The Evolution of Backyard Management in Europe

European market making has from its inception been intimately linked with the conscious efforts by the EU and core countries to address structural disparities in the common market and reduce potential negative externalities of integration by shaping the developmental pathways of Europe's peripheries. In this paper we examine the evolution of these strategies of 'backyard management', analysing the management of the Southern European periphery from its accession in the 1980 through the monetary integration and the most recent economic crisis, and comparing it with the management of the East European periphery from the 1990s onwards. While in the South the main strategy was based on direct financial transfers and indirect attempts at inducing institutional change via 'getting the incentives right' in the Eastern periphery backyard management was based primarily on direct institution building and monitoring and assisting institutional change aimed at foreseeing and reducing negative externalities of integration. Together with domestic factors, these external strategies have resulted in starkly different developments. While the leading countries of the East have converged with the core in their production profiles, but have remained peripheral in their consumption patterns, nearly the opposite was the case in the South with consumption levels reaching the core countries while lagging way behind them in their peripheral patterns of production. By comparing these two strategies of backyard management the paper makes a first step towards evaluating different forms of managing interdependence in the European market and drawing lessons for the future of European integration.