The combination of a preeminent common interest with secondary opposed interests turns negotiations on Eurozone reform into a ‘chicken game’. In the original chicken game, two drivers race their cars towards each other; who swerves first, is the ‘chicken’ and loses. ‘Chicken’ is a mixed-motives game. Both drivers have a predominant interest to avoid the crash. At the same time, they prefer the other to swerve. Applied to the euro crisis, no member state wants the Eurozone to break up. But the highly solvent countries prefer the highly indebted countries to pay the price by unilateral financial consolidation, and the highly indebted countries prefer the highly solvent countries to foot the bill and bailing them out.
A chicken game rewards brinkmanship. To win the game, each side must send signals of resolve. Yet, because both sides know that rational players swerve in the end, it pays off to create the impression of irrationality or inability to give in. If the costs of crash are extremely high, however, the expectation is for last-minute cooperation or cooperation under pressure. Highly solvent countries and highly indebted countries are not in a completely symmetrical situation – the highly solvent countries are in a better position to survive a crash and can thus afford to demonstrate resolve in principle. The highly indebted countries may, however, not be able to avoid bankruptcy unless assisted, and the fear of contagion provides even small debtor countries with a bargaining chip. At the end of the day, both groups ‘swerved’: the creditors agreed to bail out the debtors, and the debtors agreed to the strengthening of centralized fiscal and financial market supervision. This linkage is now institutionalized: ESM and ECB assistance is dependent on implementation of the Fiscal Compact.
The rescue measures also demonstrate, however, that even the most powerful country, Germany, was constrained in the modified bargaining situation. First, Germany has been under strong pressure to assist because no other member state could take its place as saviour of the Eurozone. Second, Germany accepted a time-inconsistent deal. Whereas the creditors had to commit to their bailout immediately, it is still unclear whether the stronger monitoring and sanctioning powers will work better than the old Stability and Growth Pact. Third, it has been institutionally constrained by the one state, one vote rule and majority voting in the ECB Council, which has allowed the other euro countries to outvote the German representatives on several occasions.
The course of the euro crisis offers rich evidence for a repeated chicken game. Time and again, the German government has first blocked and then agreed to increasing assistance at the last minute when the situation was critical and recipient governments accepted stronger monitoring and sanctioning. In March 2010, Chancellor Merkel first threatened to exclude Greece as the ‘ultima ratio’ and postponed financial assistance; then it agreed to loans to Greece as the ‘ultima ratio’ to stabilize the euro.9In 2011 and 2012, the German government has repeatedly put the brake on the expansion of the EFSF or the ESM – only to agree to additional commitments when the crisis intensified. In January 2013, it gave up its resistance against a rescue package for Cyprus. On their part, the debt countries have constantly tried to circumvent supranational monitoring and conditionality. In 2012, for example, the Spanish government delayed a formal request for EFSF funds for several weeks and tried to involve its banks directly rather than via the state budget. Cyprus first tried to obtain Russian credit to avoid the EFSF conditionality; then it tried to spare its financial industry from the rescue conditionality. In the end, however, Cyprus had to accept harsh bailout conditions in order to avoid insolvency threatened by the ECB.
In line with the neofunctionalist model elaborated by Pierson, the preservation and deepening of the Eurozone has been an outcome of path dependency and functional spillover from a centralized monetary policy to a formerly decentralized fiscal and financial market policy. Renationalizing monetary policy as a reaction to the inefficiencies of EMU was considered too risky and costly; therefore the member states decided to consolidate EMU through an institutionalized bailout regime, a more centralized fiscal policy and more centralized financial market supervision. Path dependencies resulted in an endogenous common preference to preserve and reform the Eurozone; the supranational ECB used its competencies to elaborate and modify the rules of the Eurozone informally; and both preference change and supranational power changed the bargaining situation. The result was a level of integration in fiscal and financial policy that the Eurozone countries had opposed ahead of the crisis.
In sum, the integration outcome of the euro crisis can be explained on the basis of efficiency problems, state interests modified as a result of international and transnational interdependence, and intergovernmental bargaining in a supranational context. This neofunctionalist account provides a sufficient explanation of integration in the euro crisis; it is neither dependent on nor confounded by postfunctionalist domestic or mass-level conditions. Whereas there has certainly been a “constraining dissensus” at the level of Eurozone governments about the best policy to save the euro and about its distributional implications, this dissensus can be explained on the basis of structural national interests.