Has Europe re-entered an identity politics era? The British referendum regarding EU membership and the Brexit negotiations spurred on by this referendum seem a living proof that identity politics has come to dominate European politics. After decades of gradual European integration in which member states’ national identities seemed to have been put aside, Europe is making difficult steps towards disintegration.

Fierce negotiations between member states are not new in the recent history of the European Union (EU). Scholars and the public alike have been left wondering what informed member states preferences when a string of reforms was fiercely negotiated during the European financial crisis. One issue better known to the public were the negotiations regarding the Greek debt crisis. Why have countries ended up supporting Greece during those turbulent times?

Within the EMU Choices project funded by the Horizon 2020 program, we collected and analyzed systematic data from each EU member state on European monetary reforms between 2010 and 2015.[1] We tested whether domestic politics dominated these negotiations or whether economic considerations mattered more and found that member states preferences have been driven by economic self-interest.[2] Our results show that financial sector exposure was correlated with member states preferences for further European integration and that this was large in deficit and in borrowing countries alike.

The data

Within the project scholars from nine countries collected systematic data based on documents and interviews on more than 40 issues that were discussed at EU level. The drivers of countries’ preferences during these negotiations were analyzed by grouping these issues into six reform packages pertaining to the Banking Union, Fiscal Transfers, EU Financial Governance, Institutional Change of the EU, Austerity and Future Policies.

The issues were scaled from 0 – representing the least ambitious reform proposals – to

100 – representing the most ambitious reform propositions leading to more European integration. This data also allowed for analyses regarding the bargaining success of these countries[3] and the bargaining strategies[4] during European negotiations.

Figure 1: Average Governmental Preferences

Figure 1 shows that in the banking union group, France was supportive of more power delegation to the EU, while Germany was less supportive. Similarly, the second group shows Greece being a full supporter of increased fiscal transfers, while Germany opposed more power delegation to the EU regarding all issues included in the fiscal transfers group. In the last group on future policies, including the Five Presidents Reports and the Eurobonds, Luxemburg was supportive of the policies put forward by its former prime minister Juncker. Furthermore, when analyzing these positions, we found support for the hypothesis that the greater a country’s financial sector exposure, the more likely this country’s government was to prefer more power delegation to the EU.

Financial market exposure shapes governmental preferences

More European solutions either as more redistribution or stricter regulation of national budgetary and fiscal policies can be considered a form of European integration. Our analysis highlights that more economic interdependence in the Eurozone contributed to a stronger alignment of preferences. Moreover, domestic and European party politics played a smaller role than expected.[5]

We argue that governments act as risk minimizers, particularly during a crisis, and that they were mainly driven by national economic considerations when deciding on European monetary reforms. During the Eurozone crisis, different countries witnessed different degrees of economic vulnerability due to an uneven exposure of their banks to debtor countries. Seeking to minimize the risk of costly bailouts, countries with highly exposed financial sectors were more likely to support solutions involving high degrees of European integration. In contrast, political factors had no systematic impact.

When the bubble burst during the crisis, both debtor and creditor countries ended up with a related problem: debtors had to pay back their debts, while creditors were concerned about the ability to reclaim their assets. For the creditor countries, this entailed the risk of needing to bail out their heavily exposed banks and thereby significantly threatening their own budgets, possibly with major systemic impacts. In order to avoid such scenarios, both creditors and debtors had an interest in finding solutions at the European level.

In other words, the crucial question was not whether a country was a creditor or debtor that mattered most for its preferences, as is often assumed. Rather the degree to which it was financially exposed towards other EU countries by registering high claims or liabilities was decisive for determining a country’s preferences during the Euro crisis negotiations.

European financial reforms are far from over. The tensions between the Italian government and the EU Commission about the Italian budget deficit in 2019 testify this.


[1] www.emuchoices.eu

[2] Târlea, S., Bailer, S., Degner, H., Dellmuth, L.M., Leuffen, D., Lundgren, M., Tallberg, J. and Wasserfallen, F., 2019. Explaining governmental preferences on economic and monetary union reform. European Union Politics, 20(1): 24–44.

[3] Lundgren, M., Bailer, S., Dellmuth, L.M., Tallberg, J. and Târlea, S., 2019. Bargaining success in the reform of the Eurozone. European Union Politics, 20(1): 65-88.

[4] Finke, D. and Bailer, S., 2019. Crisis bargaining in the European Union: Agenda, veto, or economic power. European Union Politics20(1), 109-133.

[5] We use a measure of the total non-consolidated financial sector liabilities as share of gross domestic product (GDP) in percent (Eurostat, 2017, see the Online appendix) to measure the liabilities incurred by private financial institutions in every member country of the EU. This indicator shows that the European sovereign debt crisis was first and foremost a private sector crisis (except for Greece).

[6]Financial Times. 2019, Italy budget U-turn does not go far enough, Brussels warns, available online at: https://www.ft.com/content/2f079756-feca-11e8-aebf-99e208d3e521, last accessed May 2, 2019.