Veto Power

Front matter

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Introduction

3 Modeling Institutionalism and Intergovernmentalism 4 Testing Institutionalism and Intergovernmentalism 5 Winners and Losers at Amsterdam

8 British Accession: Exit Options and Veto Power Conclusion ix xi

List of Tables

Negotiating Positions on the Government Party Posi-

Treaty of Amsterdam Parliamentary Ratification Proce-

CULES ih) Dee ae ks k dime Hdd Bid ou kw walang e d 53 Comparison of EP Taskforce Issues with Stoiber et al.

Issues su scatter hs he ek a a 5 3533 a 64

Probit, Treaty Outcome on Number on Status Quo and

Probit, Alternative Specifications of Intergovernmentalism 81 Probit, Treaty Outcome on Number on Status Quo,

Weighted Preferences, and Ratification Constraints . . . 88 Average Ratification Pivot and Government Positions . 94 Bargaining Power as a Function of Government and

Pivot Positions: b sii š ek Q e e aos g gos tate a ae a 97 Voting Weights following the Ioannina Compromise. . . 104

Member State Positions on Number of Commissioners . 112

2.1 2.2 2.3

3.1

4.1 4.2

5.1

5.2

7.1 7.2 7.3

8.1 8.2

List of Figures

Percent Issues Included in Treaty by Area 2... . a.. 31 Percent Issues Included by Average State Support ... 32 Percent Issues Included in Treaty by Number SQ .... 84 Percent Issues Included in Treaty by Number SQ and

Nümber Tissing ne ee ake Ve ee Q un. s a gh, BE AP RIB aR ace yas Se 86 Predicted Probability of Issue Inclusion for Support

Coalitions of Varying Size... 2... 0... r s s + 92 Power as a Function of Government and Pivot Positions 96

UK Public Support for EC Membership, 1975-1984... 141

Acknowledgments

As this project has progressed from some rather inchoate ideas about European integration to a full-fledged book, I have incurred numerous debts to the individuals and institutions who have supported me. I will attempt to acknowledge as many of them as possible, although it is impossible to mention them all. The core idea for this book can be traced to my time at the University of Konstanz, Germany, where I first developed my interest in the processes of European integration. While at Konstanz, Thomas König was first kind enough to work with me as a rather naive undergraduate, then again as a DAAD fellow, and lastly during summers while I was a graduate student at UCLA. He has kept me plied with interesting and innovative data the entire time. For that I am eternally grateful.

At UCLA I benefited from a wonderfully supportive intellectual environment. I presented this project at various stages to the methods and formal theory workshops run by Jeff Lewis, James Honaker, and Kathy Bawn. I am grateful to my advisors, Kathy Bawn, Ron Rogowski, Jean Laurent Rosenthal, and most especially my committee chair, George Tsebelis, for their support and feedback. In addition, my friends from grad school, especially Julia Gray, Chris Jensen and Sven-Oliver Proksch, continue to read and provide me with invaluable feedback on my work, including vast swathes of this project.

Many others have commented on sections of this book at various points in time, and I have greatly benefited from numerous stimulating discussions with colleagues. They include Ken Benoit, Lisa Blaydes, Raj Chari, Ken Fernandez, Geoff Garrett, Tim Groseclose, Eunyoung Ha, Ted Jelen, Joe Jupille, Dan Kelemen, Michele Kuenzi, René Lindstadt, Gail McElroy, Andrew Moravcsik, Will Phelan, Gerald Schneider, Art Stein, John Strand, Mike Thies, John Tuman, John Zaller, several anonymous reviewers, numerous conference participants, and many others to whom I apologize for not remembering. I am especially xi xii Acknowledgments grateful to Michael Laver, the New Comparative Politics series editor, and the editors at the University of Michigan Press, Melody Herr in particular, for supporting me in this project. The University of Nevada, Las Vegas, Trinity College, Dublin, and the University of Houston employed me and provided me with funding as I transformed the manuscript into a proper book.

Lastly, I must thank my family for all their loving support. My parents have supported my academic adventures, intellectually, emotionally and financially, from a very young age. My wife, Aurelija, has been a constant source of encouragement and strength. And Ben has both kept me up at night and made me laugh as I put the finishing touches on the manuscript. To all of you, and the many I haven’t mentioned, thanks!

Some of the findings in this book have been previously published in journal articles, and I wish to thank the publishers of International Organization, European Union Politics, and Journal of Theoretical Politics for allowing me to publish revised and updated versions of these findings here.

Chapters 3 and 4 are a revised version of an article that originally was published as “Bargaining Power at Europe’s Intergovernmental Conferences: Testing Institutional and Intergovernmental Theories,” in International Organization 62, no. 1 (2008): 131-162, by Cambridge University Press.

Chapter 5 is a revised version of an article that originally was published as “Who Is Powerful? Examining Preferences and Testing Sources of Bargaining Strength at European Intergovernmental Conferences,” in European Union Politics 7, no. 1 (2006): 51-76, by SAGE Publications Ltd./SAGE Publications, Inc.

Chapter 7 is a revised version of an article that originally was published as “Exit, Voice, and Cooperation: Bargaining Power in International Organizations and Federal Systems,” in Journal of Theoretical Politics 21, no. 2 (2009): 187-211, by SAGE Publications Ltd./SAGE Publications, Inc.

Introduction

Many major breakthroughs in European integration have occurred during intergovernmental conferences (IGCs), the forums at which European Union (EU) member states negotiate European treaties. Since the founding of the European Communities with the Treaty of Rome, member states have completed a common market, created a single currency, and developed European citizenship to complement national citizenship. Less visibly to European citizens, but of equal importance for the internal workings of EU, treaty negotiations have produced significant changes to the EU’s political institutions. They have repeatedly altered the qualified majority voting rule in the Council of Ministers, the chamber of the EU’s legislative branch representing the member states; changed the size of the European Commission; and increased the powers of the directly elected European Parliament. These institutional changes have had a lasting impact on how the EU produces legislation.

This book explores sources of bargaining power at these IGCs. It examines which member states achieve their goals and why. While previous scholarship on intergovernmental conferences has tended to see these treaties as “big bang” moments driving EU integration (e.g. Moravesik 1998), my goal is not to explain the entirety, or even most, of EU integration through IGCs. Indeed, much of the EU’s greatest impact on member states and their citizens occurs through the legislative process — the drafting of EU directives and regulations — which happens between intergovernmental conferences. The EU legislates on labor policy, environmental law, public health and safety, and numerous other issues. It has set standards for auto emissions, clean bathing water, working hours, and it has even regulated cell phone roaming charges. IGCs are important for drafting the treaties that create the institutional framework within which this important legislation is produced. Therefore, the approach taken here will be to examine IGC negotiations in a manner similar to constitutional negotiations where states design institutions that govern their future interactions.

To examine which member states get what they want and why in negotiations with their fellow member states, the first part of the book tests two competing theories of bargaining power — institutionalism and intergovernmentalism. These theories suggest that different actors should prevail at negotiations. Institutionalism suggests that bargaining power is related to the rules governing negotiations, namely that the support of all member states of the EU is necessary for a treaty to come into effect. Thus, institutionalism implies that states with preferences close to the status quo — those states wishing to prevent change — should get their way because of their ability to veto a treaty. Intergovernmentalism, on the other hand, suggests bargaining power is derived from member state size and resources, meaning large states should prevail at negotiations regardless of their proximity to the status quo. In testing these theories, the book examines the role domestic politics plays in shaping intergovernmental outcomes, and the extent to which domestic politics affects how member states achieve their IGC goals. Domestic actors both play an important role in shaping government bargaining preferences and in ratifying the treaty which governments eventually draft. The primary finding is that outcomes of recent IGC negotiations are better explained by veto power associated with institutional theories than the sources of power highlighted by intergovernmentalism.

The second part of the book asks when and how veto rights came to matter as a source of power in EU negotiations. It examines the interaction between exit rights from the EU, the possibility to threaten member states with exclusion, and veto rights. Using a formal model, I find that veto rights could only have begun to matter once exit and exclusion from the EU ceased to be viable options. States that wish to remain in the EU, but also wish to block deeper integration, may not be able to cast a veto if their fellow member states can credibly threaten to exclude them if they do. States desiring deeper integration may be able to force their preferences on laggards if the laggards are willing to sacrifice some of their policy desires to remain in the EU.

My general argument, which has broad ramifications for our understanding of bargaining in international and federal systems outside of the EU as well, is that EU member states hold preferences — often a result of domestic politics — over institutional outcomes at IGCs. These preferences, combined with the rules which govern IGC negotiations, namely that the final draft treaty only passes with unanimous consent of the member states, explains the degree of institutional change achieved

Introduction, 3 at IGCs. My findings suggest that small states with a preference for the status quo are just as capable of blocking change at IGCs as large states. However, unanimous consent can only logically matter when there is no viable mechanism for leaving the EU. My approach offers a new way to understand bargaining power in environments with few institutional constraints, and in doing so goes beyond current literature on the rational design of international organizations (e.g. Koremenos, Lipson and Snidal 20016). I find that even simple rules matter in bargaining environments, such as IGCs, where few explicit rules exist. Moreover, these few rules, such as the ability to veto the final draft treaty, have often not been the focus of scholars who examine IGC negotiations. The remainder of this chapter will present a brief guide to the book’s research design and it will conclude with an outline of the remaining chapters.

Research Design and Book Plan

Generally, this book uses formal theory to construct hypotheses about the outcomes of the EU’s IGCs, and then draws on quantitative and qualitative case studies to examine the empirical implications of the formal models. The first part of the book constructs two formal models to capture the logic of intergovernmentalism and institutionalism, then suggests a statistical model to test the predictions of the formal models against one another. It finds that the institutional model capturing veto power better explains the outcome of negotiations. To test these theories of IGC bargaining, I combine quantitative analysis of a single case, the IGC leading to the EU’s Treaty of Amsterdam, with more detailed qualitative case studies of intergovernmental bargaining from the Treaty of Maastricht to the most recent debates over the EU’s Lisbon Treaty. My quantitative research design disaggregates the decisions made at the Amsterdam IGC to make a large-n study of decision-making. In doing so, I follow the advice of King, Keohane and Verba (1994) and Lijphart (1971), who suggest that one way to conduct comparative research when dealing with a small number of cases is to try to make as many observations as possible out of the few that are available.

This approach has its advantages and disadvantages. The primary advantage is that I am able to study the decision-making process at Amsterdam in great detail. Moreover, I am able to gather a great deal of systematic data on actor preferences, something which simply would not be feasible for a study of multiple treaty negotiations. The greatest limitation of this type of study, of course, is that it leaves open the question of generalizability. Do the findings hold for other treaty negotiations, or are my findings specific to the negotiations surrounding the Treaty of Amsterdam? I address this by tracing the decision-making processes over several important EU institutions across time at intergovernmental conferences from Maastricht to the recent negotiations over the Lisbon Treaty.

In the second part of the book, I present a formal model to explain when and how the veto bargaining dynamic arose in EU history, and I use qualitative case studies to demonstrate when in the EU’s history this likely occurred. The game-theoretic model suggests that variables such as outside options, the costs of leaving an organization, and the benefits to member states of retaining the organization’s current membership help us understand the conditions under which veto rights are likely to play an important role at IGCs. In short, when exercising an exit option is less costly, veto power will not matter. However, when it is difficult to exclude states from the organization, and it is costly for a state to leave, veto threats become more credible. By exploring why veto rights matter, and when the dynamic explored in the first part of the book arose, these chapters provide a deeper theoretical context for the earlier empirical results. The remainder of the book is laid out as follows.

Chapter 1 first introduces the literature on institutional design and places this study within that literature. It explores how studies of international organizations, federal systems, and European integration have examined veto power and bargaining power in the past and it describes how this book builds upon that work.

Chapter 2 discusses case selection and provides a broad overview of the quantitative Treaty of Amsterdam preference data I use to test institutional and intergovernmental theories. I show which member states generally preferred change at the Amsterdam IGC and which did not — Belgium, Italy and Spain preferred a more ambitious treaty while Ireland, Denmark and the United Kingdom preferred fewer changes. I also demonstrate that the outcome of treaty negotiations generally matched member state preferences. Finally, I examine how domestic politics affected member state preferences by demonstrating that voters’ preferences played a role in shaping member state bargaining positions. Moreover, I explore how domestic political institutions affect the degree to which voters’ preferences are translated into government bargaining positions. Contrary to the voluminous literature on the EU’s democratic deficit, member state preferences over treaty outcomes do account for the position of voters, even after controlling for the

Introduction, 5 positions of parties in government. This effect is stronger in member states which use proportional electoral systems than in those with majoritarian systems.

In chapter 3 I formally demonstrate the differences between institutional and intergovernmental theories of bargaining power, and I present a statistical model, based on formal theory, to discern which type of power is more important at international treaty negotiations. This chapter demonstrates how institutional theories, previously only applied to study daily politics within the EU, can be extended to help us understand the EU’s grand bargains. In addition, this chapter presents a method for formalizing intergovernmentalism, a theory which has not been formalized previously. Lastly, it outlines the conditions under which these two theories make competing predictions — when small states prefer the status quo and large states desire change, intergovernmentalism predicts change while institutionalism predicts the status quo.

In chapters 4 through 6, I test whether institutional or intergovernmental theories better explain European IGC outcomes using the Treaty of Amsterdam as my case. In chapter 4, I apply the statistical model presented in chapter 3 to my data to examine which theory better explains the outcome of the bargaining process. I demonstrate that the variable capturing institutional theory best explains the Treaty of Amsterdam outcome no matter how I operationalize intergovernmentalism. In addition, following the two-level games literature and previous spatial bargaining models on IGCs, I examine whether parliamentary ratification constraints affect the size of the winset of treaty negotiations. I present some preliminary evidence that they do.

Chapter 5 more closely examines which member states emerged from the Amsterdam bargaining process as winners and further examines if and how domestic ratification constraints mattered when negotiating the treaty. Here, I demonstrate that small member states skeptical of EU integration, specifically the Nordic countries, got their way most often at the Amsterdam IGC. I also find some support for the notion that domestically constrained states had stronger bargaining positions.

Chapter 6 presents a case study of the negotiations over Council of Ministers’ voting weights and the number of Commissioners in the EU Commission across several IGCs. These are arguably two of the most difficult and important aspects of negotiations regarding changes to EU institutions during this time period. This chapter demonstrates how my argument works at a micro rather than macro level. In addition, it demonstrates that my findings hold across time and it places my findings within the historical context of European integration. I follow negotiations on these issues from just prior to 1994 when the EU expanded to Sweden, Austria, and Finland, until the most recent negotiations over the Lisbon Treaty. Because the Amsterdam Treaty is only one negotiation, this case study allows me to demonstrate that my findings hold beyond the one case for which I have quantitative data. On these most controversial issues, large states had to defer to the wishes of small states desiring to keep the status quo not only at Amsterdam, but also at the Treaty of Nice. Member states were only able reform these institutions at the Constitutional Convention because this convention operated under a very different set of rules than the traditional intergovernmental conference. This, again, demonstrates that veto power associated with institutional theories is more important than power derived from size at IGCs.

Chapter 7 explores the literature on exit rights and veto power in international organizations and federal states. I present a formal model to explain when veto rights become an important source of bargaining power. This chapter places the empirical findings from the previous chapters within a broader theoretical perspective. It suggests that veto power only matters when exit threats are not credible. When the costs to a laggard state of leaving an organization are relatively high, and states preferring deeper integration are worried that they might want recourse to a veto in the future, states design stable institutions which are very difficult to withdraw from. This helps explain why the EU is different from most other international organizations, and how, in many ways, it is similar to a federal state. In most international organizations, exit costs are relatively low, and the shadow of the future is not as long as it is for states in a federal system.

Chapter 8 presents two case studies demonstrating how shifts can occur from a bargaining scenario in which exit rights are important to a scenario in which veto rights matter more. The chapter looks at intergovernmental bargaining around the time of the British accession to the European Community (as the EU was called at the time), and highlights how bargaining strategies shifted as the UK’s costs of abandoning the European Community increased. As the UK economy became more closely linked with continental Europe, leaving the European Community would have been more costly. By the late 1970s and early 1980s, UK’s threats to abandon the EU became less credible, while, at the same time, threats to block progress became more effective.

Finally, the conclusion recaps my most important findings: despite the assumptions of much intergovernmental literature, small states in the EU are just as capable of vetoing institutional change as large states,

Introduction 7 and this is true only because exit and expulsion threats are not credible. I also discuss how my approach may be used to study bargaining in other settings outside the EU, and how it advances the literature on international institutions and federalism. My theory suggests that veto power is only effective in more established organizations where exit is difficult. The EU looks like a federal state, at least in part, because, unlike in most international organizations where exit threats are the norm, veto power matters. Lastly, I address what the findings suggest about the future of EU constitutional change. Surprisingly, recent EU treaties have created more opportunities for member state exit and exclusion from the EU. This could potentially change the veto bargaining dynamic when negotiating the EU’s institutions in the future.

Why should we care about the rules by which EU states draft their treaties? Why should we care whether veto power is more important in determining bargaining strength than power derived from economic might or population size? The most obvious reason is that bargaining rules and bargaining power determine which states get what they want during IGCs negotiations, and the decisions taken at IGCs have a profound impact on EU policy-making following the negotiations. Since the EU’s founding Treaties of Rome, IGCs have reformed legislative procedures (Crombez 1996; Garrett 1992; Moser 1996; Tsebelis 1994, 1996), produced changes to the EU Council of Ministers’ weighted voting system (Hosli 1993; Tsebelis and Yataganas 2002), created an investiture process for the European Commission (Hix 2002), and expanded the scope of the EU by establishing a common market and Economic and Monetary Union (Moravesik 1998).

These institutional reforms have had lasting effects on policy-making. Scholars of EU institutions have examined, for example, the effects on policy-making of the codecision voting procedure, first implemented with the Maastricht Treaty (Crombez 1996; Garrett 1992; Moser 1996, 1997; Tsebelis 1994, 1996, 1997; Tsebelis and Geoffrey Garrett 2000; Tsebelis, Jensen, Kalandrakis and Kreppel 2001). It is generally believed that codecision increased the power of the European Parliament at the expense of the Commission. Tsebelis and Yataganas (2002) discuss the effects of the Treaty of Nice on European politics. They argue that compared to the previous rules, the Nice rules lead to more legislative gridlock, empowering the supranational actors — the Commission and the Court — over the European Council and the European Parliament. Most recently, scholars have examined the likely effects of the EU’s failed constitution, now revived as the Lisbon Treaty (König and Hug 2006). Tsebelis (2006) argues that Lisbon’s new rules will make decision-making easier once again.

Clearly, rules matter, and, in the EU, IGCs are where member states decide upon many of these rules. Despite the tremendous significance of IGC negotiations, scholarship on the EU has lagged behind in its efforts to understand treaty bargaining. This book aims to fill that gap by examining how member states of the EU design these treaties which form the basis of EU law. This chapter will examine the literature on institutional design, both broadly and with respect to the EU. I will explain how my argument regarding the importance of veto power at IGCs builds upon a variety of literatures concerning the design of international organizations and federal states.

1.1 Institutional Design

Political scientists have long studied political institutions — the rules that govern interactions between political actors — and their effects on policy-making. Debates about the effects of American political institutions, for example, can be traced all the way back to the founding of the republic, with Madison, Hamilton and Jay’s assessment of the new US constitution and its implications for the emerging democracy in the Federalist Papers (Hamilton, Madison and Jay 1961). Much more recently, new institutionalist studies in the US examine how rules and preferences interact to produce policy (e.g. Hammond and Miller 1987; Shepsle and Weingast 1987; Weingast and Marshall 1988). Likewise, studies of EU institutions examine how legislative processes have shaped changes in policy outcomes (e.g. Tsebelis and Geoffrey Garrett 2000, 2001).+

Despite extensive research on institutions and their effects, less is known about how actors collectively reach decisions about institutional design, especially in the European Union. Moreover, these decisions over institutional arrangements are significantly different from decisions of daily politics made within the framework of set rules (Knight 1992; Shepsle 1986; Tsebelis 1990). Because they are difficult to change, decisions to alter institutions have lasting impacts, and losing on a key issue of institutional design can disadvantage an actor in countless future negotiations. Therefore, understanding institutional design is a very important, but difficult problem.

Rather than offer a new theory of how institutional arrangements arise, something which has been the focus of many scholars of historical institutionalism (Greif and Laitin 2004; Milgrom, North and Weingast

1990; North 1990; North and Weingast 1989; Pierson 2000; Weingast 1997), I approach the analysis of institutional design in the EU by treating the arena in which institutions are negotiated, IGCs, as themselves institutions governed by rules. For example, [GCs require unanimous consent of all members for a new treaty to come into force. In other words, I focus on the rules at [GCs which allow these conferences to produce stable institutional arrangements. If the decisions member states make about EU institutions at IGCs are subject to super-majority rules, any changes made at IGCs are likely to be stable. Whereas much of historical institutionalism focuses on the conditions under which an institutional outcome we observe is, in fact, a self-sustaining equilibrium (e.g. Milgrom, North and Weingast 1990; Weingast 1997), I explicitly examine the choices that actors make when constructing these institutions.

I offer a novel method for studying what leads actors to collectively select specific institutions in a multilateral bargaining environment, such as the EU’s intergovernmental conferences, as well as any number of other international or federal negotiations. As I will argue below, current research on IGCs fails to realize their importance in drafting the rules which govern daily politics in the EU, whereas my approach highlights this fact. Moreover, my approach demonstrates that the institutional approaches which have been so powerful in helping us understand how daily politics in the EU work also provide a powerful tool for understanding the EU’s grand bargains leading to the EU’s most important treaties.

1.2 Designing International Institutions

Before examining institutional choice in the European Union, I examine how international relations literature has attempted to explain institutional design. International relations literature provides a good starting point not only because the EU is often referred to as an international organization — it has been referred to as many other things as well (see Tsebelis 2002, 248) — but because this literature has recently begun to address issues surrounding institutional choice.

Much of the early literature on the design of international organizations focused on explaining their simple existence and relative stability (Axelrod 1984; Keohane 1984; Oye 1986).? Recent international relations literature, however, has moved beyond this question to examine the effects of rules which govern international organizations as well as how member states choose these rules (Brauninger and König 1999;

Jupille 2004; Koremenos 2001, 2005; Koremenos, Lipson and Snidal 20010; Svolik 2006). These studies argue that there is a rational basis for the rules which govern international organizations. Member states chose rules which will benefit them and make their international organizations run more efficiently. Jupille (2004, chapter 4), for example, finds that the most contested issues in daily EU politics are the issues that member states are most likely to address and change at IGCs. Koremenos (2005) finds that states in international organizations carefully consider the uncertainty surrounding the international institutions they choose and write duration provisions into treaties accordingly. Koremenos, Lipson and Snidal (20016) present several hypotheses they expect confirmed if member states do, in fact, rationally design international organizations. Many of these are subsequently confirmed by the contributors to their edited volume. The findings from these studies should apply directly to the study of EU IGCs. There should be a rational basis for the design of EU treaties.

Nevertheless, studies about the design of international organizations suffer from several drawbacks that my work begins to address. Koremenos, Lipson and Snidal (2001a, 1067) realize, for example, that their work overlooks the role of power. This leaves their rational design approach open to realist critiques which focus on power. My work provides a method for explicitly examining sources of bargaining power. Moreover, I attempt to move away from simply conceptualizing bargaining power as a discount factor capturing patience as most formal studies of international bargaining do (e.g. Fearon 1998). Power is not only related to patience — or the ability to hold out for a better deal

— but also to rules and preferences.

1.3 EU Integration and Intergovernmental Conferences

While international relations literature has begun to examine the rationale behind institutional choice, literature on EU politics has remained focused on the question of integration. Studies of EU integration have historically employed one of three competing theories, intergovernmentalism, neofunctionalism, and institutionalism.? Of these theories, however, only intergovernmentalism and institutionalism are applicable to the study of intergovernmental conferences, and to date scholars have only used intergovernmentalism to examine bargaining at these conferences.

Neofunctionalism and other related approaches including historical institutionalism (Pierson 1996) and multi-level governance (Marks,

Hooghe and Blank 1996) fail to make predictions about IGC bargaining because they seek to explain EU integration by examining the creeping competences of EU institutions. Studies in this tradition focus on daily politics as the driving force behind EU integration, largely ignoring bargaining at IGCs (Burley and Mattli 1993; Haas 1958; Marks, Hooghe and Blank 1996; Sandholtz and Sweet 1997). Moreover, these studies critique intergovernmentalism by arguing that transactions between subnational and supranational actors are more central to understanding EU integration than interstate bargaining.