The Double Asymmetry of European Integration - Or: Why the EU Cannot Be a Social Market Economy

MPIfG Working Paper 09/12
Fritz W. Scharpf
The Double Asymmetry of European Integration
Or: Why the EU Cannot Be a Social Market Economy
MPIfG Working Paper

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Fritz W. Scharpf
The Double Asymmetry of European Integration – Or: Why the EU Cannot Be a Social Market Economy
MPIfG Working Paper 09 /12
Max-Planck-Institut für Gesellschaftsforschung, Köln

Max Planck Institute for the Study of Societies, Cologne
November 2009
MPIfG Working Paper
ISSN 1864-4341 (Print)
ISSN 1864-4333 (Internet)
© 2009 by the author(s)
Fritz W. Scharpf is Director emeritus at the Max Planck Institute for the Study of Societies.
scharpf@mpifg.de
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Abstract
Judge-made law has played a crucial role in the process of European integration. In the
vertical dimension, it has greatly reduced the range of autonomous policy choices in
the member states, and it has helped to expand the reach of European competences.
At the same time, however, “Integration through Law” does have a liberalizing and de-
regulatory impact on the socioeconomic regimes of EU member states. This effect is
generally compatible with the status quo in liberal market economies, but it tends to
undermine the institutions and policy legacies of Continental and Scandinavian so-
cial market economies. Given the high consensus requirements of European legislation,
this structural asymmetry cannot be corrected through political action at the European
level.
Zusammenfassung
Das Richterrecht hat eine entscheidende Rolle im Prozess der europäischen Integra-
tion gespielt. In der vertikalen Dimension hat es den Bereich autonomer Politik der
Mitgliedstaaten wesentlich eingeschränkt und zugleich die Reichweite europäischer
Kompetenzen ausgedehnt. Die „Integration durch Recht“ hatte aber zugleich auch eine
stark liberalisierende und deregulierende Wirkung auf die sozioökonomischen Rege-
lungssysteme der Mitgliedstaaten. Diese Wirkung war vereinbar mit dem Status quo
der „liberalen Marktwirtschaften“, aber sie untergräbt die Institutionen und Politik-
traditionen der „sozialen Marktwirtschaften“ auf dem europäischen Kontinent und in
Skandinavien. Angesichts der hohen Konsenshürden der europäischen Gesetzgebung
kann diese Asymmetrie nicht durch politisches Handeln auf der europäischen Ebene
überwunden werden.

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Contents
1 Integration through politics and integration through law
7
2 Judicial deregulation and legislative liberalization
13
3 The vertical and horizontal impact of integration by law
20
4 Conclusion
30
References
34

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Scharpf: The Double Asymmetry of European Integration
5
The conclusion that, in a federation, certain economic powers, which are now generally
wielded by the national state, could be exercised neither by the federation nor by the
individual states, implies that there would have to be less government all round if
federation is to be practical (Friedrich A. Hayek 1948 [1939]).
Will history repeat itself? The ideological hegemony of orthodox liberalism ended with
the Great Depression of the 1930s, and it may well be that the current global crisis will
also end the quarter-century of triumphant neoliberalism not only in Obama’s America
and in the International Monetary Fund, but also in the European Union. And in fact,
after decades of cheap talk about the “social dimension” of European integration or the
superiority of the European social model over American capitalism, Christian Demo-
crats and Social Democrats have finally managed to write the commitment to create a
European social market economy into the hard letter of Art. 3 (3) of the Lisbon Treaty
on the European Union. So the finalité of the European political economy is going to be
redefined by the ideas that have shaped the socially inclusive and institutionally coor-
dinated social market economies (SMEs) on the Continent and in Scandinavia, rather
than by the liberal market economies (LMEs) of the Anglo-Saxon countries and some
of the new member states. Or so one might think.
F. A. Hayek, however, the doyen of market liberalism, would have disagreed. Writing
in 1939, in the heyday of post-Depression (i.e. Keynesian) economics and politics and
before the beginning of the war that would leave Europe in shambles, he anticipated
postwar European integration. And he was sure that integration would be good for
market liberalism – not because of any hopes for its renewed ideological hegemony, but
because it would reduce the institutional capacity of the state to govern the capitalist
economy and to burden it with a large welfare state. Hayek’s insights were never lost on
his neoliberal followers who supported European integration not so much on economic
than on normative-political grounds (e.g., Mestmäcker 1988; Buchanan 1995/96). But
it seems that they were neither understood by the Christian and Socialist “founding
fathers” of European integration – the Schumans, DeGasperis, Adenauers and Spaaks –
nor by subsequent generations of “good Europeans” in politics, trade unions and aca-
demia whose ideological preferences or manifest interests were quite opposed to unfet-
tered market liberalism.
One reason is that the liberalization that Hayek foresaw was slow in coming. He had as-
sumed that political integration would come first, and that a strong federal government
would then create a common market and centralize the policies that could interfere
with it. At the same time, however, conflicts of interest among member states were sup-
posed to prevent the creation of a strongly redistributive welfare state whose burdens
Work on this paper has been generously supported by the Kolleg-Forschergruppe “The Transforma-
tive Power of Europe” at the Free University of Berlin. It has greatly benefited from my participation
(as a “senior post-doc fellow”) in discussions of the group and, in particular, with Tanja Börzel and
Thomas Risse. The present version owes much to very helpful comments from Gerda Falkner, Martin
Höpner, Susanne Schmidt, Vivien Schmidt and three anonymous reviewers.

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MPIfG Working Paper 09/ 12
would fall unequally on economically strong regions. In Europe, however, the historical
sequence occurred in reverse order, with political integration postponed after the Euro-
pean Defense Community failed in 1954. The European Economic Community began
as a customs union whose members were committed to creating a successful common
market that they hoped would eventually facilitate political integration as well. In the
meantime, the EEC attempted to remove barriers to trade through intergovernmental
negotiations, while its member states took charge of social regulations, social transfers,
public services and public infrastructure functions.
For more than two decades, this de facto division of functions between the Community
and its member states remained essentially intact. And as long as that was true, there
was little reason to worry about the impact of European integration on the interests and
values that were served by the existing domestic socioeconomic regimes. Since the early
1980s, however, economic integration has accelerated and intensified and the liberal
transformation which Hayek had expected has indeed been taking place in the multi-
level European polity. For the Continental and Scandinavian social market economies,
this transformation has become increasingly disruptive, and it is important to under-
stand its causes. Was it brought about by the political dominance of certain (neoliberal)
ideological preferences, in which case there might still be hopes for a political reversal?
Or was it the belated but inexorable consequence of the structural factors associated
with the integration of heterogeneous nation states that Hayek postulated?
In the literature, the most influential attempts to explain European liberalization re-
fer to the interests, ideologies and strategies of influential political actors. In Andrew
Moravcsik’s (1998) account, every step that has deepened economic integration and
liberalized regulatory regimes is explained by the (primarily economic) interests and
preferences represented by governments of the larger member states. By contrast, Ni-
colas Jabko (2006) attributes the surge of liberalizing legislation to the Commission’s
“strategic constructivism,” which persuaded a heterogeneous coalition of political ac-
tors that “the market idea” was the solution to all that was wrong in Europe. At the
time however, unanimity was still the decision rule of the Community. So some of the
smaller member states could easily have blocked initiatives serving the interests of the
big three, and there surely must also have been veto players who were not lured by the
pied pipers of neoliberalism. So why didn’t these dogs bark?
The basic difficulty with both of these explanations, interest-based or ideological, is
that they focus exclusively on the agency of purposeful actors while ignoring the (in-
stitutional) structure within which actors must define their strategic choices (Giddens
1984). They try to explain Treaty revisions and legislative action by reference to the
interests, preferences, worldviews and strategies of actors in national governments, the
Commission and the European Parliament while ignoring or downplaying the effect of
formal and informal decision rules and the impact which judicial decisions have on the
available options of political actors. Instead, structure and agency should be considered
as complementary rather than mutually exclusive, explanatory approaches (Scharpf

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Scharpf: The Double Asymmetry of European Integration
7
1997). In the highly structured European policy processes, decision rules – and, more
generally, institutions – are bound to create strong asymmetries, favoring some actors
and some policy goals, and impeding or obstructing others.1
The present essay will explore the impact of two institutional asymmetries: the first
one favoring policy-making by nonpolitical actors and impeding political action at the
European level, and the second one favoring negative integration and impeding specific
policies of positive integration (Scharpf 1999: ch. 2). These institutional asymmetries,
I will then try to show, have the effect of undermining the institutions and policy lega-
cies of “social market economies” at the national level, and they also impede efforts to
re-create similar institutions and policies at the European level.
1 Integration through politics and integration through law
The first of these asymmetries concerns the relationship between legislative and judicial
powers in the processes of European integration. In the original allocation of functions,
European integration was to be achieved either by intergovernmental agreement on
amendments to the Treaties or by European legislation initiated by the Commission and
adopted by the Council of Ministers. As a consequence, member governments retained
control over the extent and the speed of economic unification and liberalization.2 After
1
Some readers have suggested that by focusing exclusively on structural conditions, the follow-
ing text seems to argue not for a balance between structure and agency, but for a structural
determinism that leaves no room for the potential of creative agency. The short response is that
my purpose here is to make actors more aware of the structural obstacles they would have to
overcome if they tried to create a European social market economy. At a more theoretical level,
what I will describe here is a pattern of distributed competences but interdependent policy
choices. Of course, the Court could have chosen different interpretations of the Treaties, and
the Commission, the Council, the Parliament, political parties and organized actors could have
responded differently to the evolution of the case law and to opportunities for Treaty revision.
If all these choice options could have been combined and employed in a concerted fashion, the
overall process of integration could of course have taken a very different direction. But such
instances of “positive coordination” are extremely demanding and very rare even in the hierar-
chical organization of a national government (Mayntz/Scharpf 1975: 145–150; Scharpf 1997:
112–114, 132–135). In the constellations of EU policy making, however, multiple actors with
differing worldviews are pursuing different goals. Hence the far more likely outcome is “nega-
tive coordination,” where each actor considers only its own, limited competences and tends to
treat the positions of others as given when assessing its own strategic options. In other words,
the structural constraints are mutually created and reproduced by strategic actors with distrib-
uted powers and non-holistic action perspectives.
2
This is not so in the field of competition law, including the control of “public undertakings,”
“services of general economic interest” and of “state aids” (Arts. 81–98 ECT), where the Com-
mission may intervene directly against distortions of competition – leaving it to the affected
parties to appeal to the Court.

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MPIfG Working Paper 09/ 12
tariff barriers had been removed, further progress on the removal of non-tariff barriers
was to be achieved through the legislative harmonization of national rules. Thus gov-
ernments would decide when trade would be liberalized and for which products; when
controls over capital movements would be lifted and to what extent; which conditions
would permit workers to seek employment and firms to provide services or establish un-
dertakings in another member state, and so on. Since the Luxembourg Compromise of
1966 had prolonged the practice of unanimous decision-making, all governments could
be sure that no legislation could remove existing economic boundaries without their
agreement (Palayret et al. 2006). As long as this condition went unchallenged, member
states could also control the interaction effects between economic liberalization and
the functional requirements of their nationally bounded welfare states, their systems of
industrial relations, and their public revenue, public services and public infrastructure
functions. In other words, the member states could ensure that even in the EEC, eco-
nomic integration would not exceed the limits of what John Ruggie (1982) described as
the “embedded liberalism” of the postwar world economy – that is, a regime in which
markets would be allowed to expand within politically defined limits that would not
undermine the preconditions of social cohesion and stability at the national level.
Initially, moreover, these preconditions were fairly similar in the Original Six, all of
which had fairly large Bismarckian-type pension and health care systems that were
primarily financed by wage-based contributions. They also had highly regulated labor
markets and industrial-relations systems, and all had a large sector of public services
and infrastructure functions that were either provided directly by the state or in other
ways exempted from market competition. Since France had also succeeded in gain-
ing Treaty protection for its more stringent rules on gender equality in the workplace
while agriculture was to be organized in a highly regulated, subsidized and protectionist
regime, disagreement on the pace of integration in the competitive sectors of the econ-
omy was relatively moderate. All that changed, of course, with the first enlargement,
which brought the UK, Denmark and Ireland into the Community – and thus member
states with very different types of liberal and social democratic welfare states and labor
relations (Esping-Andersen 1990), different agricultural interests and, in the case of Ire-
land, a very different state of economic development. At the same time, moreover, the
world economy was shaken by the first oil-price crisis, and while all national economies
were in deep trouble, they diverged widely in their sometimes protectionist responses
to the crisis (Scharpf 1991).
As a consequence of the greater diversity of member-state interests and preferences, the
harmonization of national rules through European legislation became more difficult.
And as European markets continued to be fragmented by incompatible national prod-
uct standards and trade regulations, it seemed that legislative integration might not
progress much beyond the customs union that had been achieved in the first decade.
In the face of political stagnation, therefore, hopes turned to the possibility of judicial
solutions that might bypass political blockades in the Council. This presupposed that
the European Court of Justice (ECJ) would be willing and able to engage in large-scale

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Scharpf: The Double Asymmetry of European Integration
9
judicial legislation. It would have to interpret the unchanged text of the Treaties in ways
that would propel European integration beyond the frontier that had been reached un-
der the high consensus requirements of political legislation.
The doctrinal groundwork for this option had already been laid in the early 1960s by
two bold decisions of the Court. The first one interpreted the commitments that mem-
ber states had undertaken in the Treaty of Rome not merely as obligations under in-
ternational law but as a directly effective legal order from which individuals could de-
rive subjective rights against the states.3 The second one asserted the supremacy of this
European legal order over the law of member states.4 With these decisions, the Court
claimed a status for Community law that differed fundamentally from that of all other
international organizations. Why and how they came to be accepted has become a fas-
cinating research question.5 The most convincing explanation focuses on the response
of national courts to the referral procedure of Art. 234 (ex 177) ECT:6 The option of
requesting the preliminary opinion of the ECJ on issues requiring the interpretation of
European law had the effect of empowering ordinary national courts in the course of
ordinary litigation to review the validity of national legislation – which may have been
particularly attractive for lower-court judges.7 Moreover, as Burley and Mattli (1993:
44) and Maduro (1998: 11, 16–25) have pointed out, acceptance by national courts
and academic lawyers was facilitated by the Court’s strict adherence to a style of formal
reasoning that emphasized logical deduction from legal principles (even if these had
originally been self-postulated) rather than the analysis of substantive economic or so-
cial problems or policy goals that might justify the particular interpretation.
The strategy of using law “as a mask for politics” (Burley/Mattli 1993: 44) also helped to
immunize judicial legislation against political objections. In cases referred to the ECJ,
the government whose laws were challenged was not necessarily directly involved as a
litigant, and if it was, it was bound to present its objections within the court-defined
frame of legal reasoning. Since the Court tended to announce far-reaching doctrinal in-
novations in cases with low or even trivial substantive importance, it would have been
difficult or impossible to mobilize political opposition against the Court’s jurispru-
dence at the national level, let alone the European one. Yet once the “habit of obedience”
(Maduro 1998: 11) was established, European law, as interpreted by the ECJ, was woven
into the fabric of the law of the land, which ordinary national courts apply in ordinary
litigation. To challenge an ECJ ruling, then, governments would have to confront their
3
Van Gend & Loos, C-26/62, 5.2.1963.
4
Costa v. Enel, C-6/64, 15.7.1964.
5
See for example Burley/Mattli (1993); Garrett (1995); Mattli/Slaughter (1995); Slaughter et al.
(1998); Alter (2001); Stone Sweet (2004).
6
Haltern (2007: 187) calls it the “crown jewel among European procedures of legal protection
without which a European rule of law would be unimaginable.”
7
Where judicial review exists nationally and is exercised by the highest court or a specialized
constitutional court, it may be envied by lower-court judges. It makes sense, therefore, that there
are fewer referrals from member states without a tradition of judicial review – and with a strong
tradition of majoritarian democracy (Wind et al. 2009).

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MPIfG Working Paper 09/ 12
own judicial system and renounce the respect for the rule of law on which their own le-
gitimacy depends (Haltern 2007: 192–194). For all intents and purposes, therefore, ECJ
interpretations of European law are now “higher law” in the member states.
The effectiveness of the Court’s judicial legislation is also greatly enhanced by the ex-
treme difficulty of a political reversal. At the national level, courts and constitutional
courts are of course also involved in law-making through interpretation. But judicial in-
terpretations of a statute may be corrected by simple majorities in parliament, and even
interpretations of constitutional law could usually be revised by qualified parliamentary
majorities. By contrast, ECJ decisions based on primary European law could only be
reversed by Treaty amendments that need to be ratified in all member states. And deci-
sions interpreting secondary European law cannot be corrected without an initiative of
the Commission that needs the support of at least a qualified majority in the Council,
and usually an absolute majority in the European Parliament. Given the ever increasing
diversity of national interests and preferences, such corrections were and are in theory
improbable and in practice nearly impossible. In other words, ECJ interpretations of
European law are much more immune to attempts at political correction than is true of
judicial legislation at the national level.
By the early 1970s, the basic foundations of judicial power had been built, and the ECJ
could begin to expand its domain. In the 1960s, it had only intervened against national
violations of unambiguous prohibitions in the Treaty and against protectionist mea-
sures that were clearly designed to prevent the market access of foreign suppliers. In
1974, however, a much wider claim was asserted in the Dassonville formula which inter-
preted Art. 28 (ex 30) ECT. This article prohibited “quantitative restrictions on imports
and all measures having equivalent effect.” In the Court’s view, this now meant that
“all trading rules enacted by member states which are capable of hindering, directly or
indirectly, actually or potentially, intra-community trade are to be considered measures
having an effect equivalent to quantitative restrictions.”8 Under this formula, any na-
tional rules and practices affecting trade could now be construed as non-tariff barriers
to trade. It was no longer necessary to assert that they served protectionist purposes or
discriminated against foreign suppliers, or even that any border-crossing transaction
was involved at all. A potential impediment would suffice to define a national measure
as having an effect “equivalent to quantitative restrictions” on trade.
Given the practically unlimited sweep of the definition, the existence of a “potential im-
pediment” to the exercise of European economic liberties would not, as such, be a dis-
putable issue in future decisions. But the Court also came to realize that the Dassonville
formula was too wide to be enforced as a strict prohibition in all cases where it might
apply. Instead of narrowing the excessive reach of the prohibition, however, the famous
Cassis decision9 introduced a doctrinal solution that allowed much more flexible con-
8
C-8/74, 11.7.1974 at # 5.
9
C-120/79, 20.2.1979.

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