The Politics of Integration: How Reform Dynamics Changed after the Euro Crisis

Traditionally, European integration tends to progress through negative integration, which refers to the removal of national barriers, while positive integration, which refers to the collective dealing of policy instruments, often tends to be delayed (Tinbergen 1965; Pinder 1968). The categorization of negative vs. positive integration differs from that of market-making (i.e., enhancing production capacity) vs. market-correcting (i.e., remedying external effects) integration, as pointed out by Scharpf (1999). While negative integration implies market-making policies, positive integration implies both market-making and market-correcting policies. In the financial markets field, the EU actively implemented not only negative integration, including the “European Passport” policy, but also positive and market-making integration, including Financial Services Action Plan and Lamfalussy Directives from the late 1990s to the early 2000s (Posner 2007; Schweiger 2014). However, European initiative was rather limited in the areas of positive and market-correcting integration, as shown in the case of bank capital regulation (Quaglia 2014) and supervisory coordination.

In response to the Euro crisis, radical reforms were undertaken in the fields of financial crisis management and crisis prevention through the creation of the European Stability Mechanism and Banking Union, that is, positive and market-correcting integration. This paper assesses the degree to which and the channels through which the Euro crisis enabled such a type of integration, while focusing on the changing economic and political conditions in German politics. Though Germany has remained a veto player, its changed attitude after the crisis may have impacted the policy scope on which European countries agree and enabled deeper integration.