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Domestic Politics Comes First—Euro Adoption Stretegies in Central Europe

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Domestic Politics Comes First—Euro Adoption Stretegies in Central Europe Domestic Politics Comes First—Euro Adoption Stretegies in Central Europe: The Cases of the Czech Republic, Hungary and Poland By Assem Dandashly License, Lebanese University, 2000 M.A., Lebanese American University, 2004 A Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree of DOCTOR OF PHILOSOPHY in the Department of Political Science © Assem Dandashly, 2012 University of Victoria All rights reserved. This dissertation may not be reproduced in whole or in part, by photocopying or other means, without the permission of the author. Domestic Politics Comes First—Euro Adoption Stretegies in Central Europe: The Cases of the Czech Republic, Hungary and Poland By Assem Dandashly License, Lebanese University, 2000 M.A., Lebanese American University, 2004 Supervisory Committee Professor Amy C. Verdun, Supervisor (Department of Political Science) Professor Colin J. Bennett, Departmental Member (Department of Political Science) Professor Oliver Schmidtke, Departmental Member (Department of Political Science) Professor Emmanuel Brunet-Jailly, Outside Member (School of Public Administration) Professor Mitchell P. Smith, Additional Member (University of Oklahoma, Department of Political Science) ii Supervisory Committee Professor Amy C. Verdun, Supervisor (Department of Political Science) Professor Colin J. Bennett, Departmental Member (Department of Political Science) Professor Oliver Schmidtke, Departmental Member (Department of Political Science) Professor Emmanuel Brunet-Jailly, Outside Member (School of Public Administration) Professor Mitchell P. Smith, Additional Member (University of Oklahoma, Department of Political Science) ABSTRACT In the 2003 Treaty of Accession, the signatories agreed that all New Member States (NMS) that joined the European Union (EU) in 2004, would adopt the euro, even if no timetable was provided. Why have some NMS not been able to join the euro area even if they made serious attempts at the outset? What are the circumstances and policies in these countries that have led them not yet to adopt the euro? Has it been lack of political will on the part of the government, a strong voice in the opposition, a euroskeptic president, insufficient administrative capacity, or lack of policy learning? Though there is no consensus among economists as to whether or not adopting the euro in the short run is a good idea, an economic cost-benefit analysis would suggest that in the long run euro adoption is positive for NMS. Yet, macroeconomic analyses cannot explain the change in government policies that may lead to euro adoption. Political scientists have typically focused on collective identity, policy learning, ideas and knowledge transfer among central bankers and other political elites, as well as adjustment to global pressures and Europeanization. This political science literature is unable to provide a satisfactory explanation as to why the Czech Republic, Hungary and Poland have not adopted the euro yet. I argue that the role of domestic politics is key to explaining the process of euro adoption in Czech Republic, Hungary and Poland: government policies, elections, electoral cycles as well as constitutional rules, veto points, central banks, public opinion and the media turn out to be crucial in explaining the lagging euro adoption process in these countries. Key words: Central and Eastern Europe, comparative political institutions, domestic politics, Economic and Monetary Union, Europeanization, European Union, institutions, international political economy, macroeconomic policy, optimal currency area. iii TABLE OF CONTENTS Supervisory Committee.........................................................................................................ii ABSTRACT................................................................................................................................ iii LIST OF TABLES.......................................................................................................................vi LIST OF FIGURES ....................................................................................................................vii ABBREVIATIONS .................................................................................................................. viii ACKNOWLEDGEMENTS.......................................................................................................... x CHAPTER I: INTRODUCTION ................................................................................................1 1.1 The Main Research Questions ...................................................................................................3 1.2 Assumptions and Arguments .....................................................................................................4 1.3 Selection of the Main Factors.....................................................................................................7 1.4 Aim of the study ......................................................................................................................... 11 1.5 Chapter Outline ......................................................................................................................... 14 CHAPTER II: LITERATURE REVIEW ................................................................................ 15 2.1 Economic Literature ................................................................................................................. 16 2.1.1 Costs and Benefits of EMU .............................................................................................................22 2.1.1.1 The Costs of EMU...........................................................................................................................23 2.1.1.2 The Benefits of EMU .....................................................................................................................26 2.2 Peeling the Political Science Onion........................................................................................ 31 2.3 Euro Adoption Strategies from a Domestic Angle ............................................................. 38 2.4 Conclusion and Summary of the Hypotheses Examined .................................................. 45 CHAPTER III: METHODOLOGY AND CASE SELECTION .............................................. 48 3.1 Qualitative Research—The Comparative Method............................................................. 49 3.2 Case Selection ............................................................................................................................. 50 3.3 Research Methodology ............................................................................................................. 56 3.3.1 Interviews—Important Method in Qualitative Research .......................................................58 3.3.2 Why Use Interviews for this Research?.......................................................................................60 3.3.3 Reliability of Interview Data...........................................................................................................61 3.4 Conclusion ................................................................................................................................... 62 CHAPTER IV: HISTORICAL DEVELOPMENT AND THE COMMUNIST LEGACY— DOES IT MATTER? ................................................................................................................ 64 4.1 Historical Institutionalism ....................................................................................................... 66 4.2 Half a Century of Developments in Central Europe: Learning from the East............ 68 4.2.1 From Yalta to the 1956 Revolution (Hungarian Revolution)...............................................70 4.2.2 The Beginning of De-Stalinization and the Hungarian Revolution....................................74 4.2.3 The Prague Spring and its Aftermath ...........................................................................................83 4.2.4 Solidarność and the Revival of Poland ........................................................................................96 4.3 Conclusion and the Communist Legacy Hypothesis........................................................109 CHAPTER V: THE CZECH REPUBLIC—THE EUROSKEPTIC LEADER OF CENTRAL AND EASTERN EUROPE.....................................................................................................111 5.1 Background...............................................................................................................................111 5.2 Europeanization, Social Learning and the Early Institutional Developments...........112 iv 5.2.1 Political and Institutional Change............................................................................................... 113 5.2.2 Economic Development—EU Accession and the Long Way to EMU.......................... 119 5.2.2.1 The Privatization Process and the 1990s Financial Crises.............................................. 122 5.3 Role of Domestic Politics in Understanding Euro Adoption Strategies—The Main Factors and their Interactions.....................................................................................................127 5.3.1 Macroeconomic Indicators............................................................................................................ 127 5.3.2 Government, Opposition, Electoral Cycles and the Euro ..................................................
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