From Market Integration to Core State Powers: The Eurozone Crisis, the Refugee Crisis and Integration Theory

Abstract

The Eurozone crisis and the refugee crisis are showcases of the problems associated with the EU's shift from market integration to the integration of core state powers. The integration of core state powers responds to similar demand factors as market integration (interdependence, externalities and spillover) but its supply is more tightly constrained by a high propensity for zero-sum conflict, a functional requirement for centralized fiscal, coercive and administrative capacities, and high political salience. We show how these constraints structured the initial design of Economic and Monetary Union and of Schengen, made them vulnerable to crisis, and shaped policy options during the crises: they made horizontal differentiation unattractive, re-regulation ineffective, centralized risk and burden-sharing unfeasible, and the externalization of adjustment burdens to non-EU actors necessary by default. In conclusion, we explore possible escape routes from the trap.