Economic Policy Coordination as a Game Involving Economic Stability and National Sovereignty

Published date01 March 2016
Date01 March 2016
Economic Policy Coordination as a Game
Involving Economic Stability and National
Dariusz Adamski*
Abstract: The economic crisis has paved the way for reconsideration of the Eurozones
constitutional design. This paper shows that what may seem as a massive empowerment
of European institutions at the cost of national economic sovereignty in actual constitu-
tional practice has left economic policy coordination largely unchanged. By means of
conceptualising its previous and current patterns as a game between supranational and
national institutions, it is shown that the scale of change has been widely exaggerated.
The new Eurozone design has mitigated in practice the extent to which national economic
sovereignty has been undermined, but only at the cost of shifting to the European Central
Bank the burden of shoring up the stability of the common currency; such burden the ECB
is bound to prove unable to sustain in the long run.
I Introduction
Economic policy coordination has been at the forefront of the debate on the future of
the European Union (hereafter, EU) since 2010. In particular, the trifurcated banking,
balance of payments
and sovereign debt crisis has paved the way for the reconsidera-
tion of EUs economic powers. This has led to major constitutional changes formally
shifting many fundamental economic competencies from the national to the suprana-
tional level. However, in actual constitutional practice, economic sovereignty has
remained rmly in national hands.
This paradoxical picture is not the result of a random process. Rather, todaysEUis
largely the result of an attempt at simultaneously achieving two contradictory objec-
tives: effective economic policy coordination and preserving intact national economic
sovereignty. On the one hand, reforms have aimed at ensuring more effective economic
policy coordination, in order to stabilise the Eurozone economy as a whole. This leads
quite naturally to the centralisation of economic policy at the expense of national dis-
cretion. The underlying assumption is that the incongruity of national economic
* Correspondence to: Dariusz Adamski, Faculty of Law, Administration and Economics, University of
Wroclaw, Poland. E-mail: Research for this contribution was nancially
supported by the Polish National Science Centre (UMO-2013/09/B/H55/04179). I am also grateful to
Agustín Menéndez and to Mark Dawson for their valuable comments on an earlier draft. The usual
disclaimer applies.
A balance of payments crisis occurs when foreign investors pull back from a country and in consequence
the latter becomes deprived of external funding. For how this process unfolded in the Eurozone see S.
Merler and J. Pisani-Ferry, Sudden Stops in the Euro Area,Bruegel Policy Contribution 2012/06, March
2012, available at
European Law Journal, Vol. 22, No. 2, March 2016, pp. 180203.
© 2016 John Wiley & Sons Ltd., 9600 Garsington Road, Oxford, OX4 2DQ, UK
and 350 Main Street, Malden, MA 02148, USA
policies within the Eurozone played an important role in the swelling of the crisis, and
in particular in producing asymmetricstate specificshocks, leading to a deep and
protracted economic stagnation. On the other hand, the way in which the reforms have
been actually implemented reveals the enduring attachment to the goal of keeping eco-
nomic policies in the hands of the political actors enjoying the broadest democratic le-
gitimacy, that is national parliaments and governments. This is so because economic
policies are socially embedded, and thus lead to what may be characterised as endog-
enouslyshaped different varieties of capitalism.
Furthermore, economic policies result
from collective choices ranging from employment and training policies to industrial and
entrepreneurship policies to educational and innovation policies to social policy and
other welfare policies to tax policy. Even in a homogenous polity, reforming any of
them, not to mention all of them, is an uncertain and contestable process, as all the pol-
icies are highly redistributive and hence divisive.
Formal centralisationcoming hand in hand with a constitutional practice in which
power remains rmly in national hands can thus be regarded as an attempt to square
the circle of European economic governance. But can a circle be squared? Can the
powers of supranational institutions (as enshrined in Articles 120 to 126 and 136
TFEU) be reinforced in an effective manner without actually denting national eco-
nomic sovereignty? In other words, can European economic coordination be a positive
sum game, in which powers of EU institutions grow without undermining national eco-
nomic sovereignty?
Or are we bound to conclude that the European economic coordi-
nation game is a non-positive sum game (i.e. a zero sum game or a negative sum
in which consolidating powers at one level (supranational) of government in-
eluctably results in a loss for the other level (national) of government?
The kind of game Eurozone economic coordination turns out to be is momentous,
both practically and theoretically. Only if the game is a positive-sum one does the pres-
ent Eurozone settlement stand a chance. If the game produces non-positive sums, the
present Eurozone settlement is doomed, as it leads to a paramount dilemma. If national
economic sovereignty remains whole, the Eurozone will collapse because national eco-
nomic policies will be too divergent. If national economic sovereignty is relinquished,
the Eurozone will most probably be doomed for political reasons, because developing
a consistent economic policy for a polity as diversied (and divided) as the Eurozone
stands next to impossibility.
In addressing these issues, this paper rst reconstructs the original paradigm of European
economic policy coordination and explains why it was considered to imply a positive sum
game (The Positive Sum Game Paradigm section). Then it describes how the Eurozone crisis
reframed the approach to European economic governance (European Institutions Enter the
Zero Sum Game section), how it has shaped the resulting strengthened coordinationof
P. Hall and D. Soskice (eds.), Varieties of Capitalism. The Institutional Foundations of Comparative
Advantage (Oxford University Press, 2001); G. Jackson and R. Deeg, The Long-term Trajectories of
Institutional Change in European Capitalism, (2012) 19 Journal of European Public Policy, 11091125.
It is of particular importance in this context that economic policies have evolved in each Member State over
a long period and have been shaped by different historical contexts, beliefs, values and priorities. In addi-
tion, economic policies have formed the very nest of national identity, which in turn has embedded them
even more deeply in the collective consciousness of individual European nations.
In positive sum games the sum of winnings and losses is greater than zero. In other words, the aggregate of
benets distributed between the parties to the game is greater than is the aggregate of their losses.
In a zero sum game one party cannot advance its position without the other party suffering a corresponding
loss. In negative sum games the loss of one party outweighs gains of the other.
European Law Journal Volume 22
© 2016 John Wiley & Sons Ltd 181

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