Austerity for all. A liberal intergovernmentalist and neofunctionalist explanation of the fiscal pact

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In response to the European debt crisis, EU countries, excluding Great Britain and the Czech Republic, agreed in December 2011 on the so-­‐called Fiscal Pact. This agreement entailed that all the Eurozone member states have to adhere to strict budgetary rules, enforced by the European Commission. That budgetary powers were ceded to the European Commission is surprising, because the EU member states have always been reluctant to do so. The goal of this thesis is to try to answer the question of why this specific path of further integration was chosen to overcome the crisis. The research employed two different theories of integration to answer this question: liberal intergovernmentalism and neofunctionalism. It was found that the path taken could be explained on the basis of liberal intergovernmentalism focusing on the economically largest EU countries, particularly the interests of the powerful German and French financial sectors. Having invested heavily in the bond markets of the troubled Eurozone countries, it was in their interest that these loans will be repaid. The Fiscal Pact, with its strict budgetary rules, ensures that the chance of a default in these countries as a result of the debt load would be minimized. Furthermore, the budgetary rules forces these countries to privatize industries and liquidate state assets, leading to investment opportunities for the German and French financial sectors.
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