Dissertation 11Th July 2019

The Implications of the Economic and Monetary Union for Democratic Sovereignty: a comparative study of Germany and Greece Thesis submitted for the degree of Doctor of Philosophy Faculty of Economics and Social Sciences Eberhard Karls University Tuebingen by Sabina Musaeva born in Makhachkala, Russia Tuebingen 2018 Date of the oral examination: 17.09.2018 Dean: Professor Dr. rer. soc. Josef Schmid First Supervisor: Professor Dr. Hans-Juergen Bieling Second Supervisor: Professor Dr. Gabriele Abels Table of contents Introduction 1 Chapter 1: Approaches to European integration 1.1. Supranationalism vs. intergovernmentalism and the debate on 15 democracy in the EU 1.2. The new polity approaches – demoicracy vs. re-conceptualized empire 26 Chapter 2: Sovereignty, Legitimacy, and Democracy 2.1. Popular sovereignty: history, function, and features 46 2.2. Legitimacy, democracy, and democratic sovereignty 53 2.3. Deliberative democracy 58 Chapter 3: Methodology 3.1. Research question and operationalization 71 3.2. Discourse analysis 73 3.3. Context analysis 78 3.4. Case studies 79 Chapter 4: The European Economic and Monetary integration: features and explanation of dynamics 4.1. Globalization and economic policy 81 4.2. The financial dimension of globalization and integration within the EMU 84 4.3. The institutional dimension and the mandate within 90 the Economic and Monetary Union 4.4. European discourses on the EMU: 94 discursive contestation and bargaining power Chapter 5: Germany 5.1. Economic and monetary policy in the Federal Republic of Germany 105 before the EMU: the Bundesbank, stable currency, and the German economic policy paradigm in the context of de-centralized polity with inclusion of social partners 5.2. The context and the mode of governance after the EMU: 112 the new central bank and disrupted balance between ordoliberalism and managed capitalism 5.3. The elite discourse on the EMU in Germany between 116 the years 1997 and 2000: dominance of the ordoliberal coalition 5.4. The elite discourse on the EMU in Germany between 135 the years 2010 and 2015: the social democratic opposition and re-established convergence towards the ordoliberal discourse Chapter 6: Greece 6.1. Economic and monetary policy in the Hellenic Republic 156 before the EMU: the Greek state and economy 6.2. European integration and the reform programs between 1985 and 2010 163 6.3. The elite discourse on the EMU in Greece between 169 the years 1997 and 2000: the contested dominance of the neoliberal competitiveness discourse 6.4. The elite discourse on the EMU in Greece between 182 the years 2010 and 2015: enforced contestation and the failed dominance of the neoliberal competitiveness discourse in the times of crisis Chapter 7: Democratic deficit and the asymmetric nature of the EMU 7.1. Monetary, economic, and socio-political discourses 201 7.2. Implications for democracy 210 Conclusion 216 Bibliography 222 Introduction European integration is a process where states decide to act together in some policy areas, either through transferring some competences to supranational institutions or through institutionalizing stronger cooperation. This process has certain bene- fits for the member states: not only in economic terms (as a common internal market) but also in terms of security and foreign policy. It strengthens the position and the voice of European states in global politics, potentially enabling them to influence the global agenda. Therefore, through recognising and institutionalizing their interde- pendence in the EU, the member states can actually increase their independence and gain an opportunity to enhance the effectiveness of domestic policies. All the member states of the European Union (EU) represent democracies, where political and participative rights of their citizens are consolidated in national constitutions. In light of the growing challenges of globalization, European integration can potentially enforce the democratic quality of its member states because it en- ables the projection of national interest beyond the state, protecting the domestic socio-economic models and increasing a state’s capacity to act (Habermas 2011; Dingwerth et al. 2011). Yet the willingness of national elites to integrate and subject policies to common regulation in the EU varies significantly across policy fields. The most sensitive areas remain ‘sovereign’ or dominated by the intergovernmental mode of cooperation. An especially interesting case in this regard is the case of the Economic and Monetary Union (EMU). In this case we observe how monetary policy has been completely integrated and transferred to a supranational institution, the European Central Bank, while the economic policy has been left under the authority of each individual member state. In fact, there is no other example of such separation of these two closely re- lated policy areas. On the contrary, there are good reasons to implement economic policy on the EU level, especially after introduction of the common currency (Beetsma/Debrun 2004; Bell 2003; Crouch 2000a; De Grauwe 2009; Fatas 1998; Wessels/Linsemann 2002). Both economic and monetary policies are crucial for the redistributive capacity of the state, and they both correspond to the functional logic of integration, as described above. It is therefore puzzling why some states are still highly reluctant to formally transfer competences in economic policy to the European level. The status quo must be beneficial for some actors who profit from divergence and preservation of certain competition among the European economies. This factor has 1 certainly proved its negative implications on democracy in the member states, especially during the crisis from 2010 on (Bieling 2011; Bratsis 2010; Scharpf 2012; Scharpf 2013). The issue of democratic sovereignty in a two level polity of the EU depends on the clear definition of the scale and the depth of decision-making on each level. The requirement of citizen participation is determined by this definition because the inclusion should be provided on the level of the real decision-making. The democratic deficit of the EU has been discussed on numerous occasions, especially within the academic research (Schimmelfennig 1996; Schaefer 2006; Karlsson 2001; Schmitter 2000; Calliess 2005; Höpner et al. 2010; Majone 1998; Follesdal/Hix 2006). While supranational institutions and negotiations strongly influence and sometimes even shape the domestic policies of a nation state, the room for effective participation of the citizens shrinks. Simultaneously, some interest groups, strongly present on the domestic level, do not have equal capacity to influence the agenda on the European level (Crouch 2008). Economic policy is defined as governmental activity with the purpose of in- fluencing the economy. It is comprised of a number of instruments, including those of monetary policy. It is a highly controversial policy field, as it does not only directly effect the distribution of welfare but also concerns the alignment of social forces. It is not a secret that the choice of the path of economic development as well as the framework of taxation and budgetary policies are often regarded to be the core of the sovereign statehood. Public compliance in this policy area requires an especially high level of legitimacy (see Scharpf 2012). Monetary policy is the part of economic policy that is focused on the regulation of a currency (its volume and value). It is im- portant to emphasize that monetary regulation as part of economic policy embodies a political implementation of values. Within a democratic rule both are embedded in institutions that reflect traditional values of justice and legitimacy (see Scharpf 2012). In the EMU, we observe the common market and de-nationalization of the member state currencies combined with the strong formal protection of national sovereignty in the field of economic, budgetary, and labour policies. „That European integration as we know it amounts in its core to economic liberalization is closely associated with its constitutive mis- match between the institutional range of political sovereignty and the size of the integrated market; with decentralization of politics coincid- ing with centralization of market-making; and with the embedding of 2 national political institutions in an international market which exposes them to pressure of regime competition, both forcing and enabling national governments to push back demands for political „distortion“ of that market” (Streeck 1999: 161-162, translation S.M.). Although in the EMU economic policy formally still belongs to the member state competences, it does not mean that it remains untouched by the dynamic of integration. The launch of the EMU changed the overall context of economic policy in the member states, whereas the costs of adjustment were different across them (Schmidt 2003; Becker 2014; Van Esch 2014; Wessels/Linsemann 2002). Regime competition increased by both globalization and European integration re-shaped the conditions of economic activity, resulting in higher pressures on national economic and redistributive policies (Bell 2003; Overbeek 2012; Pierson 2001; Rodrik 2000; Rodrik 2011; Zohlnhoefer 2009). Liberalization as an attractive option for the supranational policies due to its requirement of a minimal consensus (negative integration) clashes with the post-war model of the European welfare state, which was designed to be the shock absorber, providing a balance between the economic and

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