The Institutional Design of EMU: A Democratic Deficit?

Abstract

The introduction of the euro is accompanied by an independent European Central Bank (ECB) which is solely responsible for monetary policy in the euro zone. No European institution will be introduced to flank the ECB. This particular institutional design is problematic. This article argues that Economic and Monetary Union (EMU) suffers moderately from a democratic deficit. However, the case of Germany illustrates that it is not the independence of the ECB that should be cause for concern, but the absence of specific domestic features and a government. It is unclear which political authority will be held responsible if EMU leads to an uneven distribution of costs and benefits across the euro zone. Economic literature suggests that under EMU distortions could well occur and that a different design could deal better with these imperfections. The historical process leading to EMU explains the reasons for its particular design. Although imperfect, EMU is an improvement over the pre-EMU status quo in which Germany de facto dominated monetary policy. Nevertheless, the design of EMU remains suboptimal.

Ten years EMU: an assessment of ten critical claims

“…From this analysis of the democratic deficit of EMU came a criticism shared by some political scientists (Majone, 1998;Verdun, 1998;Christiansen, 2000, 2001) and some economists (Lohmann, 1993;Gormley and De Haan, 1996). The height of the debate took place in the late 1990s.…”

EMU's teenage challenge: what have we learned and can we predict from political science?*

“…Delegating this task to the European level should thus be considered as legitimate as keeping it in the national realm. In theoretical terms, the particular nature of monetary policy as a functionally clearly delimitated task geared towards the objective of price stability justifies the exclusive focus of legitimacy provisions on the output side (Verdun 1998), even though the typical problems deriving from such a principal -agent set-up are likely to arise (Elgie 2002). The ECB frequently uses this line of argumentation pointing out that it has been entrusted with the task of pursuing a commonly agreed goal that does not hamper member states' own policy choices (ECB 2001(ECB , 2002.…”

“…The analysis of the 'democratic deficit' of EMU had started even before the euro was introduced and the ECB established (Jones 2002b;Verdun 1998). After a strong focus on the ECB itself, scholarly focus on legitimacy issues in EMU spread out to the institutional features of EMU as a whole (mainly discussing the question of the need for a gouvernement économique (Dyson 1994;Howarth 2001;Verdun 1996Verdun , 2000 before touching upon connected areas such as the Stability and Growth Pact (Collignon 2004;Verdun 2004, 2010;Howarth 2004;Savage and Verdun 2007), the open method of co-ordination and the Lisbon Strategy (Hodson and Maher 2001;Scharpf 2002), and the EU budget (Enderlein et al 2005).…”

Reforming Europe's stability and growth pact: Lessons from the American experience in macrobudgeting

“…The 'economic' policies in this context would be budgetary policies (budgetary deficits and public debt) as well as further integration on fiscal policies (perhaps harmonization of corporate taxation). Advocates argue that it has been this asymmetry between transferring sovereignty from national to the supranational (EU) level in the one area (monetary policy) whereas a lack of transferring such sovereignty over economic policy (budgetary and some degree of fiscal policy) that makes EMU potentially unstable (Verdun 1996;1998;Padoa-Schioppa 2004;Hodson 2006).…”