British Reluctance to Join Euro Term Paper

” (Risse, 1998) First, the “Euro is about European union rather than just lowering transaction costs” and secondly “intuitionalists arguments about path dependent processes offer significant insights if they are linked to the more constructivist reasoning” which Risse develops in his work. (1998) Third stated is the primary argument is that “the visions about European order which give political meaning to EMU, need to be understood in the framework of identity politics.” (Risse, 1998) Risse states that the controversial nature of relationships of political elites in the ‘big three’ as well as the various attitudes “can be explained by differences in the construction of national collective identities and their relationship to European order.” (Risse, 1998) Risse note that historically, money “…has been closely linked to state- and nation-building.” (1998) There is no exception when it comes to the Euro and while the Euro has been “incorporated into their (Germany and France) nationally defined collective identities, British policy makers including New Labor remain hesitant.” (Risse, 1998) Risse explores this issue by first asking the question of “How it is to e explained that the Euro has survived all challenges since the Maastricht treaties were signed in 1991, including a near rejection by the French public in the 1992 referendum which would certainly have killed the treaties which includes: (1) the near collapse of the EMS in 1992/93; (2) the difficulties which most EU member sates face in implementation of the Maastricht convergence criteria requiring stiff austerity policies at times of sluggish economic growth and unprecedented levels of unemployment; (3) high levels of opposition to the Euro in mass public opinion of the most important member states; and (4) the continuing grumbling among the German and French political elites.(Risse, 1998)


According to Risse, the “first-cut answer to the puzzle” leads to an examination of economic interests of integration and traditional European theories such as, “neofunctionalism or liberal intergovermentalism sees as the driving forces behind European integration.” (Risse, 1998) in this view, a single form of currency is the only “logical” progression to a single market in Europe, which would enable “free movement of goods, capital, labor and services.” (Risse, 1998) the excessive fluctuations of currency would be rendered null by the Euro and the same would result of the “protectionist pressures” known to put a single market in jeopardy. Additionally transactions costs would be eliminated and might result in investment increases. The hope is that the Euro will result in “increased economic interdependence among the EU member states and to the challenges of globalization.” (Risse, 1998) However, upon closer examination one finds that the arguments supporting the Euro from the economics perspective “are not clear.” (Risse, 1998) Those who advocate neoliberal economics cannot come to an agreement among themselves “on the merits of a currency union in the absence of a political union or a common economic policy. Some argue that the European Central Bank will not be truly independent from political influence…” (Risse, 1998) and others hold that there will be no effective resistance to pressures of inflation “if there is no integrated economic policy and a political union.” (1998) Risse states: “considerable disagreement” exists “among economists on what constitutes and ‘optimal currency area’ and how much economic homogeneity has to be achieved for it.” (Risse, 1998) Economic preferences among the individual countries “alone do not appear to explain the variation in attitudes toward the Euro…” (Risse, 1998) in the case of Britain, Risse states:,,” one could argue that the decision not to join EMU in 1999 which was re-affirmed by the newly elected Labor government, reflects sound economic policies, since Great Britain’s economic cycle is out of sync with continental Europe.” (1998)


It is interesting that of all the countries that would have difficulty in meting the Maastricht convergence requirements, the Britain in “one of the few countries which would have no trouble meeting” the criteria and this is especially true in relation to the “budget deficit goal of not more than 3% of GDP.” (Risse, 1998) the EMU is also a nice fit with the “neoliberal economic orientation of the British government which did not change much under Tony Blair, at least as compared to the continental European states.” (Risse, 1998) Britain has been eyeing foreign direct investment for quite a few years. The Euro would appear attractive for non-European multinational corporations entering a single market due to the lowering of the costs of transactions and the elimination of the instabilities associated with exchange rates.” (Risse, 1998) at the time of the report of Risse (1998) he states that business elites in Britain were lobbying the Labor government in hopes of an early entry into the Euro zone.


Risse examines the geopolitical reasons in search of the answer to the puzzle he poses in his work and states that the realistic view would argue that “European integration has always been as much about security concerns as about solving economic problems.” (1998) Risse asks is the same reasoning to also be applied to the EMU as well? Following the Cold War having ended the problem of Germany returned to the agenda of European concerns and it can be held that the Maastricht treaties and EMU “be regarded as an effort to contain German power in Europe in the aftermath of unification by firmly binding the Federal Republic to Western institutions and by preventing a German ‘Sonderweg’. Moreover, the single currency and the European Central Bank (ECB) effectively end the quasi-hegemony of the German ‘Bundesbank’ over monetary policies in Europe.” (Risse, 1998) the arguments as such in favor of EMU Europe-wide have been made worldwide and this is especially true in the country of France whose political elites “have been obsessed with the German problems since the end of World War II.” (Risse, 1998) the attitudes of the French toward integration into the EU is explained “to some degree…by this…obsession.” (Risse, 1998) Risse questions why it is that the EMU is viewed as the only viable “instrument of ‘binding’ among those who also believe “in the effectiveness of international institutions.” (Risse, 1998) Also, if the EMU is truly representative of a strategy of “binding the lesser European states to contain German power, why has Germany agreed to it and why is it that the German government under Chancellor Kohl remains an enthusiastic supporter of a single currency.” (Risse, 1998) While the argument is posited by some that the EMU was the cost the Bonn government was assessed in its “acquiescence in German unification by his European partners, above all France,” in actuality and factually “this argument…is wrong.” (Risse, 1998) Long before unification it was known that West Germany supported a single currency on the condition that “economic convergence would take place prior to its introduction and that a European Central Banks would be as independent as the Bundesbank.” (Risse, 1998) Germany conceded only two things to EU and France “as quid-pro-quo for EU support for unification” which related to the treaty on political union and acceleration of the timetable for the EMU to be ratified. The EMU is stated by Risse to “appear to be firmly locked in” but yet a “powerful explanation for the puzzle” of this is required.


Risse states that the arguments posited by “historical intuitionalists on ‘path dependence'” is one which “positive feedback loops leads to increasing returns. An institutional decision in a certain direction made at a ‘critical juncture’ offering several possible choices subsequently changes the parameters in such a way that the next decision is likely to move in the same direction.” (1998) the path-dependent process is stated by Risse to be ‘in which positive feedback loop lead to increasing returns.” (1998) a decision by an institution made “at a critical juncture” and “in a certain direction” and that offers various choices thus results in the parameters being changed in a manner that generally results in decisions that follow likely to follow the “same direction.” (Risse, 1998) Path dependent processes therefore “continue irrespective of the rationality of the initial decision and explain why actors often ‘stick to their guns’ even though their instrumental interests might have changed.” (Risse, 1998) Therefore, it is the first decision setting a course that is made at a critical time that leads the following decisions in the same direction resulting in ‘path dependency’ in the institutional decision processes. The costs associated with adoption of policies that were available in the beginning increase over time and as well the options for exiting are reduced once the path has been chosen within the framework of this theory of institutional decision-making. Risse states it as being that once having been established the Maastricht treaties “set in motion a process which makes the implementation of EMU more likely over time, since the costs of changing course are increasingly prohibitive. The political costs…

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