoric of co-operation and its practice. The

paper’s argument is that ASEAN adopted a dual attitude towards regional integration,

meaning that ‘ASEAN member states declared and continue to declare their intention to

enhance cooperation and devise projects when implementation lags behind their rhetoric or in

some cases never materializes’ (Ibid.: 181).

Indeed, the question of integration was clearly problematic for ASEAN. Rivalries, diversities,

and the still top-down politics of the member countries in the region were not conducive to

the formation of a solid regional integration.

4.2- Some evolutions

The process of economic integration in ASEAN had already started with the creation

of AFTA, pushed by the inward movements of economic integration elsewhere in the world

in the 1990s (the EMU, NAFTA and MERCOSUR, for instance) and the increasing

competition from China and India. Although the agreement was not as strong as the

proponents of free trade had wished for, the effects of it was visible and the process would be

difficult to counter. Some even argue that it is this process of integration that have worsened

the effects of the AFC in Southeast Asia since it intensified the contagion effects of the crisis,

as ‘institutional investors, such as mutual funds, insurance companies, pension funds and

35

hedge funds, tend to lump together sub-regions and countries in emerging markets, regardless

of the specific economic soundness of those respective sub-regions and countries’ (Bustelo,

2003: 149). Moreover, since the primary and driving motive of the creation of the ASEAN

was to settle peace in the region (see previous chapter), ASEAN disintegration would create

insecurities and instability in the region.

As a result, some voices proclaiming changes to the principle of ASEAN Way were

starting to emerge. Anwar Ibrahim proposed to replace the principle of non-interference with

‘constructive intervention’. ‘At the ASEAN Ministerial Meeting (AMM) in July 1998 in

Manila, Thailand -supported by the Philippines- proposed that ASEAN’s non-interference

policy should be replaced by “flexible engagement”’ (Dosch, 2003: 41). The concept was not

accepted and finally replaced by ‘enhanced interaction’, but it ‘[shook up] the status quo of

foreign relations in Southeast Asia’ (Ibid.). Prime Minister of Thailand Surin Pitsuwan

clearly expressed its willingness to move forward the process of regional integration in a

speech he delivered at the Foreign Correspondance Club in Bankok, August 11th, 1998:

‘In 31 years, diversity has become a problem for ASEAN […]. Diversity, which used

to be a source of strength has become a source of weakness […]. We have no freedom and

flexibility of expressing our views concerning our members. We have to be silent because we

are members of the family. This is not fair, not just.’ (cited in Ibid.)

The IMF failure in addressing the crisis and the disastrous political and social impacts

of its intervention (especially in Indonesia) forced member states to not look only at the

‘Western’ solution anymore. On April 21st, 1998, Walden Bello, the Filipino founder of the

‘Focus on the global South’ organization, made a testimony before the Banking Oversight

Subcommittee and the Banking and Financial Services Committee of the US House of

Representatives, urging the members of the House to vote against the replenishment of the

$14.5 billion IMF aid to Asia, stating that ‘the IMF's record in the Asian region does not

inspire confidence in the institution nor in the possibility that the appropriated funds will be

used wisely’, that ‘the world will not come to an end without an IMF replenishment’ and that

‘with IMF resources reduced, the Asian countries will be forced to come up with innovative,

self-help cooperative solutions, like some revived version of the Asian Monetary Fund, to

deal with the financial crisis that would not be a drain on American taxpayers' money.’ (Belo,

1998).

36

Interestingly, the ASEAN also created a more flexible mechanism of decision-making

called the ‘ASEAN Minus X’ or ‘Two Plus X’ formula (proposed by Thailand and Singapore

at the Bali Summit 2003) in which ‘two or more members –not necessarily all- may go ahead

and engage in a cooperative project, which is open to the others when they are ready’

(Severino, 2007: 42). In this regard, it resembles a more flexible version of the EU system of

differentiated integration (although the formula is still purely based on consensus, while the

EU enhanced co-operation is regulated by the Title III of the TFEU). In East Asia, the Chiang

Mai initiative has also introduced majority vote for lending issues (see chapter 2).

Conclusion

In sum, although the principle of sovereignty still strongly prevails in ASEAN, the

crisis has triggered some steps to further co-operation and strengthened the relationship

between the ASEAN countries. It also strengthened the relationship between the ASEAN

countries and their neighbors, especially in East Asia.

37

Conclusion of part II

Therefore, on the one hand, the experience of the European sovereign debt crisis in

the EU proves the strength of the European integration. It is the reason why despite divisions

and pressures on the euro, the EU and the common currency still continue to hold on tight.

On the other hand, the experience of the AFC in the ASEAN proves the strength of

the notion of sovereignty in East Asia. However, member states have strengthened their

relationship in broader areas such as economy, politics and security, and culture. They have

also strengthened their relationship with their neighbors in East Asia. These co-operations are

a shift from the previous situation, in which the majority of the member states were

economically dependent on the ‘West’ (mainly the US), as shown by the fact that most of the

countries at the time of the crisis had pegged their currencies to the dollar. Indeed, the IMF

intervention resulted in a ‘renewed skepticism over the Anglo-Saxon model of capitalist

development’ in East Asia (Bustelo, 2003: 145), and therefore turned the attention of the

member states towards each other and their neighbors.

38

III- Analysis and conclusion: Crisis management and implications

for the EU and the ASEAN

In sum, the crisis management in the EU proves the importance of the EU

supranational institutions in shaping the EU process of regional integration. The crisis was

managed in the EU through a series of measures decided at the level of heads of

state/government and negotiated within the different EU institutions.

As described in chapter 1, the main EU supranational institutions -the Commission,

the EP, the ECJ and the ECB- have been proactive in shaping measures that will have

important effects for the mid- and long-term prospects of the EU economic and fiscal

governance. Moreover, they represent the counterbalance of the powers of the nation states:

the EP counterbalances the political powers of the EU heads of state/government, while the

decisions of the Commission, the ECJ and the ECB bring more neutrality and technocratic

aspects to the EU decisions, thus supposedly deliver more efficiency to the EU measures.

Although the crisis management resulted in a tilt of the EU balance of power towards the

nation states (through ad hoc measures that do not necessarily involve the EU supranational

institutions), the EU ‘legislative triangle’ (meaning the Commission, the Council and the EP)

still played important roles, as demonstrated in the cases of measures decided through the

Special Legislative Procedure (such as Two-Pack, Six-Pack, SSM and SRM).

Moreover, the crisis has not affected the idea of European integration. Indeed, despite

the fact that it has revealed the flaws in the EMU design and that it has affected the credibility

of the euro, the common currency and the EU still prevails. This fact clearly proves the

strength of the EU as an institution today.

However, the EU responses were judged as being too slow and its legitimacy was

challenged. Not all member states have agreed to further deepen the EU integration

(especially the UK). Some member states cannot join all the Union programs because they do

not meet the necessary criteria (this is the case for the pre-in countries). Moreover, the EU

strategy of differentiated integration has weakened the EU supranational institutions and has

enhanced divisions within the EU member states. As this strategy seems to become a

prominent feature of the European integration, the EU will need to make some adjustments to

39

assure its good functioning (see suggestions made by Von Ondarza). The EU solution is still

insufficient to address the core economic problems, in particular the lack of competitiveness

and the increasing unemployment. Nonetheless, the sovereign debt crisis in Europe shows

that a strong regional institution which provides the necessary tools for actions and co-

ordinations can assure the continuation of its process of integration, even in times of division.

As described in chapter 3, the crisis also reveals the strength of the idea of European

integration. These two factors explain why the process of European integration continues to

move forward despite the crisis.

The AFC was an impetus for ASEAN and East-Asian integrations. Dialogues and

networking are the main diplomatic tools used by the heads of states and governments to

negotiate co-operations, affirming Mattli’s statement that ‘cooperation [in the context of

regional integration] may still be possible on the basis of repeat-play, issue-linkage, and

reputation’ (Ibid.: 43).

Some express doubts about the real achievements, prospects and plausibility of this

form of cooperation. Indeed, no formal structure nor true binding regulations were imposed

on ASEAN members and its partners. Moreover, as Ravenhil (2009) has observed, there has

been a lack of interest from the business sector to follow the process of integration.

Furthermore, 16 years after the AFC and 13 years after its creation, the Chiang Mai

Initiative (CMI) has never been called upon (Asian Century Institute, 2013). There are

practical reasons for this. First, the very small amount at the disposition of the CMI (although

increased in 2012 to $240 billion, it still only represents 1.5% of the ASEAN + 3 countries’

GDPs. By contrast, the EU funds represents 8% of the Eurozone countries’ GDPs19

). Second,

structural problems, such as the issue of distribution and the lack of a rapid response capacity

due to ‘its complex procedures’ and the fact that ‘it is not a fund but a reserve pooling

system’ (Ibid.).

Yet, the “open” regionalism of ASEAN proves to be effective in countering future

crises. Indeed, Das (2012) argues that the 2008 Global financial crisis –a second test after the

1997 experience- proves that Asian economies were the first to recover and even contributed

to the global recovery. Moreover, despite some doubts, Asian countries have managed to

improve their coordination (Hidetaka, 2006). As Mr. Georges Lantu, a former Head of

19

Asian Century Institute, 2013.

40

Chancery at the Indonesian Permanent Representative to ASEAN, points out20

, the role of

ASEAN in coordinating and creating networks with its neighbors and partners was successful

in creating a relatively stable region.

Therefore, the AFC has tightened the economic, political and cultural co-operations

within the ASEAN and between the ASEAN and its neighbors. This is shown by the adoption

of the Asian Surveillance Process in December 1997, and the development of the ASEAN

Plus Three platforms (see chapter 4). In this regard, there has been a regional evolution in

East Asia after the AFC.

(A) common feature(s) of the EU and the ASEAN?

It is difficult to find similarities between the EU and the ASEAN. They are two

different institutions and each plays by different rules on a different playing field.

Nonetheless, perhaps one can try to draw a general conclusion by saying that in a world

where capital flows are increasing in a rapid pace and where technology is more and more

accessible to the world population, regional integration (both in the sense of ‘sharing of

competences’ and ‘economic, political and cultural co-operations’) appears to be inevitable.

The European sovereign debt crisis shows the strength of the EU institutions and the idea of

European integration, while the Asian Financial Crisis shows the limits of the hegemonic

power of the ‘West’ in Southeast Asia, and marks the emergence of a regional (economic)

power in Asia.

20

In an interview conducted by the author on May 23rd

, 2013.

41

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45

Appendix

I- EU main decisions on funding and economic and financial regulations following the sovereign debt crisis

Table 1.1: EU main decisions on funding following the sovereign debt crisis

Instruments Date of entry

into force

Applicable to Lending Capacity Form and Treaty legal base Process of adoption

EFSF 9/5/2010-

30/6/2013

(temporary)

Eurozone

€440 B - Company (legal entity: ‘Société

Anonyme)

- Legal base: Art. 122(2) TFEU

Commission proposal adoption ECOFIN

EFSM 10/5/2010

(emergency

fund)

EU MS €60 B - Emergency Funding

Programme

- Legal base: Art. 122(2) TFEU -

- Council Regulation

Commission proposal adoption ECOFIN

ESM 08/10/2012

(permanent)

Eurozone +

Signatories

TSCG before

March 1, 2013

€500 B

- International Organization

- Allowed by Amendment of Art.

136 TFEU + creation of

intergovernmental Eurozone

Treaty Establishing the European

Stability Mechanism (T/ESM))

1- Amendment of Art. 136 through Simplified

Revision Procedures (SRP) (Art. 48(6)TEU):

Consultation procedure with EP, Commission

and ECB European Council adopt

Ratification by MSs

2- Adoption of T/ESM: Eurozone countries’

Head of State/Government ratification

Eurozone countries.

OMT Made official by

Mario Draghi’s

speech of

September 6,

2012 at the ECB

press

conference. End

when the aim is

achieved.

Eurosystem/

Eurozone

members

- Replace the ECB

Securities Markets

Programme (SMP).

- Purchase of

unlimited Eurozone

members’

government-issued

bonds that mature in

1 to 3 years, but

under

Legal base: Art. 127(2) TFEU,

second subparagraph of Art. 12.1

and Art. 18.1 of Protocol (4) on

the Statute of the ESCB and

ECB.

ECB (two-thirds majority of Governing

Council)

46

‘conditionality’.

Financial

Transaction

Tax (FTT)

Planned for

January 2014,

but currently still

in negotiation

EU MSs, but

only 11 have

agreed

- 0.1% of

transactions

- Could raise €35

billion

- Levy on financial transactions,

therefore increasing EU own

resource.

- Art. 20 TEU and Arts. 326-334

TFEU

Enhanced Cooperation: MSs request

Commission proposal EP Consent

Council adoption

Sources: TFEU, Protocol (4) on the Statute of the ESCB and ECB, ECB, Eurozone portal, European Commission, Council of Ministers, EFSF and ESM.

Table 1.2: EU main decisions on economic and financial regulations following the sovereign debt crisis

Framework

instrument

Date of entry into

force

Applicable to Form and Treaty legal

base

Measures Process of adoption

European

Semester

January 2011 EU MSs - Series of proposal

based on Arts. 121 and

136 TFEU

(strengthening SGP)

- Decided in the

European Council Task

Force on economic

governance

Cycle of economic and fiscal policy

coordination within the EU

European Council

Euro Plus

Pact

25 March 2011 EU MS, but 4 (Czech

Republic, Hungary,

Sweden and UK) chose

not to participate

- Based on Arts. 121 and

126 TFEU

- Intergovernmental

commitment plan

- Open Method of

Coordination (OMC)

Strengthening of SGP in areas of:

- competition

- employment

- public finances

- financial stability

European Council

47

Six-Pack

(reformed

SGP)

13/12/2011 EU MS (but specific

rules for Eurozone)

- Based on Arts. 121 and

126 TFEU

- 5 Regulations of

macro-economic

surveillance +

1 Directive (EU

secondary Law)

Strengthen SGP through sanctions and

macroeconomic surveillance:

- More precise definition,

- Extension of EDP to debt ratio

- Introduction of Reverse QMV for most

sanctions for euro-area

Special Legislative Procedure

(SLP):

1- Adoption of broad

guidelines: Commission

recommendation ECOFIN

draft European Council

Adoption ECOFIN (QMV)

2- Adoption of detailed rules:

Ordinary Legislative

Procedure) (OLP): ECOFIN +

EP

Fiscal

Compact

(TSCG)

1/1/2013 for the 16

states which have

completed the

ratification process

before this date.

Others: 1 month after

ratification

EU MS (but only binding

to Eurozone). Currently

ratified by 25 MS

(except UK and the

Czech Republic)

Intergovernmental

agreement/

Treaty (Not EU Law)

Reinforce SGP rules:

- Convergence via MTO and lower limit of

structural deficit,

- Makes SGP and six-pack rules binding and

implemented into national law,

- Monitoring by independent institutions,

- ECJ may impose financial sanctions,

- Reinforced surveillance and coordination

of economic policies (including ex ante

coordination),

- Economic governance in the Eurozone (e.g

Summits, reinforced cooperation),

- No ESM eligibility for those who do not

ratify the TSCG before March 1, 2013.

EU MSs Head of

State/Government

Two-Pack Deal concluded

February 20, 2013.

Directly applied to

Eurozone countries’

national budgets of

2014.

Eurozone - Based on Art. 136

TFEU

- 2 Regulations (EU

secondary Law).

- Regulation on monitoring and assessing

draft budgetary plans and ensuring the

correction of excessive deficits in the

Eurozone (original Commission proposal).

E.g: the strengthening of the legal basis of

the ‘European Semester’,

- Regulation on enhanced surveillance of

Eurozone experiencing or threatened with

financial difficulties.

Special Legislative Procedure

(SLP):

1- Adoption of broad

guidelines: Commission

recommendation ECOFIN

draft European Council

Adoption ECOFIN

2- Adoption of detailed rules:

Ordinary Legislative

Procedure) (OLP): ECOFIN +

EP

48

Single

Supervisory

Mechanism

(SSM)

Still in negotiation.

ECOFIN and EP

agreed on specifics of

ECB oversight of

Eurozone banks in

March 19, 2013. Issue:

EU-wide common

deposit scheme.

Eurosytem Commission proposal for

a single supervisory

mechanism involving the

ECB. One of the main

pillars of the European

Banking Union project

ECB would be assigned the supervision of

the Eurozone central banks by adoption of a

single rulebook developed by the European

Banking Union (EBA). Suggestion was

made to make the ECB accountable to the

EP. Legal basis: Art. 127(6) TFEU.

Special Legislative Procedure

(SLP):

1- Adoption of broad

guidelines: Commission

recommendation ECOFIN

draft European Council

Adoption ECOFIN

2- Adoption of detailed rules:

Ordinary Legislative

Procedure) (OLP): ECOFIN +

EP

Single

Resolution

Mechanism

(SRM)

EP is currently

studying the

proposition

Eurosystem Commission proposal for

a single resolution

mechanism involving the

ECB. Important part of

the European Banking

Union project

Non-viable banks’ orderly winding down

and closure while preserving financial

stability’ (Mario Draghi’s introductory

statement at the hearing of the EP’s ECON

Committee, December 17, 2012).

Special Legislative Procedure

(SLP):

1- Adoption of broad

guidelines: Commission

recommendation ECOFIN

draft European Council

Adoption ECOFIN

2- Adoption of detailed rules:

Ordinary Legislative

Procedure) (OLP): ECOFIN +

EP

Sources: TFEU, ECB, Eurozone portal, European Commission, Council of Ministers and European Parliament.

Note:

Based on these tables, one could infer 8 different types of procedures used by the main EU institutions to make decisions on funding and regulations following the crisis:

1- The decision to establish a cycle of policy coordination within the EU in order to strengthen the Stability and Growth Pact (SGP). It was decided by the European Council

Task Force;

2- The decision to establish a financial transaction tax (FTT). It was decided at the level of the European Council and approved according to the enhanced cooperation

method. This implies decision taken at the level of the member states, but the EP consent is required before its adoption by the Council;

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3- The granting of financial assistance due to special circumstance (EFSM and EFSF) based on Art. 122(2) TFEU. Decision was taken at the level of the Council on a

proposal from the Commission. The EP has to be informed, but it plays no role whatsoever;

4- Intergovernmental commitment plan (Euro Plus Pact) based on Art. 121 and 126 TFEU. Decision was taken at the level of the European Council. As the precedent

procedure, the EP has to be informed, but it plays no role whatsoever;

5- Minor amendment to the Lisbon Treaty (Art. 136 TFEU) according to the Simplified Revision procedures/SRP enshrined in Art. 48(6) TEU. Decision was taken at the

level of the European Council following consultation with the Commission, the EP and the ECB (Consultation Procedure) and proceeded with the ratification by all MSs;

6- Creation of a separate intergovernmental agreement/treaty outside the EU legal framework (ESM and the Fiscal Compact). Decision was taken at the level of the Head of

State/Government and proceeded with the ratification of all Eurozone countries (for ESM) or all EU MSs (for the Fiscal Compact);

7- Creation of instruments and mechanisms regulating the Eurozone countries’ economic and financial governance (Six Pack, Two Pack), based on Arts. 121, 126 and 136

TFEU. Decision and drafting procedure are taken according to the Special Legislative Procedure (SLP) which contains 2 steps: First, the adoption of the broad guideline by

the Council. This procedure implies the drafting of the guideline by the Council following the Commission’s recommendation, which will then be submitted to the European

Council which will deliver its conclusion. It is based on this conclusion that the Council adopts the guideline. Second, the adoption of the detailed rules contained in the

guideline by the Council and the EP according to the Ordinary Legislative Procedure (OLP).

8- Exceptional measure taken by the ECB (OMT) according to Art. 127(2) TFEU, second subparagraph of Art. 12.1 and Art. 18.1 of Protocol (4) on the Statute of the ESCB

and ECB. Decision is taken at the level of the ECB Governing Council (two-thirds majority).

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II- The amendment of Article 136 TFEU

Article 136 TFEU without amendment:

‘1. In order to ensure the proper functioning of economic and monetary union, and in accordance with the relevant provisions of the Treaties,

the Council shall, in accordance with the relevant procedure from among those referred to in Articles 121 and 126, with the exception of the

procedure set out in Article 126(14), adopt measures specific to those Member States whose currency is the euro:

(a) to strengthen the coordination and surveillance of their budgetary discipline;

(b) to set out economic policy guidelines for them, while ensuring that they are compatible with those adopted for the whole of the Union and are

kept under surveillance.

2. For those measures set out in paragraph 1, only members of the Council representing Member States whose currency is the euro shall take

part in the vote.

A qualified majority of the said members shall be defined in accordance with Article 238(3)(a).’

The amendment of Article 136 (through simplified revision procedure)21

:

‘3. The Member States whose currency is the Euro may establish a stability mechanism to be activated if indispensable to safeguard the stability

of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict

conditionality.’

21

European Council Decision of 25 March 2011 amending Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for

Member States whose currency is the euro (2011/199/EU).

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III- The EP Economic and Monetary Affairs position on the Economic Governance (Two Pack) in a nutshell (European Economic and

Monetary Affairs Committee, 2012)

‘The adopted texts grant the European Commission more control over Eurozone countries' fiscal policy, but not the free rein it asked for. The

increased powers would be subject to more democratic control and the budget cuts suggested by the Commission should not be made at the

expense of killing off investments with growth potential, not least those in education and healthcare.

The texts also propose a whole new chapter to directly stimulate growth and provide an immediate fix for the Eurozone crisis. The main

elements of this chapter are:

setting up a European Debt Redemption Fund. This would mutualise all the Eurozone countries' debts in excess of 60% (around €2.3

trillion) within a common redemption fund. The repayment of this debt would then be carried out over 25 years, thereby buying time for

structural reforms to be carried out properly and lowering the average interest paid to refinance this debt,

one month after the legislation enters into force, the Commission would be required to present a roadmap for introducing Eurobonds, and

also one month after the legislation enters into force, the Commission would be required to present a proposal for a growth mechanism,

equal to 1% of GDP (around €100 billion), for infrastructure investment.’

Annex IV- Changes brought by the EP to the Commission’s original Two Pack proposal (EP Economic and Monetary Affairs

Committee, 2013)

‘The overarching structure of the rules, which gives the European Commission more powers to oversee a country's budget and provides more legal

clarity on how to deal with countries in severe financial difficulties, was preserved both by MEPs and by member states.

However, Parliament did insert amendments to improve the transparency and accountability of the processes and ensure that fiscal consolidation does

not undermine a country's medium-term growth and employment prospects. They also inserted some "social dimension" provisions, e.g. to ensure that

structural reforms and cost cutting do not unduly undermine access to education or health care..’

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‘Changes to the proposed regulation on member states in severe financial difficulties (Rapporteur Jean-Paul Gauzès (EPP, FR))

More transparency:

Information to the member state subject to enhanced surveillance regarding the findings of this surveillance and publication of reasons for such

surveillance (Art. 2, paras 1a and 2)

The Commission must make public the macroeconomic scenario used to assess the sustainability of the government debt (Art. 5, indents 2 and 3)

The macroeconomic adjustment programme must be made public (Art. 6, para 6)

Discussion between the Commission and the national parliament of the member state concerned on post-programme surveillance (Art. 11, para 4a)

Protecting the "social dimension"despite cuts:

Recognizing the role of social partners at EU level (Art. 1, para 2a, Art. 6a)

Reinforcing the efficiency of tax collection and fighting against tax fraud (Art. 6b)

Taking account of the financial requirements to continue undertaking "fundamental policies", such as education and health care in adjustment programmes

(see Art. 6 para 5)

Less political bargaining:

Introducing reversed Qualified Majority Voting on matters concerning the adoption of corrective measures during post-programme surveillance (Art. 11

para 4)

Informing the EP:

The EP may invite the Council and the Commission for a debate on the application of the Regulation (Art 13b)

Invitation to the member state under enhanced surveillance for a discussion (Art. 3 par 6)

Invitation to IMF, Commission and ECB to an Economic Dialogue meeting (Art. 3, para 6a)

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‘Changes to the proposed regulation on monitoring and assessing draft budgetary plans (Rapporteur Elisa Ferreira (S&D, PT))

Better consistency with European Semester and EU2020 goals:

Ensuring that national budgets reflect the economic policy recommendations given in the European Semester, including the macro-economic imbalance

procedure (Art .1 para 1 and new Art. 2a, Art. 3, and Art. 5)

Indications on how the medium-term fiscal plans and National Reform Programmes may contribute to the EU2020 targets (Art. 3 para 1)

Economic Partnership programmes must identify priorities for enhancing competitiveness and long-term sustainable growth in line with EU2020 objectives

(Art. 7)

Indications of reforms, including public investments, to achieve EU2020 targets (Art. 5, para 3)

Greater transparency and stronger role for parliaments:

Commission must present its opinion to national parliament and EP upon request (Art. 6, para 2)

The methodology (including economic models) and assumptions of the Commission forecasts must be made public (Art. 6, para 3)

Report by the Commission on public investments made by countries when in the preventive arm of the Stability and Growth Pact (Art. 11).

Respect for social and labour rights:

Council must provide information to the EP when it issues a recommendation to a member state to prepare an adjustment programme (new Art. 3a)

Information by the Commission (behind closed doors) on the preparation of the draft macroeconomic adjustment programme (Art. 6, paras 1 and 3 point

(b))

Discussion with the Commission and the member state concerned related to the implementation of the adjustment programme (Art. 6, para 7)’

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Reference to the need to respect national practices and institutions for wage formation and fundamental rights (Art. 1, para new 1a)

Inclusion of information in the draft budgetary plans on government expenditure by function, including on education, healthcare and employment and

indication on distributional impacts (Art. 5, para 3)’