Explaining the creation of the EU Banking Union: the interplay between interests and ideas

How do we explain the outcome of the EU banking union negotiations? Still in 2011, a majority of governments opposed the banking union. They suddenly reversed policies and agreed the creation of a joint supervisor at the Euro Summit in June 2012. This thesis invokes liberal intergovernmentalism to explain the creation of the banking union. Yet, the negotiations pose two major puzzles. First, no clear predictions can be derived from liberal intergovernmentalism for the preferences of arguably the most powerful member state: the German government. Interest groups were divided, public opinion contradictory, and macro-economic preferences unclear. With no clearly most powerful interest, more than one policy was a rational course of action (Folk theorem). To solve this puzzle, the thesis argues that worldviews based on the principles of Ordnungspolitik influenced German policy-makers. In the absence of a unique equilibrium, these worldviews tipped the scale towards a policy of realigning control and liability. The outcome of the interstate negotiations poses the second puzzle for liberal intergovernmentalism. Its power-based theory of interstate bargaining cannot account for German concessions on several issues. Drawing on an account of rhetorical action, the thesis argues that a coalition of Southern European countries used the collectively stated goal to ‘break the vicious circle between banks and sovereigns’ to prove German preferences as unsuitable for achieving this goal. While exposing the weaknesses of the German government’s policy responses, the Southern coalition framed their own preferences for risk-sharing as the most effective solution to the problem. The German government was forced to acquiesce in considerably more risk-sharing than it had initially deemed acceptable. The thesis draws on 84 interviews with negotiators from Germany, France, Italy, Spain, the Netherlands and the EU institutions. The analysis provides several generalisable insights into the role of ideas for domestic preferences and interstate negotiations