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The Regimes of European IntegrationConstructing Governance of the Single Market$

Shawn Donnelly

Print publication date: 2010

Print ISBN-13: 9780199579402

Published to Oxford Scholarship Online: September 2010

DOI: 10.1093/acprof:oso/9780199579402.001.0001

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International Relations Theory and Integration

International Relations Theory and Integration

(p.62) 4 International Relations Theory and Integration
The Regimes of European Integration

Shawn Donnelly (Contributor Webpage)

Oxford University Press

Abstract and Keywords

This chapter reviews international theories of integration and delegation, showing the added value of a liberal constructivist approach that brings contested, constructed norms into the equation. It outlines the distinction between constitutive and regulative norms at the international level, and shows how they may be built on corresponding national norms.

Keywords:   constructivism, constitutive norms, regulative norms, liberal intergovernmentalism, neofunctionalism

Chapter 2 outlined three European Union (EU) policy regimes that govern the regulation of markets in company shares, financial markets, and accounting standards respectively, each distinguishable by the degree of delegation of regulatory authority from the member states to supranational institutions. I argued that norm conflict and convergence over the substance of national legal provisions determined the degree of conceivable delegation.

The purpose of this chapter is to develop the international components of my approach to explaining regime development, incorporating the insights into domestic constitutive and regulative norms made in Chapter 3. It argues that negotiated regime construction is a daunting task because it must reconcile international and domestic norms, both constitutive and regulative to succeed. Attempts to impose regimes with international constitutive norms that collide with national norms create an incentive for national backlash and the establishment of alternative regimes (in addition to the default position of political deadlock).

Regime Formation and Failure: Normative collusion, coexistence, and collision

This section builds up a bottom‐up constructivist approach to the topic. It sees national decision‐makers as the key to ensuring the goodness of fit between national constitutive and regulative norms and European ones. It therefore links national and international politics.

The new EU regimes involve agreement on both institutional rules (regulative norms) and constitutive norms (nature of the EU and the member states). It is impossible for talks to isolate one from the other or to isolate international from domestic norms as regulative norms are the concretization, the implications of constitutive norms. It is possible, however, to conceptually separate (p.63) them to achieve a clearer picture. This means that EU regime development takes place in a normatively structured and contested environment. These norms are centred partly in the Treaties and centred partly in the institutionalized norms of the member states. Universally accepted EU norms may be absent, but then so will there be no regime, as views and demands collide. Competing claims to EU norms may be malleable and subject to change through collective pressure of the various EU actors, including the member states. These situations provide exceptionally fruitful opportunities for constitutive norms to be established, as they do not involve replacing established, institutionalized principles.

In practice, this means that rulings by the European Court of Justice (ECJ) or claims by the Commission may alert the member states to dormant normative conflicts that need to be rectified from their point of view, either by more explicitly articulated norms of collusion or of coexistence that preserves national autonomy and diversity. ECJ or Commission claims may be to either constitutive or regulative norms but touching on one will activate the other and spark contestation.

As with the national level, the constitutive norms of the regime define the nature and status of the participating actors and define the basic claims that they can make on each other. These claims determine the kind of coordination that is necessary at the level of regulative norms, of coordinating institutional rules. To borrow language from English School thinking, constitutive norms are the primary institutions of international relations that make sensible negotiations about secondary institutions possible, that is, about regulative coordination rules for the regime. Constitutive norms determine whether the kind of coordination required for the member states and EU‐level institutions will be of a vertical or a horizontal nature and whether it will have a formal structure or an informal, network‐based structure. This normative view of regime construction demands that we look closely at the reasons that are offered for promoting delegation in some areas and not in others. These come out of the competing international normative claims and their relationship to national‐level norms that go beyond interest group politics.

The constitutive norms of the regime are analytically separate from the constitutive norms propagated internally by the politicians of the member states about their own statehood, even though they refer to one another. I hypothesize that regime norms must build on national norms if the member states are to accept them. This leads to three broad possible outcomes: collusion, in which member states accept the higher authority of EU institutions in some way; coexistence, in which regime norms reinforce the autonomy of the member states within commonly agreed parameters of governance; (p.64) and collision, in which no normative agreement is made. Regulative norms then build on the understanding contained in constitutive norms.

To test this empirically, we can analyse the linkage between the international and national levels of analysis in three sequential steps. First, we can compare and contrast the roles that national governments have in regulating their societies and economies, and their understanding of this role to identify the spectrum of national normative structures that play a role in European politics. These form what other theorists might call the national interest. Chapter 3 outlined the variety of regulative and constitutive logics that form the basis of how political actors see the state and its socio‐economic role at the national level and how they see the market itself. These understandings about the rightful role of the state in governance and its demands on society play a key role in determining the constellation of positions in debates over European politics.

Second, we can identify the constellation of national understandings that results from this collection of national norms and determine whether it favours (a) agreement on regime norms or (b) agreement on certain kinds of regime norms stressing collusion or coexistence over others. Below, I develop a typology of probabilities about regime development based on the constellation of national understandings and the pattern of convergent or disparate international norms. Convergence on international norms will reflect the kind of coordination that is compatible with national constitutive norms. Greater convergence on the policy‐specific elements of national norms will make delegation to the international level possible, but not inevitable, whereas poor convergence would only be compatible with international norms that reinforce horizontal coordination and reject vertical delegation. Agreement on constitutive norms at the EU level could be based on national convergence on the notion that the market ought to be regulated, even at the European level, but falter on regulative questions such as whether statutory regulators with lawmaking or policing powers ought to take charge or not. This demonstrates the interconnectedness of constitutive and regulatory norms and their embeddedness in concretized social practice.

Regime development requires a third stage, an explicit institutionalization or articulation of common understandings into commonly accepted normative principles that then channel the behaviour of member states and international institutional bodies alike (in this case, the European Commission, Parliament, and Court). This provides both the constitutive foundation of the regime including the definition of the actors and the form and structure of interaction. Bogdandy underlines the importance of working out this ideational infrastructure at the heart of the legislative negotiating process (Bogdandy 2003), whilst Wiener (2009) underlines the linkage that norms (p.65) have with concrete social practice that are the acid test that give them validity. Regulative norms to manage transnational transactions must then be developed on the basis of this understanding before a regime can be considered to exist. This is by no means an easy task, as it requires prior agreement on the nature of the state and its relation to institutions beyond it like the EU or other institutions of global governance.

These three sorts of norms can be observed in social practices, particularly in the establishment of new legal instruments, as at the national level.1 In this case, I focus on the expectation that the politics of regulation at the national level, and observations about the constellation of normative structures among the states provide the foundation for building international norms that have a structural impact on state behaviour. More precisely, the distinctive national and international norms have to be used in sequence, in a particular way and in a particular temporal order, in order to test the hypothesis that the constellation of national norms plays an indispensible role in understanding which European norms can be constructed and which cannot. National norms must be identifiable prior to their impact on regime conclusion at the latest during contestation over regime norms. Patterns of national change may have the expected impact in hypothesis four if they precede regime development by making it more likely, especially the expected form, rather than following regime change.

Alternative regime theories rarely focus on the conceptual preconditions for actors to generate a working institutional structure. This is partly a result of the convergence of rationalist international relations theory on measurable interests and power resources as sufficient explanations for institutional development and persistence. It also results from the focus of constructivists and a group of English School theorists on top‐down views of international society as a structural influence on national governments (Bull 1977), on the impact of international institutions on state policy learning (Finnemore 1996), and on the issue of identity as a determinant of general patterns of relations between states in the international system (Wendt 1999). These approaches either limit themselves to describing contextual systemic conditions that are more or less conducive to cooperation or putting the agency of states in the background. With these approaches, the interests driving regime creation are external to the models, so that the literature focuses either on the effect that regimes have on behaviour and expectations after their creation (Krasner 1983a, 1983b; Keohane and Nye 1984) or on the more fundamental assertion that regimes are nothing more than a one‐to‐one reflection of power (p.66) politics (Strange 1983). I expect here, however, that regimes follow the convergence of expectations (on constitutive and regulative levels that serve as the basis for identifying the actors and their relationships) at the point of establishment, rather than driving them. In as much as they channel behaviour, expectations, and thinking into the future, regimes serve the interests of their creators.

In this context, I presume that domestic politics and in particular discourse about specific policy questions generate disparate, policy‐specific views of the state with normative character and as a result, differing combinations of norm conflict and norm convergence among governments across policy areas. Conflict and convergence may take place with regard to constitutive and regulative norms. Chapter 3 concluded that differences across countries were ultimately dependent on domestic political coalitions propagating specific narratives of legitimate policy. These norms of state autonomy and power were anchored into archetypal narratives about how the state should deal with business and with international economic openness. This agency made them capable of supporting change as well as continuity. The liberal reference underlines, as it does in the case of liberal intergovernmental theory (Moravcsik 1998), that domestic actors have choice and agency within the country. I am less concerned with the direct impact of interest group pressure on material government policies, however, and more on the understanding that governments (and international institutional actors) have of themselves and their proper relationship to potential institutions at the international level (their constitutive norms). This is important for EU politics in particular, but can be applied to other international negotiations due to the key role that national governments have in negotiating outcomes. In this sense, domestic politics is aggregated and filtered through political parties and state institutions in a way that differs from Checkel's direct attention to the socialization of civil society groups in defining national identity (Checkel 1999). This tells us much more about the issues at stake that are governed by the regimes and that obtain across the individual EU directives, which affect interest groups in different ways. Those issues are broader than simply options for constitutionalizing the relations between the member states and the EU. Those options must contend not only with formal constitutional norms but also the socio‐economic ‘constitutions’ of the member states.

This approach requires a thicker treatment of the normative element underpinning domestic politics than other constructivist or idea‐centred approaches to explaining foreign policy and international outcomes. The thinnest treatments focus on the simple impact of policy ideas on government decision‐making. Epistemic communities may propagate economic policy ideas to government decision‐makers (Hall 1989), a garbage can model of (p.67) decision‐making (Olsen 2001) may allow ideas about integration to take hold during periods of uncertainty (Parsons 2006), or simple policy learning leading to convergence may be held important (Checkel 2001). In all these models, decision‐makers must be isolated from domestic influences (Katzenstein 1978). Precisely because these situations bracket domestic politics as a source of direction for governments, and therefore the question of why some epistemic communities have better cards than others, thin treatments of ideas do not help us greatly in generating good understandings of when regimes are created and why. They also stop at the barrier of foreign policy and can only explain simple constellations of policy‐specific convergence or divergence. This assumes away any influence of constitutive considerations on international outcomes.

In the context of regimes following expectations, I also presume that international norms are significantly shaped by the national‐level and international‐level actors involved in establishing and maintaining them as meaningful parts of the international institutional landscape. In other words, states as agents help shape the structures in which they operate and exist (Risse 2004; Reus‐Smit 2009, 221; Wiener 2009). They are not simply subject to a pre‐existing ontology of themselves, of the international system, and of the institutions found within it. It is rather the collectively created ontology that sometimes emerges from the constellation of constituting norms and their explicit legitimation through collective action and communication that is the outcome we are studying. Given the dominance of nationally centred norms as explanatory factors, this is not a Wendtian (1999) argument about international socialization of national actors through their position in the international system or a Checkelian (1999) argument about the diffusion of norms through that system to national governments, though polities are likely to draw on available norms found there. It instead takes nationally based structures (Katzenstein 1996) as the most interesting and important starting points in determining patterns of collision, collusion, and coexistence as possible outcomes. The social aspects of the international system and of the EU system are thin, and socialization is less important than normative choice. States are free to choose those norms selectively for their own domestic purposes. To do so, they must concur on commonly held principles and codify them.

A bottom‐up approach necessarily underlines the agency of states, and in some cases, of transnational actors. This draws on a tradition dating back to the 1980s that saw governments and national‐level political actors trying to create an international system based on principles that would support their own domestic political preferences. Ruggie's concept of embedded liberalism as the ideational and policy product of a greater respect for working class (p.68) interests in the post‐ 1945 capitalist countries developed a general reference to domestic politics and very broad regime principles (Ruggie 1984, 1988). Within the English School, Donnelly (1999, 94) examines the key role of democratic, constitutionalized countries promoting the development of a broad international regime promoting respect for human rights and democratic norms. These examples show domestically generated norms filtering up to the international level and being institutionalized, thereby changing the structure of the international system with the help of state agency. The same claim can be made for regional subsystems like the EU.

I add to this tradition and argue that within the same geographic area and at the same geographic time, disparate normative constructions are possible and probable due to the different constellations of domestic politics. This speaks for a slow, gradual, and variable progression of international cooperation and regime development, and the preservation of some policy areas from normative convergence beyond agreement on the independence of the national level of government. This means that in some cases, it will be necessary to build international regimes on respect for national autonomy rather than regime supremacy. Ultimately, as Gamble (2003) suggests, we will not be able to understand the choices available to Europe without understanding how those choices are dealt with by national political classes. It also means that revolutionary ideas of a federal European state, as called for by Joschka Fischer (2000) and Jürgen Habermas (2005), are less likely to obtain than policy‐specific integration because of the conflict with national norms that they pre‐programme.

The robustness of nationally cultivated norms as intervening variables in the face of international pressure to conform has already been investigated by Schmidt and Busch. Busch (2004) focuses on national institutional legacies as a filter of international pressures to adopt investor‐friendly regulation. Schmidt (2002) focuses on national discourse on policy change as a key determinant of policy change or stagnation under functional pressures for adaptation. She suggests that adaptation of national polities to new policies and cooperation in the context of European integration is facilitated by strong political communication between government and the public. As I hope to demonstrate in the following chapters, I believe the reverse is true. Intense political communication can exist where an issue is highly politicized and therefore reserved for national policy competence, generating backlash against EU initiatives that collide. This can be demonstrated by examining the intense political discussion in both the United Kingdom and Germany over company regulation, which was not delegated, somewhat weaker discussion over financial market regulation, for which a multilevel regime was created, and least of all for accounting standards, which were delegated to a private institution.

(p.69) By building on domestic norms and the agency of the member states, I turn the expectations of top‐down approaches to regimes as providers of state expectations on their heads to require this prior understanding among the actors for regimes to be established. Within the context of the EU, regimes are only possible where the main actors, the member states, Commission, Court, and Parliament, are able to agree on basic principles. Without such understanding, individual rule development may be possible, but regime development, with the road map of governance and the simplification of future cooperation it brings with it, will not be possible.

Agency Over Structure

The way that national governments see themselves, their priorities, and their prospective roles in a policy regime therefore plays a key role in whether a regime comes about and what form it might take. In the case of the EU, the way that key European decision‐making institutions see themselves, the member states, and the relationship between them is also vital to an arrangement. In some cases, the Commission is the only other key EU institution. Increasingly, the Parliament is also important. The Court plays a different role on the sidelines, sometimes generating incentives for policy innovation, sometimes providing indications of which policy results are acceptable and which not, but it does not play a regime‐generating role in the narrower sense of creating and sanctioning new constitutive and regulative rules that enjoy support and stability. The constructivist aspect of regime creation focuses therefore both on the nature of the member state in the European policy realm and on how the states relate to one another and to European institutions in the context of European policy regimes.

Wiener emphasizes the improved understanding gained by taking seriously the construction of fundamental and other ordering norms to the development of legitimate transnational institutions like the EU (Wiener 2007) and by insisting on the compatibility of international and domestic politics for successful international institutionalization. With particular reference to enlargement and negotiations on a European constitution, she argues that the logic of creating new rules in the constitution brings domestic politics to the centre of foreign policy and international negotiations in a way that compliance with existing institutions does not:

practices of both enlargement and the finality debate are constitutive towards transnational institution building. Considered from this analytical angle, the hermeneutic limits of a ‘behaviourist approach to (p.70) compliance,’ i.e. the rule‐following rationale excludes the possibility of changing the rules can be circumvented. It therefore allows a fresh view on the very practices that are part of the enlargement process, i.e. the interactions among the involved actors such as the candidate countries, member states and EU representatives which are constitutive for institution building in the transnational realm, forging socio‐cultural trajectories and social institutions in the process. (Wiener 2002, 7–8)

This negotiation not only generates compliance with supranational norms, but ‘[t]he litmus test of the bargain's success lies in the degree to which the agreed constitutional norms on the supranational level resonate within the domestic contexts’ (ibid., 31). Wiener's methodological implications support an extensive investigation of the thinking behind the national position:

it is necessary to take a long‐term perspective, instead of a snap‐shot approach to constitutional bargaining. Only thus, can crucial information about the socio‐cultural trajectories of norms be gathered. For work on the EU's constitutional debate this implies a need to back away from staking out constitutional positions according to national interests, and to reconstruct the emergence of constitutional norms according to different, if at times overlapping, socio‐cultural trajectories instead. (ibid.)

Later (2009), she focuses on accessing these norms via direct and indirect references found in keywords that reflect the norm. My own approach builds on this and hopes to contribute to the field by identifying the archetypal narratives of state, managers, shareholders, and stakeholders in regulation as part of the dominant national constitutive norms which are necessarily thick. The same can be applied to EU regimes, finding patterns of compatibility or conflict, favouring agreement or not.

In adopting this ‘thick’ approach to the impact of national politics on international relations, I hope to add to a strand of constructivist work that embeds socially constructed international norms in the domestic politics of individual countries, according agency to the latter. Constructivist work on international political economy has only recently focused squarely on this aspect of the constructivist puzzle. Duina's work (2006) on the social construction of free trade agreements is the main existing work in this area and is useful for supporting the notion that ideas and interests are not mutually exclusive as explanatory factors. He demonstrates that the dominant ideational characteristics of the EU, NAFTA, and MERCOSUR treaties can be traced back to the dominant political issues imposed on the bodies by domestic politics, as long as they are shared by the countries participating in the regional body.

The research conducted here comes to slightly different conclusions, however. Whereas Duina sees certain issues penetrating all policy covered by the (p.71) EU, North American Free Trade Agreement (NAFTA), and Mercado Comun del Cono Sur (Southern common market, MERCOSUR) as a result of these national‐level influences, I explain situations in which national‐level norms determine (a) the likelihood of regime development, (b) the type of horizontal and vertical governance involved, and (c) differing degrees of delegation by policy area. This seems awkward at first glance, but the notion that the traditional nation state could retain its coherency and decision‐making authority in some policy areas and voluntarily relinquish it in others is consistent with recent research findings into the transformation of the state (Grande and Pauly 2005; Leibfried and Zürn 2005).

Regime Types, Norm Constellations, and Public Sensitivity

Starting from the positions discussed above, we can now move to the implications of the hypotheses set out in Chapter 1 about the likely impact of the constellation of norms on regime development and its structure. This is the basis for explaining under what conditions disparate logics of integration and regime development are likely to prevail. The most likely international regime or institutional constructions in a given situation can be traced back to two international constellations of domestic political norms.

First, convergence or conflict of national constitutive norms and regulatory priorities along the lines of the typology in Chapter 2 sets the structural context in which international talks about regime development take place. This includes above all the set of constitutive norms, driven by a cleavage on the question of whether markets are benign or best balanced, and by the constitutional question of whether the state should actively intervene in the market to support or control it. These are above all constructed answers to fundamental policy questions. The second structural context is the degree of public sensitivity of the policy issue under question. This is the mechanism by which the strength of national constitutive norms is established. Where there is a small, more homogenous interested public, new answers to old questions are more easily established than where the interested public is large and diverse. The specific impacts on regime development are outlined below. The factors norm convergence/divergence and high/low public sensitivity of the policy area are not sufficient to generate regime development, but they indicate from which direction the demand for a regime is likely to come and what the outcome will be if the actors are successful at constructing a regime.

There are two premises about international constitutive and regulative norms attached to the structural situations that arise out of these combinations. First, regimes are only possible when Commission, Parliament, and (p.72) member states, where they have decision‐making powers, agree on both constitutive and regulative norms (hypothesis 4). If not, a default situation obtains. This may be a deadlock between competing norms that prevents a regime from being established, or in the case of ECJ judgements, an alternative regime based on negative integration and home country regulation of all matters. If this is true, then we should not see regime formation if only one of these conditions is satisfied.

Second, the international norms build on domestic norms. This means that we should not observe any pressure for reform of national constitutive norms emanating from the EU at the point of regime formation. As with the ECJ case, an alternative pressure on the member states might be present, but the regime chosen should resonate and strengthen national normative structures. This includes long‐standing norms and recently changed norms. Since I expect national governments to show particular attachment to national autonomy in cases of strong political salience, by which I mean at least informal constitutionalization, I do not expect to see cases of governments promoting supranationalism or multilevel governance to engineer sensitive issues out of political life in accordance with Wolf's new reason of the state (2000). On the contrary, I expect to see them retain control as much as possible.

The results should be a constitutionalization of governance within the EU where agreement is possible and a variety of governance structures within the policy‐specific regimes. The formalization of governance means that the EU goes beyond informal networks. The contrast between informal governance and regime governance is clearest, as the former represents a default situation in which member states act outside of formal structures, either because agreement on structures is not possible (Puetter 2006) or because national commitments to common European policies and decision‐making institutions is unwanted (Schäfer 2005). Eberlein and Grande (2005) argue on the other hand that these networks constitute functional, policy‐oriented regimes that secure joined‐up governance among cooperative states in response to the horizontal and vertical transfer of authority away from national government that is typical for globalization, so that they are not defaults but the norm. The regimes proposed here are more formal than this.

Regime formation involves a stronger formalization of interaction that has thus far not been considered in the literature. Tömmel, however, notes that there are now new varieties of governance that formally distribute governance authority in different ways, whereby the horizontal coordination of national governments with vertical powers of government takes on a key importance (Tömmel 2007), a finding reinforced by Nullmeier and Klenk (2006). The regime rules described below allow in some cases for the delegation of (p.73) authority to supranational institutions, often with the participation of national institutions. In other cases, they arrange for the decentralized coordination of the member state governments, who themselves have vertical control over implementation in their own jurisdictions. In other cases, they arrange for the parallel authority of national and supranational institutions. In all cases, however, they distribute authority to specific regulatory bodies within the member states and, where appropriate, at the European level to ensure effective coordination. This transforms the state through international commitments on regulative institutional norms, even where the state is accorded the strongest protection.

We now turn to the regimes attached to specific normative situations, followed by an assessment of how this approach explains more than its alternatives. Table 4.1 presents a typology of four regime types based on the constellation of convergence or divergence in national regulatory norms and the public sensitivity of the policy issue.

Combination 1: Intergovernmental regimes are developed to retain and allow the strengthening of specific (public and private) institutional arrangements within the member states, and to prevent any moves to delegate responsibility outside the national sphere. There is no need to assume that national institutional arrangements remain the same in addition to retaining national‐level competence.

An intergovernmental regime is more than the predominance of intergovernmental politics. The latter might exist without a regime in place, and cooperation might take place with no more institutionalization than ad hoc commitments. A deeper ownership of the policies by the member states that would drive further legislation would be lacking. These ad hoc commitments can be found before the development of the regimes in the three policy areas investigated in this book. Each proposal for new rules had to be negotiated from scratch without any assumption of delegation of rule‐making competence outside the national sphere.

Intergovernmental regimes, in contrast, require the member states to designate the national bodies responsible for managing the policy issue, to establish rules governing the jurisdiction of national bodies in cases of transnational activity subject to regulation, and to set out how those national bodies are supposed to interact. These points define the actors, structure, and form of interaction within the policy system created by the regime. Norm divergence on the policy area and high public sensitivity reinforce the view at the national level that national‐level responsibilities should dominate policy development and implementation, and as exclusively as possible. To the extent that a regime is developed on the principles of national responsibility for regulating in accordance with its own wishes and practices, it will be based on a defence of (p.74)

Table 4.1 Effect of Norms and Public Sensitivity on Regime Development

High sensitivity

Low sensitivity

Norm divergence

International incentives

Parallel regime

Regime type

Coexistence: States have an incentive to create rules that protect national regulation schemes (sovereignty) from detailed supranational rulings

Collusion: States have an incentive to create rules that protect national regulation schemes (sovereignty) from detailed supranational rulings (e.g. accounting rules)

International incentives

High sensitivity makes full delegation impossible and the assertion of national responsibilities with the greatest discretion possible central to any regime

Low sensitivity makes it possible for expert groups to discuss long‐term convergence

Effect of sensitivity

Results in minimum standards and rules for managing interstate coordination (Company law regime)

Results in minimum standards allowing for interpretation, process‐based scheme for discussing room for voluntary convergence (Accounting standards regime)

Norm convergence

Multilevel regime

Supranational institution

Regime type

Collusion with reservations: States can easily react ‘functionally’ to coordinate, pool sovereignty in the pursuit of regulation

Collusion: States can easily react ‘functionally’ to coordinate, pool, or delegate sovereignty in the pursuit of regulation

International incentives

High sensitivity makes full delegation of rule‐making less likely than local regulatory infrastructure and minor interpretative discretion

Low sensitivity makes full delegation more likely in the pursuit of efficiency and policy influence by experts (perhaps also by insiders seeking capture)

Effect of sensitivity

Results in far more detailed and ambitious rule commitments than minimum standards (Aspects of financial regulation regime)

Results in far more detailed and ambitious rule commitments than minimum standards (Aspects of financial regulation regime, eventual goal of accounting regime by IASB)

national prerogatives against usurpation or interference from the supranational level. Thus, the context of deliberations over regime development is important. We should expect more regime development where national governments feel the need to assert a claim to regulatory primacy where it is being challenged, particularly by claims for regulation from a supranational body.

This kind of regime development defends national regulatory primacy from lobbying across national jurisdictions to reform regulation. It corresponds to internationally accepted codes of best practice that governments (p.75) adopt in principle, but which place few concrete requirements forcing changes to national law that could generate backlash. This is the case with the Organization for Economic Cooperation and Development (OECD)'s Corporate Governance Code of Best Practice, which encourages member states to develop standards that meet the OECD's criteria.

EU member states retain control over company law and regulation, but it is not clear that this can be attributed to clear commercial interests, nor is it clear that this logic extends to other policy areas. Rather, the extensive reach of potential European rules on the highly institutionalized and norm‐infused rules regulating businesses and employees at the national level would have created enormous need for national‐level adjustment that would have automatically brought in wide‐ranging and sensitive domestic political considerations into the picture for member states. This could not only have affected the positions of business and labour, but of the state as well and its role in promoting economic development and management.

The politicized nature of company law and regulation in the member states that follows from this explains why the member states preferred to legislate an international regime rather than accept full freedom of establishment and rights to undertake mergers and takeovers for companies in the single market and regulatory competition as prescribed by the ECJ. This kind of regime is unlikely to develop unless there is some pressure on the governments to consider some sort of alternative rule structure and unless the governments (and in the case of the EU, the EU‐level legislative actors) agree to legitimate this kind of regime. Without this kind of legitimation, no regime would develop at all, even if ad hoc cooperation on minimum standards occurs. The alternative would then be simple intergovernmental politics without a regime.

Combination 2: Parallel regimes can develop when there is a tension between strongly institutionalized differences across countries in a particular policy area and a desire of policy‐makers to adapt common rules for mutual advantage. The resulting rules require rule conformity at the international level and must allow rule diversity at the national level. This allows cooperation across countries to take place through the development of new sorts of activity without directly imposing a reform of the entire domestic regulatory regime, thereby avoiding political backlash and minimizing unintended impacts on sensitive social and economic policies. A supranational body staffed by an expert policy community taking decisions for the entire set of countries subject to its jurisdiction is the one half of the parallel regime. National counterparts dealing with national rules and practices, and dealing with the question of how extensively the supranational standards ought to be adopted for national purposes, constitute the other. The individuals involved in these (p.76) two levels may overlap in some respect, but there is no reason to insist that this will happen.

This sounds counter‐intuitive, but the regime setting accounting standards for company financial reports in the single market does this. A single set of standards for informing investors in a transparent way throughout the single market is mandatory. At the same time, national reporting standards continue to be used alongside the new international ones, often because the reporting standards are used to calculate corporate taxes and support economic and social policy through tax rules. Harmonizing tax codes would therefore intrude into the politically negotiated bargains over economic and social policy at the heart of political economies, and are therefore not foreseen, whilst common reporting standards for financial investors are made possible. The parallel regimes provide information and transparency and are costly due to the use of dual standards. Internationally oriented firms benefit disproportionately from the introduction of parallel regimes, which may explain why small‐ and medium‐sized enterprises are not subject to the regime in Europe.

Parallel regimes generate a deliberate gap between international commitments and domestic norms that is not a problem of compliance and implementation. They are therefore a novel form of governance that has not yet garnered attention in EU governance literature. Although the problems of poor implementation and compliance certainly exist and have received particular attention in EU studies (Börzel 2002; Schmidt 2002), the development of a parallel regime is a method of avoiding conflict over deeply institutionalized differences when the desire to move towards common rules is great. It is therefore a method of avoiding deadlock in the pursuit of common gains under conditions of diversity. It can therefore be added to Heritier's extensive list of strategies (1999) for reaching agreement despite disparate preference. It is also different from her conception of parallel arrangements, which draws on the vision of a multi‐speed Europe of differing projects in which some EU member states do not participate (ibid., 91) such as the Schengen agreement on visa and immigration policy.

Governance based on the open method of coordination (OMC) is similar to this in that the members make general policy commitments. OMC is weaker, however, as it formulates less detailed policy commitments and seeks to move towards more common understandings through a process of mutual exchange of ideas and policy learning (Heritier 2002). The pressure on divergent national systems to converge is weaker due the fact that it does not create a single specific benchmark against which national rules can be measured. Parallel regimes, on the other hand, create specific rules at the international level that are expensive to implement and maintain as long as national and international rules differ significantly. The incentive for harmonization (p.77) over the long term is clear in a way that is not apparent in OMC. Parallel regimes are therefore a phenomenon not yet investigated in studies of EU integration and governance, as they generate both binding rules of use to the entire system and preserve the continued existence of divergent national arrangements.

Parallel regimes are therefore a strategy, and not a purely functional outcome, for engaging in cooperation despite the potential for a dimly lit area of public policy to attract the attention of a broader public that might subsequently resist supranationalism. It draws attention to the role of agency in ensuring that the conditions most favourable to constructing institutions in a functionalist manner are assured. This view means that we must also expand our attention to strategy in functionalist theory from a focus on collective action problems and veto players to strategies that prevent potential veto players from becoming involved in discussions over proper policy. Parallel regimes are a way of achieving this without giving up the pursuit of common standards, as OMC does.

Traditional international theory approaches to regimes are applicable to only some kinds of regime development because they bracket the conceptual foundations of international order. Most rationalist writing on regimes focuses on how power relations (Krasner 1993) or patterns of sensitivity and vulnerability (Keohane and Nye 1977) shape them, on the relative importance of attention to relative and absolute gains to their development (Keohane 1982; Grieco 1990), on the likelihood of their persistence in the absence of an enforcing power (Strange 1983; Keohane and Nye 1984), and on the ability of regimes to uphold international cooperation by generating convergent expectations among national governments (Stein 1983). In the time since then, attention has shifted to discerning what forms of global governance have been created since the 1990s and on what impact they might have on countries and on the ability of states to govern in their jurisdictions (Hirst and Thompson 1996). The construction of the institutions is in some cases treated as a functional response to opportunities for commercial gain, by private as well as state actors.

Combination 3: Multilevel regimes can develop in policy areas where there is a high degree of norm convergence across national jurisdictions, but where a significant impact on domestic institutions makes a division of labour between the national and supranational levels of government politically preferable to outright delegation. Governments move in the same direction when they introduce new policies and institutions, and have no substantive, policy‐related reasons to oppose the development of supranational rules and policy processes. At the same time, the strong interest of domestic constituents in the policy issue provides a policy incentive for governments to ensure (p.78) that their interests are not overwhelmed by supranational rule‐setting. The development of rules and institutions is promoted both at the national level and beyond the national level. In these cases, there is a strong attachment to the idea of a state that regulates in the public interest.

Multilevel regimes are defined by a genuine mix of supranational and national institutions joined together by networks of officials representing the respective bodies involved in governing the policy issue at hand. As in the case with intergovernmental regimes, a fundamental understanding and institutional agreement designating the main actors, their rights and responsibilities, and the mode of interaction between them is critical to distinguishing such a regime from multilevel governance, which might exist in the absence of a regime without the same degree of structure.

Multilevel regimes provide the institutional infrastructure within which networks of policy specialists can operate towards commonly defined goals. They therefore provide an opportunity for a type of network governance to develop that is more highly structured than the informally organized networks portrayed by Slaughter (2004). Rather than resulting as a functional, informal response to interdependence across national jurisdictions that takes place in an ad hoc fashion, the structures set up by multilevel regimes are politically designed to mandate and regularize interaction, with a recognizable intent to generate a capacity to act both at the national and supranational levels. The national level serves to exert a significant degree of control over the policy definition and implementation phases, whereas the supranational level serves to efficiently generate common rule principles independently of the preferences of individual national‐level actors. This provides a means for limiting future policy divergence and for reducing existing policy divergence.

Combination 4: Supranational regimes and institutions are the polar opposites of intergovernmental regimes, involving the complete transfer of policy‐making authority to the supranational level. This means not only general policy, but the substantive policy decisions and actions required to implement and enforce policy for the member states. This qualification is important to distinguish the degree to which a transfer of policy‐making authority from the national level has taken place. Many new innovations are multilevel (above) rather than supranational when one takes the degree of transfer into account.

Supranational regimes and institutions can develop in policy fields where international agreement exists on the need for internationally based rules and the general content of regulation. It is the substantive agreement among a group of states on the kind of rules that the new institution will generate that is central to its creation, in addition to any potential benefits to be gained. Any perceived policy deviations from existing national preferences or the risk of (p.79) significant deviations are likely to be perceived as costs, and must be fully considered.

None of the regimes investigated in this book deal with a purely supranational institution or regime, although there are parallels in the logic of why a multilevel regime with strong supranational components should be established at the European level, and even more strongly in the logic of the parallel regime to adopt a single set of accounting standards for the EU. The EU financial market regulation regime was justified in great part by the desire to produce a level playing field for investment firms from all member states and basic standards of consumer protection in the single market. The single accounting standards were adopted to provide universal information to markets and consumers alike. In neither of these cases was the impact of domestic politics so small as to allow an unproblematic development of supranational institutions or regimes. Nevertheless, the close nature of these two regimes requires a discussion of the theoretical tools available for explaining their development.

Alternatives in International Theory

The principal weakness associated with the most basic theoretical approaches to integration is that they expect only one set of principles to dominate the outcomes and the processes leading to them. Broadly speaking, there are rational, institutional, and normative explanations. This section shows the benefits and shortcomings of each and the particular added value of the approach developed above. The main challenge in the European context is that integration has not always taken place on a steady basis, so that an explanation is required. In the last decade, attention has been paid to more sophisticated models that attempt to explain the conditions under which integration does and does not obtain. One strength of the normative approach developed here is that it endogenizes concrete expectations of when one regime is likely to be chosen over another. A second is that it separates constitutive norms from institutional rules (regulative norms) to specify the necessary and sufficient terms of regime creation.

Rationalist Approaches

The most prominent of these has been functional or neoliberal institutionalist writing on regime development, specifically with reference to (p.80) supranational institutions. The development of supranational regimes reflects two theories: one of international relations and another of European integration, which is specific to the circumstances of the EU. Neoliberal institutionalist theory, also referred to as functionalism in international relations literature (Keohane 1982), predicts that national governments develop international institutions to capture perceived gains where the benefits exceed the costs. The nature of the gains and the costs are not investigated, however, and bracket those highly sensitive areas to which governments might assign a high potential cost for reasons that are not easily measured. In the process of distinguishing neoliberal institutionalism from realist theory, Keohane and Nye contended that the special nature of ‘high politics’ that rendered cooperation unlikely due to the high perceived security threat of surrendering independence had been rendered irrelevant in the developed West, making cooperation possible. Beyond this, economic and social interdependence across national borders would create a demand for governance beyond individual countries as national governments found themselves unable to govern transnational activity individually (Keohane and Nye 1977). They therefore recognize that specific norms affect the willingness to constrain national sovereignty. Zangl and Zürn (2004, 20–2) see legalisation as foundational for global governance, demonstrated by its demands on secondary rules for the purpose of managing processes. In this case, the demand for such institutions follows from the desire of national governments to regain control of economic and social activity that has become transnational and therefore beyond the control of any one government, as Grande (2003) suggests. The approach does not expect economic and social policy norms to constitute the obstacles to cooperation that they prove to be in real life, however.2 At the least, this approach would have to distinguish the prospects for international cooperation under conditions of high and weak political salience that does not rely on the traditional split between security and other issues.

This point can be seen in the development of parallel regimes. Parallel regimes focused on information correspond closest to a functional theory of international institutional creation. International commitments are designed to achieve an identifiable goal that generates benefits for all of the contracting parties. In the case of the EU, the delegation of accounting standards to an international body served the goals of investor protection and promoting capital mobility. This solution provided superior benefits to investors than the mutual recognition of various national financial reporting standards and (p.81) made it possible for the EU to prevent regulatory competition and standard deterioration more generally, as has happened in the United States.3 The missing requirement to fully harmonize all accounting standards reduces the cost to companies and governments, permitting a net positive benefit of introducing the regime.

Functionalism also assumes that the decision to construct a supranational institution is insulated from political considerations of symbolism or distribution that could lead to politically motivated backlash. This means that broad agreement on the purposes and on the content of policy is assumed to be present. It is precisely for this reason of avoiding political backlash that Mitrany placed emphasis on a functional approach to supranational European integration that avoided politically sensitive areas. It is therefore not the case that a policy is functional by its very nature, despite the small policy community and little public attention to it. It was necessary to choose a strategy that would ensure that it remained that way by engineering international commitments in such a way as to ensure low politicization and hence transaction costs. Nevertheless, parallel regimes capture the reality that national norms and the constitutive understanding of the state continue to live on to the degree they wish it. There is a strong substitutability in the United Kingdom, but not in continental Europe, for example.

Further development of rational choice in the EU context generated (liberal) intergovernmental theory. Intergovernmental theory works from the premise that national governments are determined to protect their inherited prerogatives over policy formation and implementation from any irrevocable delegation to supranational institutions. The inability of a traditional statist approach to intergovernmentalism to reconcile its predictions with the delegation of national policy to the European level (with the exception of Pedersen 1998) was the principle reason for the increasing dominance after the mid‐1990s of Moravcsik's liberal intergovernmental approach. He equated national interests on questions of integration with national‐level commercial interests. National commercial interests in expanding trade and investment in the single market explain, in his view, why the EU has integrated much more strongly in that policy area than in the realms of foreign policy and criminal law (Moravcsik 1988). Moravcsik improved our understanding of where national interests might originate in national (p.82) economic interests, but precisely because national constitutional norms tell politicians whether they should value the interests of one economic actor over another it follows that norms based on archetypal narratives provide the structural direction important for government choice in the European arena. Moravcsik (1998, 40, 50) recognized that coalitions could vary by policy area and postulated that economic interests of producers contended with regulatory interests on issues of EU regulatory harmonization. I differ in that I view the freedom of economic actors from regulatory logics as the result of normative decisions that can grant this status or revoke it at the national level. I also differ in that I do not see ideas as the product of incentives for delegation to the EU level (ibid., 61), but as a key prerequisite.

Pollack employs principle–agent (PA) theory to illustrate member‐state control despite delegation, which they seek to access expertise and as Moravcsik suggests, make credible commitments. This sees national governments, as the principals for whom the policy is designed to serve, struggle to retain control over the decisions of European institutions that have been tasked with running the single market, above all the European Commission and the ECJ (Pollack 2003). Principal–agent theory dates back to Berle and Means' investigation of situational conflicts of interest (1932) between a group of individuals and the people they hire to serve them. The agents they hire have incentives to pursue their own interests more diligently than those of their clients, so that the principals must consider agent rents as a cost of delegation, must devise accountability mechanisms to ensure oversight and control over agents, or dispense with delegation as too costly and uncontrollable. Pollack portrays the EU member states as the principals and European institutions as agents. In this context, neither delegation nor the occasional deviation of European institutions from the wishes of the member states disproves the pre‐eminence of an intergovernmental logic. That could only be proved if the member states were to relinquish their efforts for ultimate control, which he maintains they have not.

The PA approach is best used for designing and predicting the development of regulative institutions and their control mechanisms above all. There are two different situations foreseen in this approach that assign different roles to the EU and the member states and mandate a different relationship. If the member states consider delegation for efficiency reasons only, then the EU is considered a pure agent that is expected to closely reflect the wishes of the principals. The best institutions in this case hold international institutions on a very short leash and allow strong member state control. If the member states consider delegation in order to strengthen their own commitments to a particular policy that is otherwise difficult to maintain, then EU institutions take on the character of a trustee, whose (p.83) responsibilities are to ensure that previously agreed goals are implemented. The agent is accorded independence from strict control to make this happen, subject only to transparency of operations. A key example is the European Central Bank's mission to secure price stability in the euro zone. There is nothing about the principal–agent approach that can tell us about the concrete political context in which decisions about EU integration take place. It is unable to explain politically motivated situations of backlash and deadlock. Pollack notes that the insights of sociological institutionalism are based on a general sense of logics of appropriateness, but sees this as underspecified. The answer, I hope to show, can be found in specifying the conditions for various outcomes.

Institutionalist Approaches

Early neofunctional theory raised even stronger expectations from the field of European integration that supranational institutions will grow in number over time than is the case for neoliberal institutionalism or functionalism. It expects this as a result of political pressure from groups and organizations to increase the scope and depth of collective policy through the EU and its key institutions. The existing European institutions themselves, the Commission and the Court in particular, were expected to play a key role in concert with these groups in facilitating and prodding the member states to expand their commitments at the European level (Ross 1995; Alter 2002; Stone Sweet 2004). In contrast to the functional view of integration, which expected a technocratic logic of policy spillover across policy areas to determine how extensive the construction of supranational institutions would become, early neofunctionalism emphasized the political activity of groups and individuals making claims to rights and benefits through the integration process, which could lead to greater supranationalism (Haas 1958) as long as the member states did not dissent with a ‘constraining dissensus’ (Hix and Lord 1999; Marks and Steenbergen 2002; Olsen 2002; Hooghe and Marks 2005).

In the specific context of the EU, this explained the persistent expansion of multilevel governance through a combination of existing European institutions and unexpected consequences of their creation beyond the control of the member states. The ECJ in particular is thought to play a key role in Europeanizing European governance through the imposition of treaty principles on the member states (Alter 2002), especially through mutual recognition (Schmidt 2007). However, it brings about market development through negative integration, not by bringing the institutions of multilevel governance into being. These are established by a combination of EU and member state (p.84) actors in networks to which private actors may or may not be invited to participate, and which serve to sort out differences of opinion and interest as well as coordinate. The literature on multilevel systems tends to focus instead on the modes of governance within them more than on the issues discussed in them or the politics of their creation.

Kohler‐Koch describes governance within the multilevel system in Europe as network governance. If network governance as she describes it becomes the key form of policy‐making, deliberation, and implementation (Kohler‐Koch 1999), then it would be the beginning of a self‐perpetuating system promoting greater reliance on multilevel solutions to public policy problems rather than purely national approaches (or supranational ones, for that matter). The incentive to move from these networks to regimes lies, I believe, in precisely the lack of institutionalized constitutive norms about the member states and the Union in specific policy areas. EU institutions and the member states make explicit or implicit claims about constitutive norms and may wish to contest and make them explicit, especially if they collide. Where normative contestation of these principles takes place, the incentive to replace voluntary network governance with more formal, binding regime rules rises, assuming a final agreement on principles can be reached. This approach also allows us to deal with the issue of resurgent intergovernmentalism when it occurs, which network governance cannot.

Neofunctional theory on its own leads to indeterminate results for two reasons. First, neofunctionalism has no real sense of whether integration will lead to truly supranational institutions, multilevel institutions, or even less binding ones (Knill and Lenschow 2003), even though this distinction has great consequences for the politicization of integration that lies at the heart of the neofunctional approach. As Hooghe and Marks (2005) note, the question of whether the EU ought to develop into a fully federal system or protect the prerogatives of the member states is a principal cleavage in European politics and backlash against the vision of a federal Europe is seen as a key reason for choosing alternatives to supranational institutions (Majone 2005). Specifying choices therefore demands linking specific normative constellations to specific institutional outcomes. This, in turn, involves a deliberation of the rights and responsibilities involved in the degree of delegation being proposed. At the same time, if it were to hold on to its claim to explain integration and its setbacks better than its competitors, then it should also be able to explain the drive of politicized actors towards regimes and institutions with differing degrees of policy commitment. This applies equally for the new enthusiasm in the EU for informal governance and the OMC (Schäfer 2005; Puetter 2006) in addition to the distinction between supranational and multilevel institutional bargains.

(p.85) Second, neofunctionalism appears to be better at explaining ex post facto why there has been more integration or more resistance and less good at explaining why the conditions are necessary and sufficient. We can add to the understanding of neofunctionalism that a political backlash generates little integration and that political support generates more of it by striving to be more systematic about the conditions under which we should expect to see backlash or support, and for what. The introduction of norm convergence and divergence, and of high or low political salience provides a more structured framework for understanding these dynamics and fitting them to the fate of specific institutional projects with particular degrees of delegation.

We can see these lacunae and some of the solutions in the increasing attention paid to the role of the ECJ in shaping the integration process, particularly through negative integration (Alter 2002) and the reaction of member states to rulings by the ECJ. The ECJ has been rightly identified as a medium of negative integration through its application of EU treaties to the domestic policies of the member states, but the reaction of the member states and of the Commission and Parliament to the policy challenges need to be considered as well, focusing on backlash, among other things. A broader understanding of constitutional norms at the national level helps unlock the meaning behind this reaction.

Schmitter developed the theory further into neo‐neofunctionalism to explain the reluctance of countries to integrate on some issues, particularly at key points in time, without discarding the higher expectations of integration that neofunctional theory is known for. He acknowledges that integration sometimes stalls or even generates a political backlash against European institutions, including the Court of Justice, a process he calls ‘spillback’. He also acknowledges that the heads of government in the European Council play a much larger role in shaping the European response to policy challenges, which implies that intergovernmental constructions will play a stronger role than neofunctional theory expected (Schmitter 2004). This still leaves open the question under what conditions European governments would prefer to shield themselves from further integration rather than pressing on with it.

Neo‐neofunctionalism foresees political actors seeking to develop regional institutions as a response to external shocks, but also a low willingness to integrate on difficult issues. Issues might become difficult to manage, he writes, due to a long list of factors affecting the functional utility of integration. One of these factors is ‘elite value complementarity’, which expects integration only where government leaders see policy priorities the same way. This approach corresponds strongly to Haas' evocation of ‘soft rationalism’ as a means of determining the chances for integration or cooperation on a policy issue, whereby decision‐makers are expected not only to have similar (p.86) policy priorities, but also a common understanding of why they do (Haas 1992).

I view things differently in three ways. First, the convergence of elite opinions is external to Schmitter's model, so that we only recognize convergence after the fact, whereas I endogenize them. Second, he brackets out the impact of domestic political influences on government decision‐making that might conflict with policy ideas held by a small core of individuals. This generates more optimistic expectations of agreement through the power of ideas held by small epistemic communities that I do not assume as normative structures are assumed stronger here. Third, the approach outlined here may be able to explain situations in which EU member states cooperate on the basis of a shared constitutive commitment to their own sovereignty precisely because they have disparate national‐level norms (including institutions and prevailing public expectations) that they wish to preserve, which neo‐neofunctionalism does not explicitly expect. Idea convergence among government leaders and the Commission was reached, not at the level of public policy where Schmitter looks for it, but at a meta level about the nature of the Union, of the member states, and the means by which they together legitimately govern public policy. This distinction underlines the importance of idea convergence on constitutive norms on Europe in addition to regulative, operational norms (Katzenstein 1996, 18–22; Wiener 2007).


Chapter 1 suggested that regimes have constitutive and regulative norms (hypothesis four) that build on those of the member states and must be agreed by the relevant political actors. Those are not just the member states, but normally the Commission and often the Parliament. These norms are made explicit at some point, constructed by those actors, and may be contested (hypothesis six). That process of construction takes place in a pre‐structured environment in which actors have a choice of accepting inherited norms or shaping them through their own agency (hypothesis seven). The claim I make is that these norms define the nature of the actors and the relationship between them (hypothesis one) in ways that ascribe identities to the main actors through archetypal narratives. These tell us their legitimate claims and what they are there to do.

As with the domestic level, the principal task of the chapters investigating the negotiation of regimes is to show whether norms as described above can be shown to exist in the legislative proposals and policy evaluations of the (p.87) main decision‐makers, whether the archetypal narratives can be identified with regard to the actors, and whether the norms found at the national level can be shown to exist separately from and prior to the regime norms developed at the EU level. The latter are important to control for whether EU agreements lead governments to change or the other way around. Where national norms on regulation changed, as in the case of financial market regulation, the sequencing of national, then international change is crucial to testing the assumption that international constitutive and regulative norms are built on national ones, preserving their integrity, effectively shaped by the normative structures they bring to the negotiating arena. This means that the constitutive norms of the EU itself either must adopt the thicker sense of constitutive and regulative norms, including archetypal narratives about state and societal actors, including business, if it elects for collusion and supranationalism or a multilevel regime, or must adopt a set of regime norms that respects these differences and entrenches coexistence. This means that there is no dichotomization of producer/business and regulatory interests as in liberal intergovernmentalism, but a normative background to all actors that shapes how government decides whether there are problematic considerations to be taken into account or not.

I hope to show that this approach has the decisive advantage of explaining how key actors view their own interests in the EU system and why they favour some institutional forms of governance over others. As tempting as it is to focus only on preset interests and institutional change, normative conceptions of statehood and of proper public policy priorities play a strong role in explaining the behaviour of member states in particular, and in ways that are not substitutable and cannot be reduced to commercial interests, functional incentives, or institutional strategies. This has always been recognized as an anomaly for the United Kingdom, with its inherited attachment to national symbols, but normative attachments have a far wider importance across EU countries and across EU policy areas in determining the form of integration and governance. It is time to incorporate the normative anomaly and undertake an investigation of how the politics of norms shape politics and policy regimes.

The legal and regulatory developments surrounding company law and corporate governance, financial market regulation, and accounting standards are the objects of study at the national level, with a view to making comparisons and contrasts for Germany and the United Kingdom. These two cases are highly dissimilar in their political‐economic background and provide an archetypal test of institutionalized norm conflict among political and social actors. The two countries also happened to be two of the most involved actors in sorting out the rules of the policy regimes that are examined in this book.

(p.88) The political judgements attached to the cleavages described in Chapter 3 (the benign or problematic nature of capitalism and the relationship between state and business reflected in the private or public priorities of public policy) are to be evaluated through public policy statements made by political parties and interest groups in cases where the integrity of corporate governance/company regulation or of financial markets and their regulation are concerned.

This approach requires the examination of national legislation and regulatory programmes in the three policy areas corresponding to the three EU policy regimes: in company law and corporate governance, in financial market regulation (dealing with trade in company shares and use and misuse of company information), and in accounting standards, respectively. In the period between 1996 and 2006, we find ample legislation or discussion and preparation of legislation in both countries that allows us to assess how these three policy areas are seen by governments, political parties, and interest groups. I am looking for degrees of partisan or bipartisan agreement (reflecting the degree of ideological polarization) on legislation, in addition to qualitative differences and similarities in attitudes to markets and regulation, as reflected in the system typology discussed above.

In order to judge the degree of novelty or continuity of these arrangements (to see to what extent we are dealing with new configurations of state regulatory norms), it is useful to examine the historical development of such norms in these countries and in the EU. Space does not allow extensive historical national coverage, but references can be made to existing works. This will allow us to formulate conclusions about the self‐awareness of the member states through policy discourse and how they differed before and after the regimes were established. If national normative changes precede European ones, we will have found an important variable that explains EU regime development. Following Schmidt and Radaelli's suggestions for setting up the strongest case to prove a causal relationship, this gives us the opportunity to explain the timing of European institutional development, the sequencing with regard to national policy developments, and the extent of institutional development given the contextual factors (Schmidt and Radaelli 2004).

The reform away from self‐regulating capitalism in the United Kingdom and from stakeholder capitalism in Germany and towards a regulated market economy in both cases runs from the late 1990s until the present day. The legislative process necessary to enact these changes provides us with a wealth of information about the motivations and demands of the various political and societal actors, ranging from discussion papers issued by the political and bureaucratic branches of government, records of parliamentary debate, and position papers of the political parties and lobby groups. Interviews were used (p.89) for corroboration and to fill holes in public documents, but my intent is to rely as much as possible on evidence that is easily accessible to all members of the scientific community. Where an interview has generated a suggestion of where a publicly available document could be found to support a comment made, I rely for this reason exclusively on the latter.

In company law, I expect we will see the importance of substantive changes, rather than the institutional continuity so often expected of the varieties of capitalism literature. We see in the German case far stronger formal institutional continuity than substantive continuity within the realm of supervisory boards and works councils (who is present, what issues are dealt with, and how great is the coverage nationwide), which is far more volatile, reflecting economic, social, and political developments, and currently in a state of liberalization away from the social democratic era of the twentieth century. We see in the British case also a strong formal institutional continuity in the internal structure of the firm, but more volatile external requirements involving employees. Furthermore, I argue that the two countries can be shown to have developed in ways that are remarkably different, even in response to challenges that are very similar.

In financial market regulation, I expect we will see the importance of institutional changes, coupled with substantive changes in both of the countries in the period of EU regime development, supplanting inherited institutional and normative arrangements that were much less volatile than those found in company law. In the regulation of accounting standards, I expect a similar pattern to develop.

These differences and similarities, and particularly the awareness of national government negotiators at the EU level, are to be tested through records of parliamentary debate, position papers of government departments, and selected interviews with appropriate individuals. In many cases, the individuals negotiating the European rules are based in the national capitals rather than in the Committee of Permanent Representatives (COREPER), as they are often specialists tasked with making demands that reflect national priorities and judging proposals from others on the same basis.


(1) Colin Wight (2006, 50). Wight's three‐tier approach is common to other critical social theorists such as Bhaskar, on whom he draws, and Habermas. See Nigel Pleasants (1999, 8).

(2) A more nuanced approach is found in Zangl (1999).

(3) This is the so‐called Delaware effect in which regulatory standards in the United States race to the bottom as state governments seek to attract business to their jurisdictions in the absence of nationally recognized minimum standards. Before Delaware removed almost all controls on the corporate economy in the 1970s and attracted 90 per cent of large corporations, New Jersey had enjoyed the benefits of the popularity of its own low standards.