Evidence of Partisan Emphasis on EMU during 1994–1999 : Comparing Finnish Parties

This study explores the EMU stand taken by the major Finnish political parties from 1994 to 1999. The starting point is the empirical evidence showing that party responses to European integration are shaped by a mix of national and cross-national factors, with national factors having more explanatory value. The study is the first to produce evidence that classified party documents such as protocols, manifestos and authoritative policy summaries may describe the EMU policy emphasis. In fact, as the literature review demonstrates, it has been unclear so far what kind of stand the three major Finnish political parties took during 1994–1999. Consequently, this study makes a substantive contribution to understanding the factors that shaped EMU party policies, and eventually, the national EMU policy during the 1990s. The research questions addressed are the following: What are the main factors that shaped partisan standpoints on EMU during 1994–1999? To what extent did the policy debate and themes change in the political parties? How far were the policies of the Social Democratic Party, the Centre Party and the National Coalition Party shaped by factors unique to their own national contexts? Furthermore, to what extent were they determined by cross-national influences from abroad, and especially from countries with which Finland has a special relationship, such as Sweden? The theoretical background of the study is in the area of party politics and approaches to EU policies, and party change, developed mainly by Kevin Featherstone, Peter Mair and Richard Katz. At the same time, it puts forward generic hypotheses that help to explain party standpoints on EMU. It incorporates a large quantity of classified new material based on primary research through content analysis and interviews. Quantitative and qualitative methods are used sequentially in order to overcome possible limitations. Established content-analysis techniques improve the reliability of the data. The coding frame is based on the salience theory of party competition. Interviews with eight party leaders and one independent expert civil servant provided additional insights and improve the validity of the data. Public-opinion surveys and media coverage are also used to complete the research path. Four major conclusions are drawn from the research findings. First, the quantitative and the interview data reveal the importance of the internal influences within the parties that most noticeably shaped their EMU policies during the 1990s. In contrast, international events play a minor role. The most striking feature turned out to be the strong emphasis by all of the parties on economic goals. However, it is important to note that the factors manifest differences between economic, democratic and international issues across the three major parties. Secondly, it seems that the parties have transformed into centralised and professional organisations in terms of their EMU policy-making. The weight and direction of party EMU strategy rests within the leadership and a few administrative elites. This could imply changes in their institutional environment. Eventually, parties may appear generally less differentiated and more standardised in their policy-making. Thirdly, the case of the Social Democratic Party shows that traditional organisational links continue to exist between the left and the trade unions in terms of their EMU policy-making. Hence, it could be that the parties have not yet moved beyond their conventional affiliate organisations. Fourthly, parties tend to neglect citizen opinion and demands with regard to EMU, which could imply conflict between the changes in their strategic environment. They seem to give more attention to the demands of political competition (party-party relationships) than to public attitudes (party-voter relationships), which would imply that they have had to learn to be more flexible and responsive. Finally, three suggestions for institutional reform are offered, which could contribute to the emergence of legitimised policy-making: measures to bring more party members and voter groups into the policy-making process; measures to adopt new technologies in order to open up the policy-formation process in the early phase; and measures to involve all interest groups in the policy-making process.

The Impact of the EMU on International Portfolio Investments

This paper analyses the impact of the launch of the European Monetary Union (EMU) on the allocation of international portfolio investments. The initiation of the EMU provides an opportunity for comparison of competing theoretical explanations for investment behavior. Models stressing the diversification motive would predict that the increased dependence between countries participating in the EMU should reduce the attractiveness of portfolio holdings in other EMU countries. Models based on asymmetric information would instead emphasize the increased intensity in the flow of information resulting from an increase in cross border transactions between the EMU countries. The consequent decline in information asymmetry should increase, rather than reduce portfolio holdings in other EMU countries. Our results based on the allocation of Finnish foreign portfolio investment support the information-based explanation against predictions based on the diversification motive.

Electoral opportunism and fiscal policy before and after the EMU

A Masters Thesis, presented as part of the requirements for the award of a Research Masters Degree in Economics from NOVA – School of Business and Economics

The simple macroeconomics of North and South in EMU. Bruegel Working Paper 2012/12, 30 July 2012

The euro area today consists of a competitive, moderately leveraged North and an uncompetitive, over-indebted South. Its main macroeconomic challenge is to carry out the adjustment required to restore the competitiveness of its southern part and eliminate its excessive public and private debt burden. This paper investigates the relationship between fiscal and competitiveness adjustment in a stylised model with two countries in a monetary union, North and South. To restore competitiveness, South implements a more restrictive fiscal policy than North. We consider two scenarios. In the first, monetary policy aims at keeping inflation constant in the North. The South therefore needs to deflate to regain competitiveness, which worsens the debt dynamics. In the second, monetary policy aims at keeping inflation constant in the monetary union as a whole. This results in more monetary stimulus, inflation in the North is higher, and this in turn helps the debt dynamics in the South. Our main findings are: •The differential fiscal stance between North and South is what determines real exchange rate changes. South therefore needs to tighten more. There is no escape from relative austerity. •If monetary policy aims at keeping inflation stable in the North and the initial debt is above a certain threshold, debt dynamics are perverse: fiscal retrenchment is self-defeating; •If monetary policy targets average inflation instead, which implies higher inflation in the North, the initial debt threshold above which the debt dynamics become perverse is higher. Accepting more inflation at home is therefore a way for the North to contribute to restoring debt sustainability in the South. •Structural reforms in the South improve the debt dynamics if the initial debt is not too high. Again, targeting average inflation rather than inflation in the North helps strengthen the favourable effects of structural reforms.

The known unknowns and the unknown unknowns of the EMU. Bruegel Policy Contribution 2012/18, October 2012

Extensive prior research on the economics of European monetary union highlighted some potential risks (the known unknowns) but overlooked others (the unknown unknowns). Asymmetries among participating countries, the potentially destabilising character of a one-size-fits all monetary policy, the weakness of adjustment mechanisms, the lack of incentives for fiscal discipline, the possibility of sovereign solvency crises and their adverse consequences were all known and understood. But policymakers often relied on a complacent reading of the evidence. • The potential for financial disruption was vastly underestimated. Economists generally did not consider, or underestimated, the possibility of balance of payment crises such as those experienced by southern European countries, or the risk of a feedback loop between banks and sovereigns. • Remedying EMU’s systemic deficiencies is on the policy agenda. Banking union would go a long way towards addressing the fault lines. The urgent question for economists is if it is going to be enough and, if not, what else should complement the ‘bare-bones’ EMU of Maastricht.

Leader of the pack? German monetary dominance in Europe prior to EMU

In this paper, the monetary policy independence of European nations in the years before European Economic and Monetary Union (EMU) is investigated using cointegration techniques. Daily data is used to assess pairwise relationships between individual EMU nations and ‘lead’ nation Germany, to assess the hypothesis that Germany was the dominant European nation prior to EMU. By and large our econometric investigations support this hypothesis, and lead us to conclude that the only European nation to lose monetary policy independence in the light of monetary union was Germany. Our results have important policy implications. Given that the loss of monetary policy independence is generally viewed as the main cost of monetary unification, our findings suggest a reconsideration of the costs and benefits of monetary integration. A country can only lose what it has, and in Europe the countries that joined EMU — spare Germany — apparently did not have much to lose, at least not in terms of monetary independence. Instead, they actually gained monetary policy influence by getting a seat in the ECB's governing council which is responsible for setting interest policy in the euro area.

Fiscal rules for subnational governments in the EMU context

Includes bibliography

Macroeconomics and regional integration: EMU and the stability programmes: some possible lessons for Latin America

Includes bibliography