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

• Author: Erik Jones,R. Daniel Kelemen,Sophie Meunier
• Published date: 01 June 2016
• Date: 01 June 2016
• DOI: http://doi.org/10.1177/0010414015617966
• Subject Matter: Articles

Comparative Political Studies

2016, Vol. 49(7) 1010 –1034

© The Author(s) 2015

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DOI: 10.1177/0010414015617966

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Article

Failing Forward? The

Euro Crisis and the

Incomplete Nature of

European Integration

Erik Jones1, R. Daniel Kelemen2,

and Sophie Meunier3

Abstract

The European Union (EU) project of combining a single market with a

common currency was incomplete from its inception. This article shows that

the incompleteness of the governance architecture of Europe’s Economic and

Monetary Union (EMU) was both a cause of the euro crisis and a characteristic

pattern of the policy responses to the crisis. We develop a “failing forward”

argument to explain the dynamics of European integration using recent

experience in the eurozone as an illustration: Intergovernmental bargaining

leads to incompleteness because it forces states with diverse preferences

to settle on lowest common denominator solutions. Incompleteness

then unleashes forces that lead to crisis. Member states respond by

again agreeing to lowest common denominator solutions, which address

the crisis and lead to deeper integration. To date, this sequential cycle of

piecemeal reform, followed by policy failure, followed by further reform, has

managed to sustain both the European project and the common currency.

However, this approach entails clear risks. Economically, the policy failures

engendered by this incremental approach to the construction of EMU have

been catastrophic for the citizens of many crisis-plagued member states.

1Johns Hopkins University, Bologna, Italy

2Rutgers University, New Brunswick, NJ, USA

3Princeton University, Princeton, NJ, USA

Corresponding Author:

Erik Jones, School of Advanced International Studies, Johns Hopkins University, via Belmeloro

11, Bologna 40126, Italy.

Email: erik.jones@jhu.edu

617966CPSXXX10.1177/0010414015617966Comparative Political StudiesJones et al.

research-article2015

Jones et al. 1011

Politically, the perception that the EU is constantly in crisis and in need of

reforms to salvage the union is undermining popular support for European

integration.

Keywords

economic policy, EU politics and policy, European politics, political economy,

euro, EMU

The European Union (EU) project of combining a single market with a com-

mon currency was incomplete from its inception. The mechanisms designed

to limit national deficits lacked credibility. The single market allowed for

cross-border trade in financial services and yet relied on national authorities

to regulate and backstop cross-border banks. The single currency centralized

monetary authority but provided only weak coordination of fiscal policy and

no obvious mechanism to facilitate macroeconomic adjustment within the

member states.

The incomplete nature of European integration contributed to the eruption

of the eurozone crisis. The trigger may have come from abroad as the sub-

prime lending crisis in the United States created trouble for European cross-

border banks, but the failures were homegrown. European Central Bank

(ECB) President Mario Draghi called this incompleteness Europe’s “Achilles

Heel” (Draghi, 2014). Because of the gaps in European market structures and

governance mechanisms, member state governments could not bail out their

“national” banks without risking insolvency. As the financial turmoil spread,

capital began to flow from the periphery of the euro area to the core, leaving

massive macroeconomic adjustment challenges in those countries that it left

behind. The problems were not immediately obvious (Verdun, 2011). Indeed,

European governments seemed to weather the first waves of shock emanating

from the United States reasonably well. As the crisis unfolded, however, the

risks posed by the incomplete governance architecture put in place at

Maastricht became evident. Well-placed observers such as European Council

President Herman Van Rompuy (2011) viewed the dynamics as an existential

threat to the single currency and perhaps even the European project as a whole.

The negative impact of the incomplete nature of European integration on

the economic health of the eurozone has confronted policymakers with stark

alternatives. EU governments could either cut their losses and unwind their

incomplete union, as many pundits suggested they should and would

(Feldstein, 2012), or EU leaders could choose to push ahead and deepen the