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The Role of Social Pacts in European Socio-Economic Governance
Martin Rhodes
NEWGOV Policy Brief no. 34, Summer 2008
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Book Manuscript - Social Pacts in Europe: Emergence, Evolution and Institutionalization
Sabina Avadagic, Martin Rhodes and Jelle Visser (editors)
This book produces the first full-length theoretical and comparative empirical study of new social pacts in Europe. Hitherto, analysis of the social pacts of the 1990s and 2000s has engaged in ad hoc theorizing and has been based on a limited number of cases. By contrast, this book brings a wide range of complementary theories to bear on the emergence, evolution and institutionalization of new social pacts, and compares a wide range of cases from both Western and Eastern Europe, including Italy, Ireland, Portugal, Spain, the Netherlands, Slovenia and Poland. The theoretical innovations include a highly novel application of qualitative fuzzy-set analysis to the explanation of emergence; an adaptation of the extensive neo-corporatist theorizing of the 1960s and 1970s and a more contemporary game theoretic approach to understanding evolution; and an adaptation of traditional neo-corporatist theory and new institutionalist theory to understanding social pact consolidation and institutionalization. The empirical material for this analysis is drawn from the in-depth country studies, all of which are written along thematic, analytical lines, informed by a rigorous research design, by national experts. (This deliverable contains the introductory chapter and a list of contents of the book).
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Analytical Report 4: Synthesis: A Fuzzy Set Analysis of the Resurgence of Tripartite Concertation in the 1990s
Sabina Avdagic
European economies underwent major economic adjustment during the 1990s, combining reforms related to the preparation for EMU with welfare state recalibration and labour market deregulation. This paper seeks to understand national variation in the strategies of adjustment during that decade, and in particular in the varied reliance on social pacts as facilitators of reforms. Why were such concerted agreements struck in some countries, but not in others? Using a fuzzy set Qualitative Comparative Analysis (fs/QCA) of fourteen European countries, this paper assess the explanatory power of leading hypotheses about the emergence of social pacts. The analysis yields two key findings. First, the arguments which prevail in the literature, emphasizing the extent of economic problems associated either with the run-up to EMU or more general economic pressures, seem to explain only one part of the story. The ‘Maastricht imbalance’ (as manifested in high inflation and budget deficit), or alternatively high unemployment turned out to be neither necessary nor in themselves sufficient for the extensive reliance on social pacts. Rather, a high economic ‘problem load’ appears to be causally relevant only when combined with particular political and institutional conditions, namely the prevalence of electorally weak governments and/or an intermediate level of union centralization. Second, the analysis suggests that there is more than one causal pathway to concerted agreements. In examining the conjunction of multiple causal factors I find three distinct, theoretically and empirically relevant combinations of conditions that helped generate pacts during the 1990s.
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The institutionalisation of Social Pacts
Jelle Visser
This paper explores the logic and conditions of institutionalisation of social pacts. What accounts for the continuation and diffusion of social pacts as an institution, once it has emerged? I will approach this question in five steps. First, I will seek to define social pacts as a particular institution in democratic capitalist societies, closely related to coordination in labour (or employment) relation and consultation, or concertation, in welfare state politics. Next, I compare social pacts will be compared to other institutional outcomes. Thirdly, the concepts of institutions and institutionalisation will be clarified in order to better understand what is involved when we apply these concepts to social pacts. Fourthly, I shall try to identify the empirical patterns of institutionalisation, and de-institutionalisation, of social pacts in the 1990s and early years of the new millennium. The concluding section is devoted to a discussion of the causal mechanism explaining patters of institutionalisation and institutional change.
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Second-Generation Social Pacts and European Socio-Economic Governance: Institutional Emergence and Consolidation in the 1990s and 2000s
Martin Rhodes
The re-emergence of national concertation in Europe in the 1990s occurred in quite different places (e.g. southern Europe) and in rather different form (as ‘lean’ or ‘competitive’ rather than redistributive pacts) than their ‘first-generation’ predecessors of the 1950s-1980s in northern Europe. That difference has triggered a widespread debate as to the ‘why’ and ‘wherefore’ of these ‘second-generation’ social pacts. Precisely because they apparently have so little in common with their predecessors, much theorizing of new social pacts has abandoned the extensive neo-corporatist theory that accompanied the original social pact phenomenon. Instead, this paper places the new social pacts in the context of neo-corporatist theorizing since the 1960s, and seeks to explain their emergence and consolidation by adapting the earlier insights of the neo-corporatist literature. The conclusion is that new social pacts emerge under similar external shocks, and their fragility is due precisely to the absence of the conditions that allowed their predecessors to endure. Only when those preconditions are present – in the form of a hierarchy of goals and a licensing of private actors as ‘public-purpose’ agents and under conditions of complex reciprocity and political exchange (i.e., characteristics that closely resemble those of ‘first-generation’ pacts) – do new social pacts endure beyond basic single- or two-shot cooperation games.
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Institutional Emergence: Framework Evaluation - Analytical Report I – Synthesis
Sabina Avdagic
This report (D08) draws on this projects most developed country reports - Italy, the Netherlands, Poland, Slovenia and Spain - presented in accompanying D09. This report links the empirical evidence from those country reports to the overall analytical framework. Section one assesses the relevance of the four central pillars of our bargaining model (D01) - bounded rationality, context-specific and changing preferences, non-unitary actors, and perceptions of power - for the real-world strategies of actors. The country reports confirm the relevance of those central pillars in shaping actor strategies but also indicate the need for further refinements to our indicators of relative power. Section two tests the bargaining model itself. We examine a number of the most important attempts to craft social pacts in the five countries concerned and confirm the general logic of the model, even if there are also several instances where social pact attempts do not conform to its core predictions. We therefore suggest ways of improving the model’s predictive power by making it more complex to allow for variation in the discount rates which indicate actors’ time preferences. Section three presents the steps we need to take in improving the model. In the conclusion we relate our study to the general literature on social pact emergence.
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The Emergence and Evolution of Social Pacts: A Provisional Framework for Comparative Analysis (EUROGOV Working Paper No. N-05-01 - external link)
Sabina Avdagic, Martin Rhodes, Jelle Visser
This paper provides the scientific framework for the NEWGOV project Distributive Politics, Learning and Reform. In Part I, we establish our own definition and conceptualization of social pacts. We distinguish four types of pacts with different scope and depth: shadow pacts, headline pacts, coordinated wage setting, and embedded pacts akin to neocorporatist concertation. Part II is concerned with institutional formation, i.e. how such social pacts come into existence. We outline some standard functionalist accounts of institutional emergence, and critically examine them before proposing an alternative bargaining model. Part III is concerned with institutional development, i.e. what determines the continuation and institutionalization of social pacts or their de-institutionalization and demise. Based on the taxonomy of social pacts presented in Part I, we define two alternative evolutionary paths for social pacts (institutionalization and de-institutionalization), and identify three types of trajectory along which social pacts develop (repetition vs. abandonment; integration vs. disintegration; and expansion vs. reduction). We then outline four alternative mechanisms that may potentially drive the institutionalization or de-institutionalization of pacts. Grounded in the four major approaches for analysing institutions, i.e. the functionalist, utilitarian, normative, and power-distributional perspectives, this section proposes four groups of hypotheses to be evaluated in our empirical research.
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Life-course savings schemes and social policy reform in the Netherlands. On the relationship between the welfare state, social pacts and the management of new social risks
Marc van der Meer and Frans Leijnse
In the Netherlands, a unique though controversial life-course savings scheme (‘levensloopregeling’) will be introduced in January 2006. This paper discusses the origins of this scheme as an example of policy adjustment, which aims to strike a balance between new individual and collective labour relations. It appears that the standardised sequence of education, working and retirement has evolved into an erratic and less-predictable labour market pattern. Accordingly, a change in the nature of external and susceptible risks has occurred. The paper discusses the introduction of the life-course savings scheme, which gained political momentum when the need for cost containment of both the early retirement provisions and wage control were combined, culminating in a broad social pact between the government and social partners. We conclude that the management of social risks should be evaluated not only in terms of the ‘combination scenario’ as a particular form of a transitional labour market model, but also as an indicator for the current reform of the corporatist welfare state. Published as TLM.NET Working Paper No. 2005-19, Amsterdam: SISWO/Social Policy Research.
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Explaining Local Partnership Consolidation
Paolo Graziano and Patrik Vesan
NEWGOV Policy Brief no. 18, Spring 2008
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Territorial Pacts and Local Level Concertation in Europe. A Multi-Level Governance Perspective
Ida Regalia
The paper is organized as follows. It first makes some preliminary and general specifications concerning the topic examined. It then concentrates on the subnational level of concertation, discussing the reasons for the emergence and spread through Europe of local partnerships and pacts, and presenting the forms identified in the empirical literature. Particular attention will be paid to territorial pacts for employment and development (European and of local/national origin) with reference being made to Italy and Spain, as the countries in which territorial pacts have developed to the greatest extent. The concluding section sets out proposals for the future development of the inquiry and provides some preliminary concluding remarks.
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Local Partnership Consolidation in Italy – Analytical framework, research strategy and case selection
Paolo Graziano; Maurizio Ferrera; Patrik Vesan, Matteo Bassoli, Valeria Sparano
The main aim of this report is to present the analysis of partnership case studies. In particular, we will address our attention to one specific aspect of the development of cooperative experiences, i.e. their consolidation process, with a particular focus on Italian public-private partnerships aimed at territorial development regulation. First, an articulate definition of partnership - derived from the existing literature on the topic - will be provided; second, a more specific framework for analysis will be presented and some research hypotheses will be formulated; third, a preliminary selection of cases will be presented and discussed.
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Country papers: Italy and Spain
Valeria Sparano and Francesc Gibert
The first country report presents an analysis of Italian local partnerships aimed at promoting local development. First, it introduces the genesis and main features of partnerships regulation at the local level; second, it analyses the implementation of EU local partnership initiatives; finally, it discusses the relevance of such ‘new’ tool of governance in sub-national decision making on local development policies. The second country report presents the Spanish case with respect to local partnership initiatives aimed at local development. It focuses in particular on the interaction between the local and national level of government in the formulation, adoption and implementation of local partnership pacts. Some final remarks on the ‘institutionalization’ of local social pacts in Spain conclude the article.
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Workshop on Social Governance in the EU: The OMC in action, 9 June 2005, Turin

This seminar builds on some of the extensive research findings now presented in the book 'The Open Method of Co-ordination in Action' edited by Jonathan Zeitlin and Philippe Pochet, with Lars Magnusson and focuses on two highly developed OMC processes: the European Employment and Social Inclusion Strategies. Alongside the empirical assessment of the OMC processes, the workshop will discuss the role of the method within the Lisbon strategy and the future of EU social governance in general, in the aftermath of the 2005 Spring European Council and in view of the stance of the Barroso Commission. The seminar is organised by the ‘Research Unit on European Governance’ of the Carlo Alberto Foundation, affiliated to NEWGOV through our partner Maurizio Ferrera (Uni Bocconi) and project 18 on ‘Distributive Politics: Experimentation, Learning and Reform’.
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How effective are new approaches to economic governance? The re-launched Lisbon Strategy and the revised Pact
Waltraud Schelkle
NEWGOV Policy Brief no. 05, Winter 2007/2008
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Conference on ‘taking stock’ – EMU@10 Conference
Iain Begg
The initially planned ‘Taking stock’ conference of project no. 19a was substituted by participation in the EMU@10 conference, held in Brussels on the 26th and 27th of November 2007. The workshop/conference was organised by DG Ecfin of the European Commission, in conjunction with the Bureau of European Policy Advisers, and was opened by Commissioner Almunia. The conference, which was by invitation only, although a video link transmitted it to a wider audience, brought together leading experts on different facets of the economics of EMU and its governance. Consequently, it not only covered all the topics that had originally been envisaged as salient for the proposed ECONPOL conference on ‘taking stock’ but also covered many more topics. Moreover, the quality and range of participants was far greater than could have been assembled just for the proposed ‘taking stock’ conference. For these reasons, the judgement was made that the EMU@10 conference was an appropriate means of achieving the aims that had been set for the ECONPOL project and much more, and that participation in it was a prestigious means of achieving visibility for the ECONPOL research findings. The extended essay on Economic Governance in an Enlarged Euro Area written by Iain Begg and presented at the conference drew extensively on the research conducted under WP1 and WP4 of ECONPOL.
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Practitioner Workshop: EMU and the Labour Market
Iain Begg
The aim of the workshop was to bring together researchers involved in the integrated project on New Modes of Governance (NEWGOV), policy-makers and practitioners to explore different facets of labour market change since the establishment of EMU. It was held on the 16th of July 2008 at the premises of the European Trade Union Confederation in Brussels, and was attended by some 25 participants. The workshop contributed to the aims of the second main strand of research of NEWGOV sub-project 19a, which comprises theoretical and empirical analysis of the labour market under EMU.
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Conference Volume: The theory and practice of economic governance in EMU revisited - Special Issue of the Journal of Common Market Studies
Waltraud Schelkle (editor)
European integration is a fast changing subject and requires those who study it to do research very close to the present. While this makes the field both fascinating and relevant to policymakers’ concerns, it also makes it susceptible to academic fads and fashions. The scientific community in the field hardly ever finds the time to look back to evaluate self-critically whether the predictions made in the past and the policy advice put forward then have stood the test of time. The JCMS special issue asks commentators who made seminal contributions to our understanding of the theory and practice of economic governance in the 1980s and 1990s to revisit their analyses with the benefit of hindsight. The special issues includes articles by: Waltraud Schelkle, Willem H. Buiter, Paul de Grauwe, John Driffill, C.A.E. Goodhart, Christian Joerges, Kathleen R. Mcnamara, Jean Pisani-Ferry, and Fritz W. Scharpf. Link to: Journal of Common Market Studies special issue (edited by Waltraud Schelkle), vol.44/No.4, pp.669-864.
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Paper on “Coordinated wage adjustment in EMU: Is there a large-small divide?”
Waltraud Schelkle, Alison Johnston, Costanza Rodriguez d’Acri
The large-small divide has been considered important for monetary integration ever since McKinnon (1963) postulated that small open economies would be better candidates for an optimum currency area. Recently, this distinction was claimed to be relevant for the very operation of a monetary union. Notably Buti and Pench (2004), two senior civil servants in DG Ecfin when they are not academic scholars, claim that small countries are more likely to comply with the obligations of membership, such as the fiscal rules. In this paper, we want to explore whether arguments in this tradition also hold for wage coordination or whether this is a spurious correlation that holds for a few member states at best. The alternative hypothesis is that we have to look at the interaction between monetary policy, fiscal policy and wage coordination to understand how political economies adjust to EMU. This interaction changes in predictable but ambiguous ways and differently for traditionally inflationary and traditionally stable countries, so only comparative cases studies for sub-groups of countries can tell us which effects dominate. We illustrate this with a case of traditional low inflation countries. The paper was presented at the research workshop ‘The Labour Market and EMU’, Brussels 16 July 2008, see NEWGOV Deliverable 19a/D7.
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Macroeconomic and labour market governance – case studies of four countries: France, Germany, Sweden and the UK
Iain Begg
This work looks at different sides of the link between macroeconomic policy, the link between policy frameworks and the labour market and the performance of economies. In particular, this paper reports on work in four EU Member States: France, Germany, Sweden and the UK, two of which were in the first wave of membership of the euro area, while two have remained outside. Two main issues are explored in this paper, both of which reflect evolution in the modes of economic governance. The first is what has determined employment performance of the four countries studied, recognising that this performance is affected both by factors specific to the labour market and by broader macroeconomic effects. Second, the paper considers whether the inter-actions between labour market policies and macroeconomic policies have been mutually coherent. The paper was presented at the workshop on EMU and the labour market, ETUC, Brussels, 16th July 2008.
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Paper on “EU Fiscal Governance: Hard Law in the Shadow of Soft Law”
Waltraud Schelkle
A key element of economic governance in the European Union, the Stability and Growth Pact (Pact), underwent a major revision in March 2005. The many critics of this change claim that what was once a hard law institution for fiscal surveillance has now become so soft as to jeopardize its functioning. This Article examines, first, how exactly the fiscal rules have changed, using a framework which distinguishes hard law from soft law along a continuum in three dimensions of governance: obligation, delegation, and precision. Then it reviews the experience of the first round of surveillance after the revision which so far suggests that the revised Pact is more effectively constraining countries that are officially in “excessive deficit,” contrary to expectations. Finally, the Article offers an interpretation of why the revised Pact may work more effectively. This interpretation suggests that the weakening of obligation has been compensated by changes in the other two dimensions, delegation and precision, casting a shadow of soft law on the operation of the Excessive Deficit Procedure. The argument is based on a theory of precautionary commitment by democratically elected governments that combines credibility with flexibility. Fiscal governance after the Pact revisions is now arguably better equipped to address major contingencies of fiscal policymaking. Published in: The Columbia Journal of European Law vol.13, No.3, pp.705-731.
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Paper on “Is stability necessary for growth?”
Iain Begg
Over the last two decades, the emphasis in macroeconomic policy has shifted decisively to one that focuses on stability rather than active demand management. This was, arguably, needed to counter growing budget deficits and a propensity to inflation, but the chapter suggests that this policy position has been pushed too far. Too little attention to growth has adverse social consequences, because it entrenches high unemployment, leads to pressures to cut spending on social aims, and may lock countries into a vicious cycle. Although stability-orientated policies are rule-based and thus appear to be objective, the chapter points out that the policy approach does have distributive consequences, so that the normative dimension of stability cannot be ignored. Stability may be helpful for long-run growth and need not be incompatible with social solidarity, but it should be seen as part of a wider policy mix, not an end in itself. Forthcoming in: Magnusson, L. and Strath, B. eds European Solidarity.
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Paper on “Is there a convincing rationale for the Lisbon strategy?”
Iain Begg
The aim of this paper is to discuss the rationale for the Lisbon strategy and to examine whether, given that the economies of the EU member states manifestly face different reform challenges, it is sufficiently compelling to justify an elaborate process. This paper explores possible bases for such a rationale, which include policy learning, an external process as an incentivating mechanism (especially where entrenched interests constitute an obstacle to change), as well as more traditional spillover arguments. A key question that is explored is whether an external analysis, together with the procedures that have emerged under the open method of co-ordination, is conducive to economic reform or whether countries tend to know what needs to be done if only they could muster the political will to achieve it. Paper presented at EUSA biennial conference, Montreal, 19th May 2007.
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Paper on “Contested meanings of transparency in central banking”
Iain Begg
Over the last two decades, there have been far-reaching transformations in the ways central banks operate, especially in regard to how openly they communicate with other actors. Transparency in central banking has two quite distinct motivations. The first is to provide a means of holding the central bankers to account, while the second is about the efficiency of their policy-making. These two motivations for transparency reflect contestable norms about the choices central banks make. The paper discusses how transparency in central banking functions and explores how the underlying norms might be open to contestation. A typology showing the rationale for, and effects of, different forms of transparency is constructed and its implications assessed. Published in: Comparative European Politics (2007) 5, 36–52.
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Economic governance in EMU revisited: What have we learnt about commitment and credibility?
Waltraud Schelkle
European integration is a fast changing subject and requires those who study it to do research very close to the present. While this makes the field both fascinating and relevant to policymakers’ concerns, it also makes it susceptible to academic fads and fashions. The scientific community in the field hardly ever finds the time to look back to evaluate self-critically whether the predictions made in the past and the policy advice put forward then have stood the test of time. The JCMS special issue – of which this article is the introduction – asks commentators who made seminal contributions to our understanding of the theory and practice of economic governance in the 1980s and 1990s to revisit their analyses with the benefit of hindsight.
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Bringing Macroeconomics back into the Political Economy of Reform: The Lisbon Agenda and the ‘Fiscal Philosophy’ of EMU
Deborah Mabbett and Waltraud Schelkle
The Lisbon Strategy supports reform of member states’ tax-benefit systems while the ‘fiscal philosophy’ of the EMU postulates that governments should allow only automatic stabilisers, built into tax-benefit systems, to smooth aggregate income. We ask whether these two pillars of EU economic governance are compatible. By exploring how structural reforms affect fiscal stabilisation, we complement a political economy literature that asks whether fiscal consolidation fosters or hinders structural reforms. Using EUROMOD, a tax-benefit model for the EU-15, we identify the connections between specific tax and benefit reforms and the size of the stabilisers. We conclude that Lisbon-type reforms may worsen the stabilising capacity of tax-benefit systems. The article will appear in 2007 in Journal of Common Market Studies (in print).
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Workshop – Policy learning and experimentation in EU economic governance: Laboratory federalism in practice?
Waltraud Schelkle
The workshop aimed to further our theoretical and empirical insight into the working of laboratory federalism in three policy areas that are of particular relevance to EU economic governance: policy coordination through social partnership, tax policy and macroeconomic stabilisation. We were looking for the various, perhaps hidden, channels through which the EU may shape and induce policy innovation as well as the obstacles it faces in acting as an effective or unbiased reform lever. The answer that the workshop gave to this question was largely negative. EU membership and monetary union has led to some innovation in the role of social partnership, but this seems not to have had a lasting impact independent of the domestic setting. The workshop took place at the European Institute, London School for Economics and Political Science, 30 – 31 March 2006.
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Subsidiarity in Regional Policy
Iain Begg
Cohesion is one of only two areas, alongside the Common Agricultural Policy (CAP), in which the EU level of government/public administration plays a substantial role in formulating and delivering policy that requires significant public expenditure. Yet, although it accounts for around a third of the EU budget, cohesion policy expenditure is still a relatively small component of overall public expenditure in the Union at just under 1% of the EU total. A frequently-articulated argument against EU policy cohesion is that it is ineffective, with the implication that it ought to be re-thought and, conceivably, decentralised or renationalised. The ineffectiveness argument is as much (or more) one about whether economic development policies per se are worthwhile, than about whether the EU is the appropriate level to offer them. There is, though, a sub-text to this debate, which is that the approach adopted in EU cohesion policy is qualitatively worse than if it were left to national or regional/local levels of government. The paper is structured as follows. The first section explores the rationale for having an EU regional policy, distinguishing between constitutional, economic and political arguments. In the next section, the effectiveness of policy is reviewed, and the wider context of cohesion policy is discussed in section three. Section four considers how to apply a test for susbsidiarity in regional policy, then concluding comments complete the paper.
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Hard Law in the Shadow of Soft Law in EU Economic Governance
Waltraud Schelkle
Economic governance in the EU relies on rule-based policy coordination, in particular ‘hard law’ coordination under the Stability and Growth Pact (SGP) for EMU members and ‘soft law’ coordination under the Broad Economic Policy Guidelines (BEPG) and the Employment Strategy. A key question for the evolving framework of economic governance is whether the reforms in March 2005 have rendered the SGP more similar to BEPG coordination in that the revised rules acknowledged the need for country-specific assessment and for negotiation over stability programmes rather than for more effective quasi-automatic sanctions. This paper will explore whether this move towards open method coordination is a move away from rule-based policy coordination, as many critics of the Pact reform maintain, or a move towards another form of rule-based policy coordination. Preliminary draft. Final version forthcoming in: Special issue of European Law Journal: G. de Burca and J. Scott (eds.) ‘Narrowing the Gap? Revisiting Law and New Approaches to Governance in the EU’
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Social Policy of the EU and National Welfare State Transformations – A Political Economy Perspective
Waltraud Schelkle and Deborah Mabbett
In this paper, we show that EU social policy is a novel combination of deregulatory and reregulatory forces, endorsing more generosity in some expenditure programmes and retrenchment in others. In both guises, it has a transformative effect which neither unambiguously undermines nor promotes national welfare states. The article discusses the three elements that make up the social policy of the EU: the creation of a single market based on the ‘four freedoms’ of opening national markets in goods, services, capital and labour; the discursive social policy strategy of the EU to promote reforms to create ‘more and better jobs’; and the commitments to the single currency and the SGP, which, in the present context, play the role of a lever for reforms to make the welfare state fiscally ‘sustainable’. This is followed by a discussion of the political economy of EU social policy, examining how the weakness of traditional social partnership at the EU level and the lack of budgetary resources interact with the regulatory and ideational thrust of the EU agenda and thus may distort welfare state transformations in practice. The last section concludes.
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How can we understand the framework of economic governance in the EU?
Waltraud Schelkle
Economic governance of the economic and monetary union amounts to a profound regime change that cannot be understood as a replication of a federal policy regime at the member state level. First of all, multi-level governance is distinctly different from what the economic theory of fiscal federalism presupposes. Moreover, it exhibits a peculiar institutionalisation of the four components that any macroeconomic policy regime of a mature political economy combines: monetary, fiscal and social policies, and the wage bargain. Lastly, the framework is based on conflicting assumptions about government’s role: With respect to macroeconomic policymaking, governments should follow ‘rules rather than discretion’ that tie their hands; as regards structural reforms, it calls for considerable government activism. These features make the framework unique and untested, possibly inconsistent. They suggest to interpret EU economic governance as driven by domestic reform agendas, rather than economic integration as a vehicle for an ‘ever closer political union’. Two pieces of evidence will be provided to support this interpretation: (i) the plethora of soft coordination processes; and (ii) the perception of the Lisbon Agenda and the actual record of reform. Paper delivered at the 35th Annual Conference and 10th Research Conference, "The European Union: Past and Future Enlargements", University of Zagreb, 5-7 September 2005
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Workshop programme 'The framework of economic governance in the EU'
Waltraud Schelkle
The workshop took place in Brussels, 22 March 2005.
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The politics of central banking in the United States and in the European Union
Nicolas Jabko
As a result of their established status and the sheer weight of the US and EU economies, the US Federal Reserve and the European Central Bank are the two most powerful central banks in the world today. Not only do they both play virtually the same role in their respective economic areas, but their internal governance structures look strikingly similar and they are independent from elected political bodies. It is therefore very tempting to analyze American- and European-style central banking as the functional expression of modern economic rationality in the world’s two biggest and most advanced economies. Based on a comparison of money and central banks in the European Union and the United States of America, this chapter calls into question this idealized vision of central banking as a self-contained universe with its own functional logic. It argues that similarities between the two frameworks can actually be read as the outcomes of similar political dynamics and concerns, rather than of an overwhelming economic rationality. In addition, certain key differences remain that can be interpreted as the products of enduring institutional differences between the US and the EU. Whatever the future may hold for the Fed and for the ECB, a comparative analysis of the US and EU frameworks of monetary governance as they stand today can thus serve to reveal political dynamics.
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Industrial restructuring in Central Europe
Bob Hancké and Alexandra Janovskaia
NEWGOV Policy Brief no. 24, Spring 2008
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Final Report – Varieties of Capitalism and Economic Governance in Central Europe
Robert Hancké and Lucia Kurekova
This report will analyse the massive political-economic transition in Central Europe since the fall of the Berlin Wall in 1989. In many ways, the period of the mid-2000s when this project was conducted, was a good time to assess the establishment of democratic capitalism in the region. In May 2004, most of the Central European states had introduced democratic political systems and become functioning market economies, and many of them joined the EU as full members. Thus, in formal terms, the first (and often formative) stages of the transition were over, and this report analyses the effects of those first stages on the subsequent political-economic development in the region. Moreover, by the mid-2000s, the broad shape of the new political economies had firmed up, and even if it may be too early to draw hard conclusions about the ultimate outcome, the relative positions of the three key actors in democratic capitalist political economies – the state, (foreign) capital and (organised) labour – seem to be relatively fixed. Understanding how they interact and the broad political-economic consequences of these interaction patterns is the core goal of this report.
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Workshops/Conference STACEE
Robert Hancké
As part of both the dissemination process of NEWGOV/STACEE and an evaluation of the research project on Varieties of Capitalism and Economic Governance in Central Europe, the team organised four workshops between 7 April and 8 May 2008 in different capital cities in Central Europe (Prague, Bratislava, Warsaw, and Budapest). Participants included policy-makers, representatives of interest groups, policy advisors, and researchers. The project team concentrated on the three substantive empirical sections of the draft report, which discuss the types of sectors located in CEE, the type of companies locating in the CEE, and the effect on and policy responses of regional governments. The overall evaluation of the workshops by the team was very positive. The workshops allowed us to test out some ideas about economic governance in the new member-states, and to explore other issues and possible causalities more deeply.
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Do Differences in Corporate Governance Standards in Cross-Border Mergers and Acquisitions create synergy value?
Marina Martynova and Luc Renneboog
NEWGOV Policy Brief no. 29, Spring 2008
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Bank Loan Announcements and Borrower Stock Returns: Does Bank Origin Matter?
Steven Ongena, Viorel Roscovan
Banks play a special role as providers of informative signals about the quality and value of their borrowers. Such signals, however, have a quality of their own as the banks’ selection and monitoring abilities differ. Using an event study methodology, we study the importance of the geographical origin and organization of the banks for the investors’ assessments of firm’s credit quality and economic worth during loan announcements. Our sample comprises 986 U.S. firms over a period of 1980-2003. We find that investors react positively to relationships with foreign or local banks, but not with banks that are located outside firm’s headquarter state but in the same country. Investor’s reaction is, in fact, the largest when the lender’s headquarter is abroad. Our evidence suggest that investors value relationships with more competitive and skilled banks rather than banks that have easier access to firm’s private information.
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Banks and Bonds: The Impact of Bank Loan Announcements on Bond and Equity Prices
Steven Ongena, Viorel Roscovan, Wei-Ling Song, and Bas J. M. Werker
We study the effect of bank loan announcements on the borrowing firms’ bond and equity prices. Our sample consists of 896 loan deals signed between 1997 to 2003 involving 364 different U.S. firms. We report the first comprehensive evidence that also firm bond prices react to bank loan announcements. The cumulative abnormal reaction of bond credit spreads equals minus 11 bps on average in the two-day period comprising the day prior to and the event day itself. The cumulative abnormal return on the firm stocks equals plus 26 bps on average in the same period. While stock returns are unaffected by firm risk, credit spreads react less negatively for risky or small firms. The bondholders of the riskier firms are more sensitive to the loss given default which increases with bank borrowing. The overall positive effect on the value of equity is due to two forces. First, bank certification reduces information asymmetry. Second, there is a transfer of bondholder’s welfare to the shareholders as a results of claim dilution. Finally, our analysis provides an estimate of the net impact on firm value of bank loan announcements, between minus 5 bps for riskier and smaller firms and plus 18 bps for safer and larger companies.
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Public-to-Private and Private-Equity Transactions: The literature on LBOs, MBOs, MBIs and IBOs
Luc Renneboog and Tomas Simons
This paper provides an exhaustive literature review of the motives for public-to-private and LBO transactions. First, the paper develops the theoretical framework for the potential sources of value creation from going private: a distinction is made between the reduction of shareholder-related agency costs, stakeholder wealth transfers, tax benefits, transaction costs savings, takeover defence strategies, and corporate undervaluation. The paper then reviews and summarizes how these theories have been empirically verified in the four different strands of literature in the LBO research. These strands of literature are categorized by phase in the LBO transaction: Intent (of a buyout), Impact (of the LBO on the various stakeholders), Process (of restructuring after the leveraged buyout) and Duration (of retaining the private status). Then, the paper shows that an economically important public-to-private market has re-emerged in the US, UK and Continental Europe since the second half of the 1990s, and it studies its drivers. Finally, the paper draws some conclusions about the completeness of the current body of empirical literature, and provides suggestions for further research.
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Leveraged Buyouts in the U.K. and Continental Europe – Retrospect and Prospect
Mike Wright, Luc Renneboog, Tomas Simons, and Louise Scholes
In the past two decades, European buyout markets have continuously adapted to changing conditions, including challenges relating to deal sourcing, the entry of new players, and the generation of returns. Competition for larger buyouts has forced prices higher, but with record amounts of capital raised in 2005, it seems that large deal flow will continue to grow over the coming years. With the higher profile of the private equity asset class enabling buyout funds to attract the best managers to run the target companies, banks have been more willing to gear up deals and even refinance them after a short period of time. Although this strategy involves significant risks - and growing concerns about the near-term performance of European economies and trends in interest rates are beginning to raise questions about the degree of leverage in buyout deals - there is also potential for commensurately higher returns. The U.K. market has become quite mature and has one of the highest proportions of buyout values to GDP. If this remains at around 1.5 to 2%, as it has over the last several years, then the buyout market should grow at least in line with the U.K. economy. Elsewhere in Europe, pressures on larger corporations to restructure likely will lead to increased deal activity, notably divestments. The growing number of large secondary buyouts provides valuable liquidity for the buyout market at a time when exits have become difficult. Trade sale opportunities appear to be growing once again and stock markets have become more encouraging, which should help allay building concerns of institutional investors about the recycling of capital seen in recent years. Article to appear in: Journal of Applied Corporate Finance.
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Why do public firms go private in the UK? - The impact of private equity investors, incentive realignment and undervaluation
Luc Renneboog, Tomas Simons, and Mike Wright
This paper examines the magnitude and the sources of the expected shareholder gains in UK public to private transactions (PTPs) in the second wave from 1997-2003. Pre-transaction shareholders on average receive a premium of 40% and the share price reaction to the PTP announcement is about 30%. We test the sources of the anticipated value creation of the delisting and distinguish between: tax benefits, incentive realignment, control reasons, free cash flow reduction, transactions cost reduction, takeover defences, undervaluation and wealth transfers, The main sources of the shareholder wealth gains are undervaluation of the pre-transaction target firm, increased interest tax shields and incentive realignment. An expected reduction of free cash flows does not determine the premiums nor are PTPs a defensive reaction against a takeover. Article to appear in: Journal of Corporate Finance
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Why are the French so different from the Germans? Underpricing of IPOs on the Euro New Markets
Marc Goergen, Arif Khurshed, and Luc Renneboog
IPOs on the EuroNMs have shown very high underpricing. The majority of these IPOs pos-sess specific characteristics such as lock-up agreements, venture-capital financing, ownership by the underwriter and over-allotment options. We study how these characteristics influence the underpricing of firms listed on the two largest EuroNM stock exchanges, the Neuer Markt of Germany and the Nouveau Marché of France. We find that the high underpricing in these two markets – contrary to the evidence on the US – is not driven by insiders’ selling behav-iour. However, the large underpricing is caused by the high degree of riskiness of the issuing firms and by the partial adjustment phenomenon of offer prices to compensate institutional investors for the truthful revelation of their demand for the shares. In contrast, venture-capital involvement does not affect underpricing. For France, lock-up agreements act as substitutes to underpricing, but not so for Germany. We also explore the reasons for the large difference in underpricing between the German and the French IPOs: German firms are more underpriced because they are more risky, have larger price revisions, have less stringent VC lock-up con-tracts and mostly go public during the hot issue period when the general level of underpricing in all IPO markets is substantially higher.
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Patterns in Payout Policy and Payout Channel Choice of UK Firms
Luc Renneboog and Grzegorz Trojanowski
The paper examines the payout policy of UK firms listed on the London Stock Exchange dur-ing the period 1992-2004. We complement the existing payout literature studies by analyzing jointly the trends in dividends and hare repurchases. We find that the US case with a decreas-ing propensity to distribute funds to shareholders over the 1990s and reappearing dividends since the stock market decline of 2000 cannot be transposed to the UK. The importance of share repurchases in the UK is increasing, and dividends still constitute a vast proportion of the total payout. Usually, firms repurchasing shares pay dividends as well. We also document that there is a relationship between the presence of blockholders and the choice of the payout channel: firms with concentrated ownership held by individuals tend to opt for dividends rather than share repurchases. We argue that the presence of stringent insider trading regula-tion affects the attractiveness of repurchases (as opposed to dividends) for large shareholders (and directors, in particular). Interestingly, the opposite relation holds for the voting power of industrial firms: the presence of powerful blockholders of this type reduces the probability that earnings are paid out. This suggests that in firms with strong blockholders of this type, there is less need for a pay-out policy as a precommitment device. The management does not need to signal their commitment to corporate value creation when large corporate sharehold-ers are monitoring the firm closely. Finally, there is some evidence (albeit not very strong) that the control power of financial institutions translates into a higher probability of dividend payments (as opposed to no payout at all).
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Control Structures and Payout Policy
Luc Renneboog and Grzegorz Trojanowski
This paper examines the payout policies of UK firms listed on the London Stock Exchange during the 1990s. It complements the existing literature by analyzing the trends in both divi-dends and total payouts (including share repurchases). In a dynamic panel data regression set-ting, we relate target payout ratios to control structure variables. Profitability drives payout decisions of the UK companies, but the presence of strong block holders or block holder coa-litions considerably weakens the relationship between corporate earnings and payout dynam-ics. While the impact of the voting power of shareholders’ coalitions on payout ratios is found to be always negative, the magnitude of this effect differs across different categories of block holders (i.e. industrial firms, outside individuals, directors, financial institutions). The control-ling shareholders appear to trade off the agency problems of free cash flow against the risk of underinvestment, and try to enforce payout policies that optimally balance these two costs. Finally, the paper improves upon some methodological flaws of the recent empirical studies of payout policy.
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How Relevant is Dividend Policy under Low Shareholder Protection?
Luc Renneboog and Peter G. Szilagyi
This paper reopens the debate on the substitutability of dividends and shareholder control in mitigating free cash flow concerns, by examining dividend behavior when shareholder control is restricted in the firm. We consider the stakeholder-oriented governance regime of the Netherlands, where shareholdings are concentrated, but shareholder rights are often severely restricted by a legally imposed governance regime and anti-shareholder devices such as Dutch-style poison pills. We find that dividend payouts are generally low, unresponsive to earnings changes and show little relationship with size, leverage, and investment opportunities. Shareholder power restrictions affect dividend behavior to varying degrees, but those that do are used by the vast majority of Dutch listed firms. Once accounting for these, we find no evidence that strong shareholders would allow firms to relax their dividend policy, as has been proposed in the existing literature. As shareholders, institutional investors and managers actually force higher payouts. Thus, it seems that dividends often complement rather than substitute shareholders’ efforts to alleviate agency concerns. This finding is unlikely to be specific to the Netherlands, and could possibly be extended to other stakeholder-oriented governance regimes.
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The Price of Ethics: Evidence from Socially Responsible Mutual Funds
Luc Renneboog, Jenke ter Horst, and Chendi Zhang
This paper estimates the price of ethics by studying the risk-return relation in socially responsible investment (SRI) funds. Consistent with investors paying a price for ethics, SRI funds in many European and Asia-Pacific countries strongly underperform domestic benchmark portfolios by about 5% per annum, although UK and US SRI funds do not significantly underperform their benchmarks. The underperformance of SRI funds does not seem to be driven by the loadings on an ethical risk factor. SRI funds do not suffer a cost of reduced selectivity nor do SRI funds managers time the market. There is mixed evidence of a smart money effect: SRI investors are unable to identify the funds that will outperform in the future, whereas they show some fund-selection ability in identifying ethical funds that will perform poorly. The screening activities of SRI funds have a significant impact on funds’ riskadjusted returns and loadings on risk factors: corporate governance and social screens generate better risk-adjusted returns whereas other screens (e.g. environmental ones) yield significantly lower returns.
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Socially Responsible Investments: Methodology, Risk Exposure and Performance
Luc Renneboog, Jenke ter Horst, Chendi Zhang
This paper surveys the literature on socially responsible investments (SRI). Over the past decade, SRI has experienced an explosive growth around the world. Particular to the SRI funds is that both financial goals and social objectives are pursued. While corporate social responsibility (CSR) - defined as good corporate governance, sound environmental standards, and good management towards stakeholder relations – may create value for shareholders, participating in other social and ethical issues is likely to destroy shareholder value. Furthermore, the risk-adjusted returns of SRI funds in the US and UK are not significantly different from those of conventional funds, whereas SRI funds in Continental Europe and Asia-Pacific strongly underperform benchmark portfolios. Finally, the volatility of money-flows is lower in SRI funds than of conventional funds, and SRI investors’ decisions to invest in an SRI fund are less affected by management fees than the decisions by conventional fund investors.
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Is Ethical Money Financially Smart?
Luc Renneboog, Jenke Ter Horst, and Chendi Zhang
Little is known about how investors select socially responsible investment (SRI) funds. Investors in SRI funds may care more about social or ethical issues in their investment decisions than about fund performance. This paper studies the money-flows into and out of the SRI funds around the world. We find that ethical money chases past returns. In contrast to conventional funds’ investors, SRI investors care less about the funds’ fees. Funds characterized by shareholder activism and by in-house SRI research attract more stable investors. Membership of a large SRI fund family creates higher flow volatility due to the lower fees to reallocate money within the fund family. SRI funds receiving most of the money-inflows perform worse in the future, which is consistent with theories of decreasing returns to scale in the mutual fund industry. Finally, funds employing a higher number of SRI screens to model their investment universe receive larger money-inflows and perform better in the future than funds with few screens.
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The incentive to give incentives: on the relative seniority of debt claims and managerial compensation
Riccardo Calcagno and Luc Renneboog
We show that the relative seniority of debt and managerial compensation has important implications for the design of remuneration contracts. Whereas the traditional literature assumes that debt is senior to remuneration, there are in reality many cases in which remuneration contracts are de facto senior to debt claims in financially distressed firms and in workouts. We theoretically show that risky debt changes the incentive to provide the manager with performance-related incentives (a “contract substitution” effect). In other words, the relative degree of seniority of managers’ claims and creditors’ claims in case a bankruptcy procedure starts is crucial to determine the optimal incentive contract ex-ante. If managerial compensation is more senior than debt, higher leverage leads to lower power incentive schemes (lower bonuses and option grants) and a higher base salary. In contrast, when compensation is junior, we expect more emphasis on pay-for-performance incentives in highly-levered firms. Article to appear in: Journal of Banking and Finance, 2007 forthcoming.
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Legal Options: Toward Better EC Company Law Regulation
Gerard Hertig and Joseph A McCahery
In this paper, we lay out the structure of the regulatory competition argument and consider how the structure of EC company law has become more responsive to the market-place as a consequence of decisions by the ECJ and the corporate law-making process in the EU. We also assess the advantages of the pro-choice approach over the mandatory EC company law regime. Furthermore, we show the legal options model which develops menus of default rules to regulate transparency, accounts and director liability. This paper argues that a step-by-step approach implementing options is likely to yield higher benefits than mandatory corporate law provisions. We recommend a limited number of opt-in and opt-out provisions that would reduce conflict and perhaps be socially optimal.
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Bondholder Wealth in M&As: Evidence on the Impact and Spillover of Governance and Legal Standards
Luc Renneboog and Peter G. Szilagyi
This paper demonstrates that the bondholder wealth effects of M&As are strongly affected by cross-country variations in governance and legal standards. We examine deals that involve European firms with outstanding Eurobonds, and find that governance considerations are in fact better predictors of bond performance than either deal or firm characteristics. Firstly, bond returns in both bidding and target firms are systematically higher in M&As that involve firms from the stakeholder-oriented governance regimes of Continental Europe. Secondly, cross-border deals tend to induce lower bond returns. However, bondholders reap considerably higher gains if the deal exposes their firm to a jurisdiction with better creditor rights and claims enforcement. This suggests that cross-border M&As provide much greater scope for the functional spillover of creditor protection than has been previously assumed. Finally, bond performance is driven by both asset and financial risk changes, the merging firms’ relative size, as well as a negative listing effect.
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Corporate Restructuring and Bondholder Wealth
Luc Renneboog and Peter G. Szilagyi
This paper provides an overview of existing research on how corporate restructuring affects the wealth of bondholders. Restructuring is defined as any transaction that affects the firm’s underlying capital structure. Thus, it reaches well beyond asset restructuring and includes transactions such as leveraged buyouts, security issues and exchanges, and the issuance of stock options. We identify significant gaps in the literature, emphasize the potential differences between bondholder wealth changes in market- and stakeholder-oriented governance systems, and provide valuable insights into methodological advances. Many issues obviously remain, as empirical evidence is still incomplete and focuses almost exclusively on the US. In stakeholder-oriented regimes, the potential for research remains constrained by the lesser development of bond markets that disclose information on creditor wealth shocks. Still, on-going debt securitization should now allow for the investigation of at least some critical issues. This is imperative, as the position of creditors in the firm differs substantially across governance systems despite the gradual convergence of these regimes across the world.
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Spillover of Corporate Governance Standards in Cross-Border Mergers and Acquisitions
Marina Martynova and Luc Renneboog
In cross-border acquisitions, the differences between the bidder and target corporate governance have an important impact on the takeover returns. Our country-level corporate governance indices capture the changes in the quality of the national corporate governance regulations over the past 15 years. When the bidder is from a country with a strong shareholder orientation (relative to the target), part of the total synergy value of the takeover may result from the improvement in the governance of the target assets. In full takeovers, the corporate governance regulation of the bidder is imposed on the target (the positive spillover by law hypothesis). In partial takeovers, the improvement in the target corporate governance may occur on voluntary basis (the spillover by control hypothesis). Our empirical analysis corroborates both spillover effects. In contrast, when the bidder is from a country with poorer shareholder protection, the negative spillover by law hypothesis states that the anticipated takeover gains will be lower as the poorer corporate governance regime of the bidder will be imposed on the target. The alternative bootstrapping hypothesis argues that poor-governance bidders voluntarily bootstrap to the better-governance regime of the target. We do find support for this bootstrapping effect.
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Sources of Transaction Financing in Corporate Takeovers
Marina Martynova and Luc Renneboog
While the means of payment in takeovers has been a focal point in the takeover literature, what has been ignored is the analysis of how the takeover bid is financed and what its impact is on the expected value creation of the takeover. This paper investigates the sources of transaction financing in European corporate takeovers launched during the period 1993-2001 (the fifth takeover wave). Using a unique dataset, we show that the external sources of financing (debt and equity) are frequently employed in takeovers involving cash and mixed payments. Acquisitions with the same means of payment but different sources of transaction funding are quite different. For instance, the market reaction to the announcements of acquisitions fully paid with cash but financed by equity issues is similar to the market reaction to the announcements of acquisitions fully paid with equity. Moreover, a negative price revision follows the announcement of any corporate takeover involving equity financing (including cash-paid and mixed-paid takeovers). In contrast, this price correction that takes place subsequent to the debt-financed bids is insignificant. The multinomial logit and nested logit analyses show that the decisions regarding the payment method and sources of takeover financing (conditional on the chosen means of payment) do not coincide. Instead, these decisions are made to solve different problems. We also document that the financing choices are very sensitive to the differences in the legal environment (regarding shareholder, creditor and minority shareholder protection as well as corporate transparency) across countries.
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Shareholder lock-in contracts: Share price and trading volume effects at the lock-in expiry
Peter-Paul Angenendt, Marc Goergen and Luc Renneboog
This paper unveils the variety in lock-in agreements of firms listed on the Nouveau Marché stock exchange in France. The lock-in regulation and the changes therein since the inception of the stock exchange are discussed. In addition, the main economic reasons are given why shareholders adopt lock-in agreements that are more stringent than legally required. We relate the abnormal returns and the abnormal volume at the expiry dates of the different types of lock-in contracts to the degree of underpricing, venture-capitalist reputation and underwriter reputation. We find that the abnormal returns and the trading volume increase at the lock-in expiry (see the summary in Table 17); this is especially pronounced at the expiry dates of insider lock-in contracts as insiders are legally required to be locked-in. Surprisingly, we do not find significant abnormal returns at the expiries of VC contracts, even though trading volume increases at their lock-in expiry. The fact that VCs may have a large impact on the board of directors (through representation) and or may be more reputable through international activities does not influence the results. In addition, venture-capital backing has no impact on the abnormal returns or the trading volume. There is no evidence of a positive (negative) relation between abnormal returns (abnormal volume) and more stringent lock-in contracts. If lock-in contracts and the degree of underpricing were substitute signals of firm quality, we would find a positive relation between underpricing and the abnormal returns at expiry. However, it seems that the two signalling devices are complementary. Will appear as chapter 9 in: L. Renneboog (ed.), Advances in Corporate Finance and Asset Pricing, Amsterdam: Elsevier, 2006, 235-276.
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Is Investment-Cash Flow Sensitivity Caused by Agency Costs or Asymmetric Information? Evidence from the UK
Grzegorz Pawlina and Luc Renneboog
We investigate the investment-cash flow sensitivity of a large sample of the UK listed firms and confirm that investment is strongly cash flow-sensitive. Is this sensitivity a result of agency problems when managers with high discretion overinvest, or of asymmetric information when managers owning equity are underinvesting if the market (erroneously) demands too high a risk premium? We find that investment-cash flow sensitivity results mainly from the agency costs of free cash flow. The magnitude of the relationship depends on insider ownership in a non-monotonic way. Furthermore, we obtain that outside blockholders, such as financial institutions, the government, and industrial firms (only at high control levels), reduce the cash flow sensitivity of investment via effective monitoring. Finally, financial institutions appear to play a role in mitigating informational asymmetries between firms and capital markets. We corroborate our findings by performing additional tests based on the stochastic efficient frontier approach and power indices. Article appeared in: European Financial Management Journal 11 (4), 2005, 483-513.
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Explaining the diversity in shareholder lockup agreements
Marc Goergen, Luc Renneboog, Arif Khurshed
This paper investigates whether shareholder lockup agreements in France and Germany mitigate problems of agency and asymmetric information. Despite minimum requirements in terms of the length and percentage of shares locked up, lockup agreements are not only highly diverse across firms but also across the different shareholders of a single firm as most firms have different agreements in place for executives, non-executives and venture capitalists. The diversity across firms and types of shareholders can be explained by firm characteristics – such as the level of uncertainty – as well as the type and importance of each shareholder within the firm.
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The managerial labor market and the governance role of shareholder control structures
Luc Renneboog and Grzegorz Trojanowski
We simultaneously analyze two mechanisms of the managerial labor market: CEO turnover and monetary remuneration schemes. Sample selection models and hazard analyses are applied to a random sample of 250 firms listed on the London Stock Exchange. Both the CEOs’ monetary compensation and CEO replacement are strongly performance-sensitive. There is little evidence of outside shareholder monitoring whereas CEOs with strong voting power successfully resist replacement irrespective of corporate performance. With regard to CEO remuneration, we sketch a nuanced picture as we find evidence supporting alignment of interests hypothesis but also supporting the managerial power or skimming model for managerial remuneration practices in the UK. In particular, we show that CEOs with strong voting power choose their own benchmark (accounting performance) whereas in firms with strong outside blockholders, remuneration is related to shareholder value creation. Equity-owning CEOs compensate disappointing stock performance by augmenting their cash-based compensation package (salary and bonus). Finally, we also show that internal governance mechanisms (e.g. the presence of a remuneration committee) have little impact on remuneration.
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The Equilibrium Content of Corporate Federalism
William W. Bratton and Joseph A. McCahery
This article contributes to the ongoing debate about the state-federal allocation of corporate regulation. Arguments about the legitimacy of charter competition and Delaware’s national role as a corporate law maker are as intense as ever. The Sarbanes Oxley Act simultaneously has triggered a loud discussion about the legitimacy of federal intervention into corporate internal affairs traditionally regulated by the states. However, despite recent evidence of infirmities in the charter market, we think Delaware legitimately plays a national role. At the same time, we see no support for the view that recent federal expansion into internal affairs territory destabilizes or impairs corporate law’s federal structure. This Article explains why corporate federalism remains robust, offering a positive political economy. Drawing on the history of corporate law and basic concepts of evolutionary game theory, this article brings five points to corporate federalism discussions. First, federal intervention into internal affairs is inevitable because Delaware follows an evolutionarily stable strategy that constrains its ability to respond to shocks that create national political demands. Secondly, national interventions are structured so as to leave the rent-driven state equilibrium undisturbed. Thirdly, the cooperative federal strategy has come to respond to political demands focused on shareholder value. Fourthly, the state equilibrium’s second-best quality has no bearing on corporate federalism. From all of this follows a fifth point – the threat of federal intervention has sunk into the deep constitutional structure, leaving Delaware safe in the present context.
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Transatlantic Corporate Governance Reform
Joseph McCahery and Arman Khachaturyan
The US legislative reforms introduced in wake of the 2002 governance scandals impose a number of new statutory measures that seek to improve the level of transparency of accounts, ensure auditor independence and limit the abusive actions taken by boards and officers. While such measures have surely taken away some of the shortcomings of the original corporate law regime governing listed firms in the US, they may suffer from several shortcomings as we have seen. EU listed firms do not have the possibility of opting out of the EU regime. Those who support the introduction of a lower regulatory regime can cite the benefit of allowing investors and firms to enjoy different levels of protection, which is likely to correspond to the diverse needs of investors for information and legal protection. In this respect, the issue of flexibility and reliability of different measures should be examined and assessed. Will appear as chapter 7 in: L. Renneboog (ed.), Advances in Corporate Finance and Asset Pricing, Amsterdam: Elsevier, 2006, 189-197.
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A Corporate Governance Index: Convergence and Diversity of National Corporate Governance Regulations
Marina Martynova and Luc Renneboog
In this paper we address the limitations of the corporate governance indices triggered by the seminal work of La Porta, Lopez-de-Silanes, Shleifer and Vishny (hereafter LLSV). First, we develop three new corporate governance indices that reflect the quality of national laws aimed at protecting (i) corporate shareholders from being expropriated by the firm’s management, (ii) minority shareholders from being expropriated by the large blockholder, and (iii) creditors from being expropriated by the firm’s shareholders. Second, we empirically document the evolution of corporate governance regulations for all (30) European countries and the US. We analyse whether regulatory convergence has been started, and, if so, detect the main patterns of the converge process. Using the three indices we examine how corporate governance regulation has changed in countries over the past 15 years. The database is based on studying various corporate legislations, a questionnaire sent to leading corporate governance specialists as well as direct interview with these specialists. The questionnaire is on the various aspects of the corporate governance regimes and their evolution since the early 1990s. The questionnaire contains 55 questions that cover the most important provisions of company law, stock exchange rules, and bankruptcy and reorganization law at both the national and supranational level. The paper is organized as follows. Section 2 discusses the role of corporate regulation. Section 3 describes our unique database on corporate law reforms in 30 European countries and the US. Section 4 discloses the compositions of the corporate governance indices. Section 5 documents the dynamics of corporate governance regulation reforms and predicts the consequences of these reforms for the (lack of) evolution towards a single corporate governance system. Section 6 concludes.
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Mergers and Acquisitions in Europe
Marina Martynova and Luc Renneboog
The bulk of European M&As of the 1990s was expected to improve efficiency as they triggered substantial share price increases at the announcement, most of which were captured by the target-firm shareholders. We find large announcement effects (of 9%) for the target firms compared to a statistically significant announcement effect of merely 0.5% for the bidders. Including the price run-up, the share price reaction amounts to 21% for the targets and 0.9% for the bidders. However, we show that market expectations about takeover profitability depend on the different attributes of the bids. There is also strong evidence that the means of payment has a large impact on the share prices of bidder and target. Furthermore, domestic mergers or acquisitions trigger higher wealth effects to the target shareholders than cross-border operations. The evidence suggests that the differences in level of stock market development and corporate governance regulation across countries of different legal origins have a large impact on premiums paid in takeovers. We also demonstrate that takeover waves tend to pass their optimal stopping point. Unprofitable takeovers at the later stages of the wave result from limited information processing, hubris, and managerial self-interest. Will appear as chapter 2 in: L. Renneboog (ed.), Advances in Corporate Finance and Asset Pricing, Amsterdam: Elsevier, 2006, 13-75.
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Corporate Governance Convergence: Evidence From Takeover Regulation Reforms in Europe
Marc Goergen, Marina Martynova, and Luc Renneboog
This paper contributes to the research on corporate governance by predicting the effects of European takeover regulation. In particular, we investigate whether the recent reforms of takeover regulation in Europe are leading to a harmonization of the national legislations. With the help of 150 corporate governance lawyers from 30 European countries, we collected the main changes in takeover regulation. We assess whether a process of convergence towards the Anglo-(American) corporate governance system has been started and we find that this is the case. We make predictions as to the consequences of the reforms for the ownership and control. However, we find that, while in some countries the adoption of a unified takeover code may result in dispersed ownership, in others it may further consolidate the blockholder-based system. Forthcoming : Oxford Review of Economic Policy
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Governance Arenas in EU Direct Corporate Taxation
Claudio M. Radaelli and Ulrike S. Kraemer
NEWGOV Policy Brief no. 04, Winter 2007/2008
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Final Project Report
Claudio M. Radaelli and Ulrike S. Kraemer
This report presents the findings of the project on The Changing Architecture of International Tax Governance. In part 1 we introduce the key research questions that have led us to the choice of a specific theoretical framework, that is, strategic constructivism. Part 1 also shows how this theoretical framework is applied to EU and OECD tax coordination issues, and the substantive findings. Part 2 provides more details on the segment of our research project dedicated to the EU. Instead of looking at tax policy instruments such as tax rates or corporate tax structures, we take a governance approach to the analysis of tax coordination. Our major result is the explanation of why policy makers choose to differentiate among different governance arenas in order to process issues of tax policy that cannot be deal with at the systemic level. Part 3 carries on with our governance approach to tax coordination and introduces the theme of policy learning in order to interpret recent dynamics at the OECD level. Both part 2 and part 3 explore new modes of governance across time and arenas – the main argument being that in order to understand shifting modes of governance, one has to look at the political logic (in turn, both ideational and material-distributive) around which governance arenas are built.
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Draft Report on International taxation
Claudio M. Radaelli and Ulrike S. Kraemer
This report analyses the major events and developments in international direct taxation. It revolves around four questions. The first question deals with the emergence of the ideational context in international tax policy. Although this is not the only ‘policy idea’ available, there is no doubt that since the mid-1990s harmful tax competition has provided a focal point for tax coordination at the international level. It has also created the pre-conditions for integrating tax issues with other important issues, such as the fight against money laundering. Hence the question arises why have recent international tax initiatives revolved around the notion of harmful tax competition? We answer this question by looking at the major player in international tax coordination, that is, the OECD. Secondly, we examine the scope of international tax governance. Over the last ten years the OECD has moved towards multilateral, outward reaching and harder modes of governance. We look at the specific modes the OECD has chosen and deal with questions of timing (that is, when) and explanation (that is, why). Thirdly, we address the question why governance in international taxation has become less technocratic and more political by examining the changing constellation of actors and their preferences. Finally, we assess what has been achieved in three broad categories, that is, learning, processes, and outcomes.
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Chronology - Major Events in International and European Tax Governance
Claudio M. Radaelli and Ulrike S. Kraemer
This chronology of tax events provides a description of the main events since the 1960s looking at a wide range of actors and initiatives. On the one hand this will allow other researchers and policy stakeholders to keep track of the policy development in this area. In the context of the research, on the other hand, it is a valuable tool for the description and interpretation process. It is used to formulate initial ideas of how the policy process unfolded, to identify the opportunities open to policy makers, and to describe how new issues reached the policy agenda. Complemented with the information distilled out of the semi-structured interviews, and primary documentation analysed, this chronology enables the researchers to blend objective and subjective information into the analysis of European and international tax policy. This then feeds-back into a framework based on a process-tracing research design.
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Final Dissemination Report
Claudio M. Radaelli
This report summarizes the dissemination activities of NEWGOV Project 22 ‘The Changing Governance Architecture of International Taxation” during the duration of the Project from October 2004 to July 2007. A full list of activities can be found in section 2.
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Exploratory workshop on Soft Law, New Policy Instruments, and Modes of Governance in the European Union
Claudio M. Radaelli
The exploratory workshop (28 January 2005, University of Exeter) gathered some 20 participants engaged in theoretical and empirical research on soft law and new policy instruments in the European Union. The workshop discussed the following intellectual themes: classification of formal and informal governance; interaction between new and old governance; emergence of new governance; quality of new policy instruments; effectiveness of soft law and new governance in general; and type of social theory better suited to understand new governance. One of the main conclusions of the meeting is that the term ‘soft law’ has limited intellectual mileage, both for lawyers and political scientists. Governance should be studied along a continuum from extremely formal to very informal. The ideal-types of governance which have been identified by the literature should be situated along the continuum.
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Chronology: Major Events in International and European Tax Governance since 1998
Claudio M. Radaelli and Ulrike S. Kraemer
Chronology of the major events in international and European tax governance since 1998.
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Shifting Modes of Governance: The Case of International Direct Taxation
Claudio M. Radaelli and Ulrike S. Kraemer
This paper covers the long-term development of governance in international and EU direct taxation. It makes three claims. First, informal governance is ‘old’ governance as far as direct taxation is concerned. Informal modes were institutionalized by the OECD with the model treaty convention and guidelines for transfer pricing between the 1960s and the 1980s. Secondly, overall there is no linear pattern of informal governance. The OECD-promoted international tax order is more formal than in the past, but in the EU there is more interest in informal governance than in the past. Thirdly, the social legitimacy of international tax governance has declined over the last 80 years or so. The wider the scope and the range of actors targeted by informal governance, the larger the contestation of OECD and EU policy. This seems to lead to the paradoxical conclusion that legitimacy has been higher under conditions of close, technocratic governance networks - a point hard to reconcile with democratic theory. We explain this paradox by arguing that the questions about social legitimacy should be posed in terms of switch of logics, from technocratic to political. (Paper Prepared for the International Workshop on "The Transformation of the Territorial State: Changes in and Challenges to National Control over Police and Taxation", International University Bremen, June 17-18, 2005).
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Who learns what? Policy learning and the Open Method of Coordination.
Claudio M. Radaelli
This paper provides a theoretical and empirical assessment of the claim that the open method of coordination is a learning-based mode of governance. (Paper prepared for the ESRC seminar series: Implementing the Lisbon Strategy '- Policy Learning Inside and Outside the Open Method' - European Research Institute - University of Birmingham; November 2004)
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The governance problem of the shadow economy
Luigi Burroni, Colin Crouch, Monika Ewa Kaminska, and Andrea Valzania
NEWGOV Policy Brief no. 23, Spring 2008
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The territorial governance of the shadow economy
Luigi Burroni and Colin Crouch
The findings of studies of local economies can be applied to those concerned with “shadow’ and illegal activities. These need to be seen, not as situations with an absence of governance and markets, but as constituting particular kinds of governance, this often being concerned with ensuring the functioning of markets. A scheme for modelling this governance is proposed. This is then used to formulate a critique of most prevailing policy approaches to trying to counter the shadow economy and encourage the ‘emersion’ of firms from it. Some instances of policies that are better grounded in an appreciation of the reality of the shadow economy as a social order are also cited. (Article accepted for publication in Environment and Planning C.)
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Dissemination Conference: Economia sommersa e sviluppo locale
Colin Crouch
The dissemination activity to a wider public, including practitioners, undertaken for this project was to hold a public conference to publicise the results of the research. It was held on 21 April at the Prato site of the University of Florence. Prato is a leading location for the textile and clothing industry of central Italy, where many of the ideas related to the development of public policy towards this sector were developed. It was therefore a particularly suitable location for an event on this topic. The conference was attended by about 200 people, including specialists in and students of local economic development of the University of Florence, and representatives of the textile industry of Prato and of the municipality.
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The survival of clothing production in SMEs in Lódz
Monika Kaminska
Following the collapse of the long-established clothing, footwear and textile industry around Lódz and following the collapse of its markets in the former Soviet Union and the general problems of these industries in Europe, some recovery of the sector has taken place. This is concentrated in a small number of locations and comprises a mix of micro-enterprises producing simple clothing and footwear goods, and some larger enterprises specialising in the market of these goods. These enterprises depend heavily on markets in Russia and the Ukraine which demand very low-priced products. Firms therefore find it difficult to move to higher value-added production and to a large extent exist mainly in the shadow economy. Partly because of this last fact, partly because the sector is not an object of interest to government or to multi-national enterprises, and partly because the lack of trust in personal relations that seems to be characteristic of Polish institutions, there is little evidence of development, though the sector continues to thrive and to provide employment.
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Lo sviluppo di una industrializzazione leggera in Campania
Andrea Valzania
Despite the generally depressed nature of the textile and clothing industry in southern Italy, there are cases of newly developing industrial districts which seem to be defying the trend. This paper examines the factors that seem to make this possible. This sector is one that is in crisis throughout the advanced world as very cheap producers in parts of Asia take advantage of collapsing trade barriers. In southern Italy these sector-specific problems are exacerbated by more general ones of poor quality infrastructure and local institutions, corruption, and even the involvement of organised crime in economy and polity alike. The successful cases in this context, that is those which are finding expanding markets for their products, seem to be, in part, those where local political and associational leaders have been determined to institute a good local institutional context for firms. A further factor has been the capacity of the firms, which are mainly small, to connect to large customer enterprises with strong brand names, reputations for quality, and connections to work markets. This is not therefore a story of completely autonomous local development, but it does indicate one of the likely ways in which local points of strength can connect to global markets.
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Feasibility of establishing a common register for lobbyists in the EU
Daniela Obradovic
NEWGOV Policy Brief no. 31, Spring 2008
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Czech Environmental NGOs: Actors or agents in EU multi-level governance?
Heiko Pleines
NEWGOV Policy Brief no. 20, Spring 2008
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Case study – Czech Environmental NGOs in EU governance – Challenges of accountability
Heiko Pleines
The following case study examines how Czech environmental NGOs cope with these eligibility criteria of the European Commission and namely the challenge of accountability. With that the focus is on legal accountability of civil society organisations. Legal accountability pertains to the forms of participation in policy making and implementation. It concerns the legality of the means employed to influence decisions. It is opposed to political accountability which concerns responsibility for the contents of political decisions and refers to participants in the formal political decision-making process.
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Book Manuscript: The capacity of Central and East European interest groups to participate in EU governance
Daniela Obradovic and Heiko Pleines (editors)
This book presents results of a research team which examines the impact of the EU eastern enlargements on EU governance structures involving the participation of civil society organisations. In this context, the focus is on questions of capacity and accountability in a multi-level perspective. The research team belongs to NEWGOV project 24, directed by Daniela Obradovic, Amsterdam Center for International Law. The research team is headed by Heiko Pleines, Research Centre for East European Studies (Forschungsstelle Osteuropa) at the University of Bremen. Further NEWGOV partners in the research team are Michal Federowicz (Institute of Philosophy and Sociology, Polish Academy of Sciences, Warsaw), David Lane (University of Cambridge, UK) and Zdenka Mansfeldová (Institute of Sociology, Academy of Science of the Czech Republic, Prague). Citation: Daniela Obradovic, Heiko Pleines (eds.): The capacity of Central and East European interest groups to participate in EU governance, Stuttgart: Ibidem Publishers, 2007, ISBN 978-3-89821-750-7.
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Participation of Civil Society in New Modes of Governance. The Case of the New EU Member States - Part 3: Involvement at the EU Level
Various; editor: Heiko Pleines
This working paper is the third and final part of a series presenting the first results of a research team examining the impact of the 2004 EU enlargement on governance structures involving the participation of civil society organisations. Starting from the thorough analysis of the situation at the national level, in this working paper we examine the engagement of civil society organisations from post-socialist member states in EU governance. The contributions cover the respective EU regulations as well as informal practices and focus on the capacity, impact and accountability of the civil society actors involved. The first contribution, written by Brigitte Krech, gives an introductory overview of how civil society organisations from new post-socialist member countries have been integrated into different modes of governance at the EU level. The second contribution by Daniela Obradovic and Jose M. Alonso Vizcaino, presents the regulatory framework developed by the EU to organise the different forms of governance involving civil society actors. The following five contributions then present case studies designed to obtain a better understanding of the capacities, impact and accountability of civil society organisations from new post-socialist member states. The case study by Kristýna Bušková and Heiko Pleines examines the experiences of Czech environmental NGOs with EU governance, while the contribution by Gesine Fuchs focuses on Polish women’s NGOs. The following two case studies by Zdenka Mansfeldová and Joanna Einbock analyse the involvement of Czech and Polish trade unions and employers’ associations in the EU social dialogue. The final case study by Heiko Pleines examines the role of the Polish agricultural lobby in EU governance.
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Eastern Europe as an accountability constituency in the Commission consultations
Daniela Obradovic and José M. Alonso Vizcaíno
Although civil interest groups have been involved in the governance of the EU since its creation, their structured incorporation into the European policy formation process is of relatively recent origin. The Commission formalised the dialogue with civic groups by virtue of the adoption of general principles and minimum standards for consulting interested parties (hereafter the minimum standards). The Commission defines consultations as those processes through which it wishes to trigger input from interested parties for the shaping of policy prior to a a decision by the Commission. ‘Interested parties’ means all who wish to participate in consultations run by the Commission, whether they are organisations, profit or non-profit or private citizens. The participation of various parties in the Commission consultations should endow the Commission with the accountability attributes. The Commission emphasised that those standards are intended that all parties affected by particular EU decisions are properly addressed and consulted on those measures and that an adequate balance is struck between them, depending on their social or economic character, size, specific target groups and country of origin since not only European level interest organisations are consulted, but also those operating at national level. The paper examines the level of the participation of interest groups originating in the member states of Easter Europe as an accountability constituency in the Commission consultations and the significance of thereof for this process.
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Participation of Civil Society in New Modes of Governance - The Case of the New EU Member States. Part 2: Questions of Accountability
Heiko Pleines (ed.) and others
This working paper is part of a series presenting the results of a research team examining the impact of the 2004 EU enlargement on governance structures involving the participation of civil society organisations. In this second working paper the researchers focus on questions of accountability at the national level, distinguishing between its different forms and directions. The Working Paper includes articles by: Heiko Pleines, David Lane, Michal Federowicz and Michal Sitek, Zdenka Mansfeldová, Marcin Michal Wiszowaty, Jakub Plazynski, Martin Kay, and a bibliography by Aleksandra Lis.
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Participation of Civil Society in New Modes of Governance - The Case of the New EU Member States. Part 1: The State of Civil Society
Heiko Pleines, David Lane, Michal Federowicz, Zdenka Mansfeldová, Malgorzata Anna Czerniak
This working paper presents the first results produced by a research group examining the impact of the 2004 EU enlargement on governance structures involving the participation of civil society organisations. It is devoted to the state of civil society in the new EU member countries with a socialist past, focusing on the capability of civil society organisations in these countries to participate in old and especially new modes of governance at the national as well as at the EU level. As participation in EU-organised or EU-designed modes of governance is of special importance for the project, the empirical analysis is based on the EU definition of civil society, to make sure that the group of actors covered by the project and by EU regulation is identical. The theoretical and analytical consequences of these civil society definitions, when applied to post-socialist cases, are discussed by David Lane in his contribution on civil society and the imprint of state socialism. At the same time Lane gives an overview of the specific legacies influencing the development of civil society in post-socialist states. Michal Federowicz then presents a theoretical framework to describe the transformation process going on in post-socialist societies. The following contribution by Heiko Pleines moves on to analyse the role of civil society organisations in policy-making. He takes the examples of Poland and the Czech Republic and contrasts them with Russia in order to show differences within the group of post-socialist cases. In her case study of Czech civil society actors in the social dialogue Zdenka Mansfeldová then offers a closer examination of the role of civil society groups from new EU member states in new modes of governance. A selected bibliography, compiled by Malgorzata Czerniak, finally gives an overview of recent research on the topic.
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Civil and the Social Dialogue in European Governance
Daniela Obradovic
This article is intended to highlight the distinction between the concepts of the social and civil dialogue in the European Union and to evaluate the impact thereof upon its governance. At present, it hardly can be concluded that the involvement of interest groups in different policy processes in the Union through the civil and social dialogue dramatically increases efficiency of EU governance. The effective implementation of policies cannot be always guaranteed by involving civil actors. Indeed, this study demonstrates that there are considerable limitations on the part of the social partners and civil interest groups to contribute decisively towards efficient conduct of EU policies. This deliverable will be published in the Yearbook on European Law, 2005, Oxford University Press.
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The European Way. History, Form and Substance
W.T. Eijsbouts
The article examines the impact of the EU Constitution upon allegiance of civil groups. It emphasises that Europe is not tearing, but rather teasing individuals from their traditional allegiances. Author finds that the Union’s rallying cry has been not protection but opportunity, not police but prosperity. By itself this has been unconvincing to the majority of even those who profited from it, only securing allegiances of a practical and sectoral nature: of farmers, industrialists, commercial people, tourists, etc. It is congruent with this that the Union never tried to impose itself too heavily on what not unduly is called its clientèle, neither imposing its own taxes nor other hard duties. It left this to the Member States and tried to please the Europeans by granting and enforcing rights mainly as against their own governments, much less as against each other. This was at the cost of popular involvement. No obligation and no taxation, so no representation either, to turn around the old adage. Which explains that this soft method has not been conducive to European citizenship in the political sense. In place of this, legal commitments, involving human and social rights and even citizenship, are gradually being built on the basis of partial and sectoral rights. What these rights are doing, however, is to transcend the sectoral level, to become general or public. In this way they are a certain step towards the creation of a public (shared, common, general) European sphere or interest. (Published in European Constitutional Law Review, 1: 5-11, 2005)
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Feasibility of establishing a common register for lobbyists in the EU
Daniela Obradovic
Extended Version of the NEWGOV Policy Brief no. 31, Spring 2008
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Representation of Polish Interest Groups at the EU Level
Joanna Einbock, Gesine Fuchs, Heiko Pleines
The focus of this paper is on the European activities of the two largest Polish trade union federations. The first group of factors to be analysed can be viewed as internal indicators of Europeanisation. On the other hand, external indicators, such as formal representation and co-operation as single interest groups and within transactional umbrella organisations at the European level, will be taken into consideration. The crucial questions discussed are: How are Polish trade unions represented at the European level?; What problems do they face?; What successes have they scored two years after Poland’s accession to the EU? The paper was published as KICES Working Papers, No. 7 – December 2006.
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Cluster 4 Workshop no. 5 at the NEWGOV Consortium Conference 2008
Martin Rhodes
The meeting took place during the 4th and final NEWGOV Consortium Conference, 5 and 6 June 2008, at the European University Institute in Florence. The purpose of this meeting was to subject the Newgov ‘14-questions’ document to discussion by the project leaders of cluster 4 and additional participants. Based on a consolidated document prepared by the two cluster leaders, the meeting was in a position to pursue the discussion of the questions in greater depth.
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Cluster 4 Workshop at the NEWGOV Consortium Conference
Martin Rhodes and Jelle Visser
The meeting took place during the 3rd NEWGOV Consortium Conference, 31 May – 1 June 2007. The aim of this workshop was to continue the process of reflection on common themes across the projects of the cluster and stimulate sharing of results. Like previous cluster workshops, it served as an internal review system on work produced so far, with the cluster leaders and people from different projects assessing each others work. Even though not all of the cluster’s projects could be present at this workshop, the variety was such as to prevent ready generalisations across the presentations. But one theme that did emerge was the fact that the ‘new modes of governance’ template fits poorly with most of the cluster’s projects, throwing the cluster participants back on the use of more conventional frameworks to make sense of the analyses.
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Workshop: New Approaches to Socio-Economic Governance
Martin Rhodes and Jelle Visser
The aim of this workshop, which took place at the Amsterdam Institute for Advanced Labour Studies on 7 and 8 December, 2006, was to allow for reflection on common themes across the projects of the NEWGOV cluster 4 and stimulate methodological and conceptual cross-fertilisation on the topic of ‘new approaches to socio-economic governance’. It also served as an internal review system on work produced so far, with the cluster leaders and people from different projects assessing each others work.
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Cluster 4 Workshop: Learning, Experimental Governance & Reform
Martin Rhodes and Jelle Visser
This collective deliverable (D01) reports on the second workshop of NEWGOV cluster 4 “Learning, Experimental Governance & Reform”. It took place in the framework of the second NEWGOV Consortium Conference in June 2006, Florence. The aims of the workshop were to firstly for the members of the group to become acquainted with one another’s projects and developments to date and to explore emerging synergies across them. The workshop was important for establishing just how far one could establish coherence across this cluster and how far, by contrast, we should allow diversity – of subject matter, levels of analysis and methodologies – to prevail. The existence of the two distinct groupings across our projects means that we are still searching to establish links across them within the cluster, rather than engage in an artificial attempt to find unity across the cluster as a whole.
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Cluster 4 Workshop: Learning, Experimental Governance & Reform - Florence, 30 - 31 May 2005
Martin Rhodes and Jelle Visser
The first cluster workshop took place at the same time as the first NEWGOV consortium conference at the end of May 2005, and involved attendance from all projects in the cluster. The aims of the workshop were to firstly for the members of the group to become acquainted with one another’s projects and developments to date and to explore emerging synergies across them. The workshop involved the presentation and discussion of the research designs of all projects in the cluster with a view (a) to engage in a constructive but critical discussion of the each projects methodology and ‘road map’ for the next year or so and (b) to seek out connections, both theoretical/conceptual and empirical between the projects of the cluster. The discussion proceeded as follows (this summary mentions only highlights of the discussion).
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Revised Country Report: The Emergence and Evolution of Social Pacts: Ireland
Rory O’Donnell, Maura Adshead and Damian Thomas
This report provides an account of the emergence and evolution of social pacts in Ireland. Section II provides a brief description of the seven social pacts in Ireland in the period since 1987. Section III describes the main actors and institutions in place at the time of Ireland’s first social partnership agreement in 1987. The emergence of that first pact is described and analysed in Section IV. That section finishes with a summary discussion of the bargaining dynamics, identifying the role of bounded rationality, context-specific preferences, non-unitary actors and perceptions of power shifts. Section V describes and analyses the institutionalisation of social pacts in Ireland. We argue that there have been two broad trajectories of institutionalisation in Ireland’s twenty-year experience with social partnership. The first was the institutionalisation of a ‘partnership’ approach to public policy and governance in a wide range of policy areas. The second was the transition to a new regime of wage bargaining and industrial relations. Section V finishes with a discussion of the mechanisms of institutionalisation. We suggest that all five mechanisms of institutionalisation identified by Avdagic et al (2005) we relevant. The significant degree of institutionalisation, documented in Section V, would seem to have been driven by functionality, outcomes, networks, norms and power factors. In the conclusion, Section VI, we return to some of the themes arising in the analysis. In particular we discuss institutionalisation in the sphere public policy rather than of employer-union relations, the concept of ‘shared understanding’ and a possible ‘small country effect’.
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Workshop #3 and Practitioner Forum: National Social Pacts Conference
Martin Rhodes, Sabina Avdagic, Jelle Visser
The main aim of the project workshop no. 3 in Lisbon on 30-31 May 2008 was to meet and decide on the revisions needed to existing country reports and overview analyses in order to produce a book presenting project outcomes. Over the two days of the workshop the project partners compared findings and sought to identify key issues and parts of the country analyses that would need to be revised (or written) before the draft of the book is finalised.
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Revised Country Reports: Netherlands, Italy, Poland, Slovenia and Spain
Martin Rhodes, Sabina Avdagic, Jelle Visser and Collaborators
This deliverable (D09) presents some of the most developed country reports that have been revised in accordance with guidelines established and given to our country authors at Workshop 2 (D07) held at the Amsterdam Institute for Advanced Labour Studies in October 2005. The following studies of the Netherlands, Italy, Poland, Slovenia and Spain accompany our first analytical synthesis report D08. The objective of these reports is to begin linking the empirical evidence discovered in the country analyses to project 18a’s overall analytical framework. The reports confirm the relevance of the central pillars of the project’s bargaining model (D01) in shaping actors’ strategies, while also indicating the need for further refinements to our indicators of relative power (see deliverable D08 – First Synthesis Report). Along with further refinements currently being made to the Irish and Portuguese reports, the following country analyses represent the next analytical step towards a book on contemporary social pacts and the governance of distributive issues in Europe.
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Workshop ‘Emergence and Evolution of Social Pacts #2: Country Reports and Cross-National Analysis’
Martin Rhodes
Project 18a studies the sources (emergence) and dynamics (evolution) of learning and innovation of socio-economic governance, focusing on social pacts, partnership or concertation. The main research questions in the first 18 month period are the conditions under which social partnership and pacts have emerged and how these birthmarks influence their further evolution (‘institutional emergence’); the reasons for and nature of social partnership in practice and the conditions influencing their development and use by participants (‘institutional evolution’). These questions are being studied through comparative study of concertation practices, partnership and pacts in Ireland, Italy, Spain, Poland, Slovenia, Portugal and the Netherlands. The purpose of the second project workshop was to bring the team leaders and country authors together for a first-stage analysis of the results. This will clearly not be the end of that process, and country authors will return to their prior to submitting their final results later in the second year of the project. Nevertheless, the workshop was extremely useful for (a) giving an opportunity to the project directors to assess the work of the country respondents and to ensure that it was conforming to the guidelines of the framework document and analytical grid (WP 1, D1) and (b) feeding back the country results into the grid and seeing if it indeed works as well as it should. In light of the workshop, some changes will be necessary in the framework and the grid.
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The Emergence and Evolution of Social Pacts: Country Papers
Various, coordinated by Martin Rhodes, Jelle Visser, and Sabina Avdagic
We now understand from a plethora of studies conducted in the 1990s how different social pacts of the last 10-15 years are from the neo-corporatist deals or political exchange that were characteristic of the Keynesian-era. These different features can be understood in terms of (a) the context in which they happen; (b) the content of pacts; (c) their aims; and (d) a much stronger role for government. Due to this distinctiveness, they have been characterized variously as "competitive corporatism", "supply-side corporatism", "post-corporatism" or "organized decentralization". However, we still lack a rigorous analytical framework able to facilitate comparative analysis and generate more wide-ranging conclusions regarding both the determinants of actors’ behaviour and thus the likelihood that social pacts will emerge, and of their persistence and institutionalisation as a specific form of governance. Hence, two main questions guide our analysis in this project. The first is the question of institutional formation, i.e., how do social pacts emerge? The second is the question of institutional development, in which we try to understand how social pacts subsequently evolve. To answer these questions, we are relying on the in-depth empirical analysis of seven European countries: Ireland, Italy, the Netherlands, Poland, Portugal, Slovenia and Spain. These cases provide sufficient variation with regard to the degree of success or failure of social pact negotiations and of more regularized political exchange. Our empirical evidence is being collected and organized by respective country research teams around the common analytical framework. The country chapters presented here are the first drafts of the reports that will underpin the final study. Each will undergo further revisions, as will the framework document put in place in early 2005 by the project directors.
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Database
Jelle Visser
For the purpose of the comparative – quantitative and qualitative – analysis of social pacts and related agreements and “new” forms of governance between public authorities, unions and employers, the University of Amsterdam has developed a database covering economic, political and institutional data in 26 advanced economies over a range of 45 years. The economic and political data are from international sources like the OECD, United Nations, ILO and Worldbank. The institutional data, with measurements for various types and forms of social pacts and agreements, was developed specifically for the project and is based on new data, using the 7 national reports as well as various other sources for other countries. The database is meant to be a “public source” for the use of researchers and policy-makers – as a source of documentation and as an analytical instrument. The research team foresees measures allowing interactive use of the database. We intend to have the database ready for (unrestricted) public use per 1-1-2008.
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The Emergence and Evolution of Social Pacts: A Provisional Framework for Comparative Analysis
Sabina Avdagic, Martin Rhodes, Jelle Visser
This paper provides the scientific framework for the project on Distributive Politics, Learning and Reform directed by Martin Rhodes, Sabina Avdagic and Jelle Visser. In Part I, we establish our own definition and conceptualization of social pacts. On the basis of two dimensions, we distinguish between four types of pacts with different scope and depth: shadow pacts, headline pacts, coordinated wage setting, and embedded pacts akin to neocorporatist concertation. Since social pacts represent rules that are supposed to guide interaction between socio-economic actors, they qualify as institutions of socio-economic governance. Part II is concerned with the question of institutional formation, i.e. how such social pacts come into existence. To analyze this question, we outline some standard functionalist accounts of institutional emergence, and critically examine them in relation to recent experiences with social pacts. As an alternative, we propose a bargaining model that is to be evaluated on the basis of our empirical material. Part III is concerned with the question of institutional development, i.e. what determines whether the continuation and institutionalization of social pacts or, conversely, their de-institutionalization and demise. Based on the taxonomy of social pacts presented in Part I, we first set out to define two alternative evolutionary paths for social pacts (institutionalization and de-institutionalization), and to identify three types of trajectory along which social pacts develop (repetition vs. abandonment; integration vs. disintegration; and expansion vs. reduction). The subsequent section then outlines four alternative mechanisms that may potentially drive the institutionalization or de-institutionalization of pacts. Grounded in the four major approaches for analyzing institutions, i.e. the functionalist, utilitarian, normative, and power-distributional perspectives, this section proposes four groups of hypotheses to be evaluated against each other in our empirical material.
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Creation of Project Team
Martin Rhodes
The Project on ‘Distributive Politics: Experimentation, Learning and Reform’ studies the sources (emergence) and dynamics (evolution) of learning and innovation in socio-economic governance, focusing on social pacts, partnership and concertation. The questions addressed in this project are studied through the comparative study of social pacts and concertation practices in seven European countries: Ireland, Italy, Netherlands, Poland, Portugal, Slovenia, Spain. For this reason, the project will include a number of country-specialist partners in charge of conducting research on these national cases and producing country reports.
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Workshop 'Emergence and Evolution of Social Pacts: A Tentative Framework for Comparative Analysis'
Sabina Avdagic, Martin Rhodes, Jelle Visser
The first workshop bringing together all participants in the project was held at the European University Institute on 15th January 2005. The workshop had two basic aims. First of all, it was organised around the discussion of a common theoretical and methodological framework to guide the work done by project partners on their respective national cases. The basis for the discussion was the paper on 'The Emergence and Evolution of Social Pacts: A Tentative Framework for Comparative Analysis' by the project directors. The second main objective of the workshop was to discuss and debate the theoretical propositions and hypotheses and questions guiding the project and to develop jointly a general schedule, timetable for the delivery of research outcomes and other issues related to participants involvement in the project. Finally, a new meeting-workshop was scheduled for June 2005.
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Local Partnership Consolidation in Italy – Analytical framework, research strategy and case selection
Patrik Vesan, Matteo Bassoli, Valeria Sparano
The main aim of this report is to present a framework for analysis which will be used for partnership case studies. In particular, we will address our attention to one specific aspect of the development of cooperative experiences, i.e. their consolidation process, with a particular focus on Italian public-private partnerships aimed at territorial development regulation. First, an articulate definition of partnership - derived from the existing literature on the topic - will be provided; second, a more specific framework for analysis will be presented and some research hypotheses will be formulated; third, a preliminary selection of cases will be presented and discussed; finally, some brief remarks on the continuation of the research will conclude the paper.
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Territorial Pacts and Local Level Concertation in Europe. A Multi-Level Governance Perspective
Ida Regalia
The paper is organized as follows. It first makes some preliminary and general specifications concerning the topic examined. It then concentrates on the subnational level of concertation, discussing the reasons for the emergence and spread through Europe of local partnerships and pacts, and presenting the forms identified in the empirical literature. Particular attention will be paid to territorial pacts for employment and development (European and of local/national origin) with reference being made to Italy and Spain, as the countries in which territorial pacts have developed to the greatest extent. The concluding section sets out proposals for the future development of the inquiry and provides some preliminary concluding remarks.
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Contribution to Database - Literature review on local development partnerships in Spain
Francesc Gibert
The literature review, written in Spanish, is aimed to providing basic information on local development partnerships in Spain. In the first part, it presents the theoretical and empirical contributions connected to territorial pact analysis in Spain, whereas the second part presents the direct and indirect effects of local development partnerships on both the Spanish national and local political systems.
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Territorial Pacts: Which Kind of Concertation? Preliminary observations for a reinterpretation of social pacts at the sub-national level.
Ida Regalia
The paper is organized as follows. It first makes some preliminary and general specifications concerning the topic examined. It then concentrates on the subnational level of concertation, discussing the reasons for the emergence and spread through Europe of local partnerships and pacts, and presenting the forms identified in the empirical literature. Particular attention will be paid to territorial pacts for employment and development (European and of local/national origin) with reference being made to Italy and Spain, as the countries in which territorial pacts have developed to the greatest extent. The concluding section sets out proposals for the future development of the inquiry.
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Local Partnership Consolidation: a Framework for Analysis
Patrik Vesan, Paolo Graziano, Matteo Bassoli, Valeria Sparano
The main aim of the paper is to present a framework for analysis which will be used for empirical studies of partnerships consolidation, with a particular focus on Italian and Spanish public-private partnerships aimed at territorial development regulation. First, an articulate definition of partnership will be provided building on the existing literature on the topic; second, a more specific framework for analysis will be presented and some research hypotheses will be formulated; third, a preliminary selection of cases will be discussed; fourth, the specific goals and timing of the future research will be specified; finally, some concluding remarks will follow.
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Lisbon as economic governance: fusion by dif-fusion?
Iain Begg
Economic governance can be interpreted as the means by which the various facets of public policy are reconciled and policies are conducted. The economic governance arrangements at present in the EU are an odd mix, ranging from virtually complete assignment of competence to the EU level for some functions or policy domains, to the strict preservation of national autonomy in others. There are also many areas in which competence is shared. Yet in several domains, these assignments only loosely reflect principles that might be deployed to justify their being located at one level of governance rather than another. Instead, they are more often the result of the stepwise progression of European integration and the various path dependencies that have influenced the policy architecture. To take forward any review of assignments among tiers of government in governance functions it is useful to bear in mind attributes that justify or oppose resort to the various options. From an economic perspective, these include spillovers, externalities, policy efficiency and various other factors, while from a political standpoint, preservation of national autonomy is often paramount. This chapter explores whether the fusion thesis can shed light on how ‘Lisbon’ has evolved and asks whether these new forms of governance represent an extension of, or departure from, the thesis, or whether – enriched by these two variants – the thesis has the dexterity to accommodate the ever changing topography of economic governance. The paper will appear as: Begg, Iain (2009, forthcoming) ‘Lisbon as economic governance: fusion by dif-fusion?’ in Diederichs, U., Faber, A., Tekin, F. and Umbach, G. eds. Europe Reloaded.
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Governance for sustainable development
Iain Begg
That there are shortcomings in the governance of sustainable development is undeniable and it is evident that there is a pervasive reluctance to confront some of the more intractable challenges. These notes review definitions, examine the governance of sustainable development and try to tease out ideas on policy developments that might enhance governance for sustainable development. The paper was presented at an event to present the ETUC/OSE report on the Social Situation 2008 at the European Parliament 15th May 2008. A longer version appeared as: Begg, Iain (2008) ‘Governance for sustainable development’ in Degryse, C, and Pochet, P. eds. Social developments in the European Union 2007 Brussels: ETUI-REHS.
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Fourth Annual Periodic Report
Iain Begg and Waltraud Schelkle
The deliverable provides a summary of the research activities carried out in the fourth project year. It feeds into the general annual project report of the NEWGOV project.
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Annual Periodic Report - Year 3
ain Begg, Waltraud Schelkle
The deliverable provides a summary of the research activities carried out in the third project year. It feeds into the general annual project report of the NEWGOV project.
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Annual Project Report
Iain Begg, Waltraud Schelkle
The deliverable provides a summary of the research activities carried out in the second project year. It feeds into the general annual project report of the NEWGOV project.
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Annual Project Report
Iain Begg, Waltraud Schelkle
The deliverable provides a summary of the research activities carried out in the first project year. It feeds into the general annual project report of the NEWGOV project.
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The United Kingdom and the Euro
Iain Begg
It is one of the ironies of EMU that the two countries which carried out the most extensive economic appraisals of the merits of joining the single currency – the UK and Sweden – are also those which have (so far) most emphatically rejected membership. Unlike other Member States that regard political aims as the primary goals of European integration, the UK approach has often been rooted in a narrower economic calculus of cost-benefit analysis: ‘unless the change makes us better-off, we oppose it’. Quite simply, the UK has not joined EMU because it has not managed to persuade itself that joining will boost its prosperity. At the same time, there are ramifications of the British opt-out that may give rise to calls for change as the number of Member States acceding to the single currency increases. For the UK, the worry is that it will be at least partly excluded from decisions that affect its interests, while for the euro area members, the concern is that a minority of non-participants could thwart change. This chapter starts by presenting the UK approach to deciding on euro membership and explains how the UK has adopted its own criteria for assessing the case for membership. Section II explains the UK macroeconomic framework and discusses how it differs from the EMU model. In the third section, the impact of the UK’s reluctance to join is assessed, both for the UK and for EMU itself. Concluding comments and a discussion of the likely evolution of the UK position complete the chapter. The chapter will appear in: Frédéric Allemand, Yann Echinard and Francesco Martucci (eds.) (2009), L’union économique et monétaire: un chantier à poursuivre, Les Editions Pédone (Paris).
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Belgium’s fiscal performance in EMU – an unlikely success story of the EU’s budgetary surveillance?
Waltraud Schelkle and Zsófia Barta
The paper tries to explore the puzzle of Belgium’s fiscal performance. First, in what ways was EMU instrumental to bring change (reduction of budget deficit and public debt) about? Second, is Belgium’s fiscal performance a success story of the EU’s fiscal surveillance, jointly exercised by the Council and the Commission? The paper proceeds as follows: It first outlines the story of Belgium’s fiscal consolidation since 1993. It then explores whether there is evidence for an explanation that relies on the effectiveness of external constraints-commitment device in contrast to one that seeks to find the answer in domestic budgetary institutions. Finally, it proposes an own tentative explanation that is based on the peculiar situation of Belgium’s federation and qualifies the perception of a success story.
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Monetary Union
Waltraud Schelkle
This paper presents selective answers to three questions: firstly, what did we think we know about the monetary union in Europe; secondly, what do we seem to know now and, most importantly, what should we know? The term monetary union and EMU will be used interchangeably since I touch only at the margin on the Single Market, for which the -E- stands. The chapter will appear in: Schelkle, Waltraud (forthcoming) ‘Monetary union’, in: Michelle Everson, Neill Nugent, William Paterson (eds): Studying the European Union: Current and Future Agendas, Palgrave.
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The contentious creation of the regulatory state in fiscal surveillance
Waltraud Schelkle
This paper analyzes how the EU regulatory state expands into fiscal surveillance and what conflicts arise in the process. That the EU should have gone down the route of regulating budgets is puzzling. In contrast to Majone’s original concept, the regulatory state is meant not to interfere with member states’ budgetary redistributive policies. Yet the revision of the Pact strengthened the regulatory content of fiscal surveillance by reformulating the policy problem, strengthening delegated monitoring by the Commission, with Eurostat rather than DG Ecfin at its helm, and by extending control through specialised information. The analysis implies that the revision of the Pact in March 2005 cannot simply be dismissed as a watering down of its fiscal rules. However, there are limitations to regulatory expansion. One limitation is the inherent tension between the requirements of control and the economic justification of fiscal rules, another that economic justifications remain ambiguous and contentious. This paper is a contribution to the forthcoming special issue in West-European Politics 4/2009 “Managing Conflicts of Interest in EU Regulatory Processes”, edited by Waltraud Schelkle with Deborah Mabbett.
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Paving the way for a strategy of sustainable development
Iain Begg
As Maria João Rodrigues notes governance has multiple dimensions in the context of the Lis-bon strategy (she lists ten distinct areas). In this chapter, the focus is on some of these areas, but also on aspects of governance that underpin or cut across some of these ten areas. In par-ticular, the chapter dicusses elements of the philosophy behind the strategy and of the overall design of the strategic initiatives of the EU. It then discusses the merits of a Lisbon Strategy euro area dimension and suggests ways forward. The chapter will appear as: Begg, Iain (2009, forthcoming) ‘Paving the way for a strategy of sustainable development’ in Rodrigues, M.-J. ed. Europe, Globalisation and the Lisbon Agenda. Cheltenham: Edward Elgar.
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Rethinking the EU’s Finances: the 2008/9 Budget Review
Iain Begg
After being stalled for several months while the Lisbon treaty remained to be agreed, the review of the EU budget scheduled for 2008/09 is now underway. It was, effectively, launched by the publication on the 12th of September 2007 of a consultation paper by the Commission (2007). This paper presents the main issues that the Commission would like to see covered by the review and invites any interested party to submit a response. The consultation is very open insofar as contributions may be posted on a dedicated web-site, and Commission members and officials have made a considerable effort to publicise it. The current Commission is keen – even determined - to complete the review before its mandate expires in 2009, leaving the in-coming Commission to prepare the next multi-annual budget deal for the period beyond 2013 on the basis of a new model for the budget. This division of labour also bears on what the review aims to achieve and it is being promoted as an opportunity to look beyond the negotiating points that have dominated the budget for the last twenty years and to ask instead what an EU budget ought to do ten or twenty years from now. The paper will appear as: Begg, Iain (2008) ‘Rethinking the EU’s Finances: the 2008/9 budget review’ in Ludlow, P. ed. Setting EU Priorities 2008 Ponte de Lima: European Strategy Forum.
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Monetary Policy Strategies
Iain Begg
The chapter sets out what appear to be the main features of the state-of-the art, delves into why they have arisen and explores emerging directions for monetary policy and unresolved debates. It shows that today’s strategies reflect evolving ideas about what monetary policy can, cannot and should do, and that in the EU, at least, there has been an intriguing iteration between institutional and constitutional changes and the development of strategies. There may not be a single model of best-practice, but it is clear that there are systematic preferences. The article will appear as: Begg, Iain (2008, forthcoming) “Monetary policy strategies” in Dyson, K. and Marcussen, M. (eds.), Changing Modes of Central Bank Governance: Internationalization and Europeanization, Oxford: Oxford University Press.
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Funding the EU budget: a case for inaction?
Iain Begg
The way the EU budget is funded is often criticised, especially in the light of the increasingly complex devices used to limit net contributions. In addition to the formal UK rebate, there are reduced rates of take-up of different funding streams for certain other countries, all of which makes the funding side of the EU messy. Calls for the budget to be funded by a tax (or taxes) assigned to the EU level have repeatedly been articulated. However, the system has one over-arching attraction which is that it assures the EU of sufficient revenue to fulfil its spending commitments. This paper offers a critique and assessment of the current system for raising the revenue for the EU budget and considers the conceptual case for a move to a tax of Europe. It appraises the case for abandoning the current system in favour of a tax-funded one and concludes that although the case may be conceptually robust, political economy considerations suggest that change is unlikely for the foreseeable future. The article will appear as: Begg, Iain (2008, forthcoming) ‘Funding the EU budget: a case for inaction?’ Public Finance and Management Vol. 8.
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Economic Policy and Institutional Transparency: The ECB
Iain Begg
The aim of this chapter is to assess the role of the ECB in signalling its intentions to other economic agents and thus in shaping the environment in which savers and borrowers function. In terms of the overall aims of this book, central bank (CB) transparency can be regarded as a key element and in this sense it can be regarded as a horizontal facet of transparency insofar as it affects both sides of the capital formation process. The chapter adopts a normative approach to the assessment of ECB transparency, focusing on whether the current approach is optimal in how it affects the risk premia. It starts by discussing the changes in central banking practice, then goes on to explore the notion of transparency as applied to CBs and how it bears on the conduct of monetary policy. Section 2.4 explains and documents the ECB approach to transparency and how it compares with other CBs, then Section 2.5 examines some of the key debates about transparency and what they might imply for the ECB and the capital formation process. Concluding comments complete the chapter. The article will appear in: in L. Oxelheim and J. Forssbaeck eds. Corporate and institutional transparency for economic growth in Europe Oxford: Elsevier (2006).
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Real Convergence and EMU Enlargement: The Time Dimension of Fit With the Euro Area
Iain Begg
This article examines the time dimension of negotiating fit with EMU in the light of economic arguments for and against rapid accession and of the circumstances of the different new member states from east central Europe. It briefly reviews some of the key economic policy issues that arise in negotiating fit with EMU. It then looks at what might be called ‘Stage 2 adjustment’ – what Euro Area candidates need to do to become fit for Euro Area entry. The subsequent section concentrates on how countries can be expected to deal with problems of managing fit within Stage 3. Concluding comments complete the article. The article will appear in: Dyson, Kenneth (ed.) (2006) Enlarging the Euro Oxford: OUP.
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Report on Workshop 'The framework of economic governance in the EU'
Waltraud Schelkle
The workshop was organised within the framework of the project "New Approaches to Economic Governance in the EU (ECONPOL)" and was attended by a number of high-level experts from the Commission, academia and think tanks. The discussion largely concentrated on the conceptual framework of the project.
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Is there a convincing rationale for the Lisbon strategy?
Iain Begg
The aim of this paper is to discuss the rationale for the Lisbon strategy and to examine whether, given that the economies of the EU member states manifestly face different reform challenges, it is sufficiently compelling to justify an elaborate process. This paper explores possible bases for such a rationale, which include policy learning, an external process as an incentivating mechanism (especially where entrenched interests constitute an obstacle to change), as well as more traditional spillover arguments. A key question that is explored is whether an external analysis, together with the procedures that have emerged under the open method of co-ordination, is conducive to economic reform or whether countries tend to know what needs to be done if only they could muster the political will to achieve it. The paper presents conceptual tools for assessing why supply-side reforms are so difficult to enact in some polities and considers whether the Lisbon strategy is attuned to these difficulties. It concludes with comments on what the issues discussed in the body of the paper imply for economic governance structures in the EU.
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The politics of central banking in the United States and in the European Union
Nicolas Jabko
This chapter envisions the emergence of transparency and accountability as the normative embodiment of a historically contingent balance of power between central bankers and other actors. It argues that conventional accounts in terms of economic benefits and democratic concerns are insufficient. Beyond the apparent convergence on a new global consensus, the equilibrium point of the balance of power between central bankers and other actors varies considerably across political systems. Even though everyone agrees on the need for “transparency and accountability”, there remain many different ways for central banks to live up to this global ethos. After developing my critique of conventional explanations, I demonstrate the argument in the cases of the world’s two most important central banks today – the Federal Reserve and the European Central Bank.
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Draft Working Paper: Rediscovering Accountability - Monetary Politics in the US, the EU, and Japan
Nicolas Jabko
The worldwide trend toward central bank independence signals a remarkable transformation of the modern democratic state. As elected officials loose their control of economic decision-making, serious questions arise with regard to the accountability of newly independent agencies and, more generally, the capacity of global capitalism to live up to democratic ideals. In this paper, I argue that accountability has become the field of a new and manifold political contest on a global scale. The contest usually pits independent central bankers on one side and politicians and bureaucrats on the other side. Once we envision accountability not as just a normative ideal but also as a field of contest, it makes little sense to search for a universally accurate checklist of accountability mechanisms. Instead, the crucial task is to assess different distributions of institutional and political resource endowments. The paper illustrates this argument in the European, American, and Japanese cases. Final version of this paper will be Deliverable no 4.
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Inventory of accountability concepts and practices
Nicolas Jabko
This inventory of accountability concepts and practices is the first step toward a comparative study of central bank accountability in the European Union, the United States, and Japan. Its main finding is that most of the scholarship on the question of central bank accountability addresses this topic indirectly, in conjunction with the question of central bank independence. Accountability concepts and practices are thus generally envisioned as co-dependent with central bank independence. This deliverable offers (1) a broad literature review, (2) a more detailed assessment of relevant books and articles, focusing on the relationship between accountability and independence, and (3) an up-to-date bibliography.
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Varieties of Capitalism and Economic Governance in Central Europe - Draft Final Report
Robert Hancké and Lucia Kurekova
This report will analyse the effects of the massive political-economic change which occurred in Central and Eastern Europe after the fall of the Berlin Wall in 1989. In many ways, the period of the mid-2000s when this project was conducted, is a particularly favourable moment to assess the move toward democratic capitalism in the region. In May 2004, most of the Central European states had installed democratic political systems and become functioning market economies, and many of them joined the EU as full members. Thus, in formal terms, the first formative stages of the transition were over, and this report analyses the effects of those first stages on the subsequent political-economic development in the region. Moreover, by the mid-2000s, the broad shape of the new political economies had firmed up, and even if it is too early to draw hard conclusions about the ultimate outcome, the relative positions of the three players in democratic capitalist political economies – the state, (foreign) capital and (organised) labour – seem to be relatively fixed. Understanding how they interact and the broad political-economic consequences of these interaction patterns is the core goal of this report.
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How Coordinated Capitalism Emerges in Central Europe
Robert Hancké
This paper deals with the emergence of capitalism in Central Europe after the fall of the Berlin Wall in 1989. In the standard story, the successes of economies in CEE after their inevitable transition recession have been due primarily to the low level of regulation, and especially the ability of these economies to compete on wage costs (while offering relatively high skills). This argument then sees the region as increasingly divided into two, possibly three groups. The Baltic states are the first: their performance will be strong, precisely because they have adopted a combination of low wage costs, an extremely low corporate tax rate, and minimal regulation of economic activities. Among the others, performance will vary to the extent that they also have deregulated their economies, and especially their labour markets. This argument applies perhaps even more strongly to ownership structures: mass privatisations, in which the economy is handed to the citizens, who can then sell their shares in companies as they see fit, allowed markets to sort out the structure and organisation of the economy.
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Country Interim Reports – Part One
Alexandra Janovskaia, Robert Hancké
The goal of the paper “National production models and the automotive industry” is to embed the evolution of industrial capabilities in Central Europe in the literature on national production models and varieties of capitalism. The paper starts by presenting the main hypothesis of the research project, namely that the process of industrial upgrading is under way in Central European car manufacturing. In the second step, the paper tries to make sense of the paradox of upgrading and understand its internal logic. To do that the discussion on upgrading is related to the debate on the sustainability of the diversified quality production paradigm, on the one hand, and to the sectoral political economy literature, on the other. The common feature of these two strings of literature that also forms the analytical framework of this paper is their conceptualization of capital-labour compromise. In the third step, main development trends in the Central European car industry are presented. The paper concludes by explaining why automotive industry is an useful case study for understanding the emerging capital-labour compromise in Central Europe. The paper “The political economy of industrial upgrading in the Czech Republic: the case of the automotive industry” looks at the main trends in industrial and human capital development in the Czech car industry. It considers the empirical evidence looking at two distinctive levels: the sectoral and the firm level. It argues that the car manufacturing that is emerging in the country has some characteristics of a ‘high road’ in terms of industrial but also skill and employment upgrading. Using a case study of Skoda Auto, the leading car assembly plant in the country, it elaborates the evolution of production policies and supplier related strategies as well as managerial and employment practices. The deliverable includes a list of interviews by the STACEE project, carried out during December 2006 and June 2007.
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Explanatory note on the Database
Robert Hancké
This database, which covers deliverable D04, is a first complete version of basic economic and production indicators in Central and East European (CEE) economies organised along the lines of the analytical framework that underlies the NEWGOV/STACEE project. The database is organised along the ‘Leading sectors’ framework as originally developed by Greskovits (2005), which combines two dimensions: the intensity in skills and capital (operationalised as heavy v. light industry) and the complexity of the production process (basic v. complex). The structure of the database is relatively simple: per ACC-10 country the database groups industrial sectors in four categories: heavy-basic, heavy-complex, light-basic and light-complex. The database has two main purposes. The first is to systematise the material along these analytical lines, and assess to what extent different patterns of specialisation are emerging among the member-states in CEE. The second purpose of the database, which reflects the next stage of its development, is to relate these patterns of specialisation to different modes of coordination in the different CEE economies. By January 2008, the database will be nearing completion, and the key hypothesis can be tested systematically (possibly through regression or Boolean analysis) and reported in a comparative research paper which will be integrated in the final report.
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List of Planned Interviews
Abigail Innes and Robert Hancké
This project investigates the developing political economy of Central Europe in two key respects: in the first place, it seeks to map the changing role of the state in the economy, and the difficulties of developing any new form of social contract between state and society given the constant pressures for state retrenchment and austerity. The second strand of the research investigates the emergence of economic institutions beyond the state, and seeks to clarify and categorise the emerging models of capitalism. Between April and September 2005, 36 interviews have been planned in Hungary, the Czech Republic and Poland (of which 24 have been carried out in the summer of 2005). The empirical results will feed into the production of the interim country reports (D05).
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Background Document: Post-war European Political Economy and the Role of the State
Abby Innes
The research project investigates emerging models of capitalism in Central Europe. However, given the strong statist traditions of Central European political economy, one of the first issues to clarify is that of how the role of the state in the economy has changed in transition. This background document provides the hinterland to the first strand of the research, namely, that of the continuing capacity of the state to act as a coordinator in the political economy. The main point of this document is to highlight the a-historicity of the economics of post-communist transition insofar as it operates with an entirely negative conception of the state's role in the political economy, and thus ignores the historical fact that an activist state was central to the consolidation of European capitalist democracy in the twentieth century.
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International workshop on ‘The Public Interest in International Taxation’
Claudio M. Radaelli and Ulrike S. Kraemer
The international workshop gathered 20 European high-level policy-makers, practitioners and academics engaged in international taxation. It is for the first time that many of these stake-holders sat together at one table and talked to each other. Thus the workshop followed Chatham House rules. The idea was to use the University of Exeter for a balanced discussion between EU institutions (the Commission and the Council), civil society organisations (Tax Justice Network), business representatives (CBI, Ernst & Young), think tanks (Institute of Economic Affairs), academics, lawyers, and policy-makers from the UK, the dependent territories, Ireland, and Estonia. Since the issue is topical and often hotly debated but the basic assumptions, concepts, and frameworks have not been clarified yet one main goal was to forge a common language in area of highly heterogeneous policy preferences.
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Final Interviews Report
Claudio M. Radaelli and Ulrike S. Kraemer
This final report integrates the findings of the previous report on interviews with the recent interviews. We decided not to have a report on EU interviews and a report on OECD interviews because of the tight policy linkages between the tax policies of the two organisations. Accordingly, we have prepared an interim report and a final report in which there is no separation between the OECD level and the EU level. In this final report we integrate and expand on the text of the previous report. In total, we interviewed 35 people between months 7-16. In terms of findings, we add a fourth finding to the three mentioned in the previous report on interviews. The Sections on methodology have not changed. Finally, interviews and contacts established during our fieldwork enabled us to secure the participation of top tax policy makers from the EU, its member states, the OECD, offshore jurisdictions, and the Tax Justice Network at the workshop on the public interest in international taxation, planned for February 2006 at the University of Exeter.
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Report on New Modes of Governance in EU direct corporate tax policy
Claudio M. Radaelli and Ulrike S. Kraemer
This report contains two major Sections. Section A illustrates our methodology and relates it to the overall aims of the project. Section B presents the substantive findings of our research on experimental governance in EU direct corporate tax policy. International tax competition attracted a considerable amount of attention, either as dependent variable (i.e., why states compete, and how) or as independent variable (i.e., the impact of international tax competition on domestic policy autonomy). However, the European Union (EU) has experimented with different forms of coordination in direct corporate taxation - thus rekindling academic interest in explaining tax coordination. We draw on process-tracing and within-case analysis to examine the variance in modes of governance used by the EU to coordinate direct corporate tax policy. In order to explain the choice of different modes of governance, we look at different hypotheses. We find that modes of governance are not chosen because of their properties in terms of efficiency or social legitimacy. Instead, the choice can be explained by political transaction costs. We then draw on actor-centered institutionalism to explain how actors respond to the material and ideational context and choose a mode of governance rather than another. By using a model based on three main actors, that is, the Commission, the Member States, and the business community, we show the emergence of functionally differentiated governance arenas. These arenas are based on different logics. Constellations of actors identify distinct policy problems and define the prevailing mode of governance, mixing formal and informal modes for reasons of political expediency. The conclusions show the implications of our analysis for the assessment of EU tax governance.
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Interviews Report
Claudio M. Radaelli and Ulrike S. Kraemer
One of the methodological tools in the project is elite interviews. This report presents the methodological issues faced, how it was dealt with them, and the main results. The team used semi-structured elite interviews - a common methodology in public policy analysis and, more generally, political science. In total, 24 people have been interviewed so far in months 7-10 of the project. The semi-structured interviews were based on different questionnaires developed around a template. The questionnaires consisted of items such as questions about the emergence, efficiency, and legitimacy of classic and experimental governance in EU and OECD tax policy, the implementation of the savings directive, the transfer pricing forum, working groups on a common consolidated tax base and home state taxation pilot projects. Results concern the role of discourse and more generally ideational politics in EU taxation; the decline of political interest in the code of conduct in business taxation; and the cognitive, discursive, and most importantly political separation between initiatives revolving around the tax package and initiatives addressing the tax problems of multinationals.
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Local economic governance in hard times: The shadow economy and the textile and clothing industries around Lódz and Naples
Luigi Burroni, Colin Crouch, Monika Kaminska, and Andrea Valzania
The starting hypothesis of the study is that in localities with unfavourable initial economic, political, and social circumstances, revival or even survival of an existing industry will be highly unlikely, and that therefore continued decline must be predicted. This is indeed the case in the general regions within which the case study areas are located. The puzzle is therefore to explain the few points of local success that are clearly visible and that apparently refute the hypothesis. In both Italian and Polish cases an important explanation is that firms have made use of the shadow economy and minimal infrastructure and support services in order to become very low-cost producers. However, some Italian firms have been able to pursue a ‘high road’ of improving quality production, making use of various forms of infrastructure to do so. This has in turn necessitated at least partial emergence from the shadow economy. The relative absence of such possibilities in the Polish case draws our attention to some important institutional differences between central and western European economies, even when the example of the latter is a ‘weak’ region.
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L’industria di tessile ed abbigliamento in Campagna e Lódz: i contesti
Andrea Valzani and Monika Ewa Kaminska
The purpose of the wider project of which these deliverables are a part is to account for some points of successful economic development in regions generally characterised by poor economic performance and ineffective local governance and government. The wider regions concerned are that around Naples in Campagna, in southern Italy, and around Lódz in central Poland. Both regions have had a traditional specialism in textiles and clothing, sectors which have been in general decline in existing industrial societies following globalisation. The purpose of the present papers is to establish the context of the regions, their governance, the recent history of the sector, and to identify the cases of apparent success within the general decline. Some early indications of what might constitute more effective governance in the successful cases are described, and some clear differences between the Italian and the Polish cases appear. A fuller elaboration of these aspects will be presented in the final deliverables for this project.
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‘State of knowledge’ and briefing document for research team
Colin Crouch
The paper 'The governance of emersione: Preparing the approach', has been prepared by the project leader Colin Crouch (University of Warwick and European University Institute), for the participants in the project on the governance of local economic development in the regions around Lòdz and Naples. The project is interested in the ways in which organizations and individuals concerned with a local economy, and who are dissatisfied with its performance, seek to change its institutions. In the cases on which the project focuses these changes take a very specific form. In local economies in areas with weak institutions, poor quality equipment and machinery, poor connections with major markets, and possibly low skills at various levels of personnel, and suffering deficiencies in design, marketing, management, and the supply of production workers, firms have found competitive advantage by locating in the shadow economy. By evading taxation and various forms of regulation they are able to produce goods and services cheaply and get them quickly to market. However, at a certain point the constraints of location in this kind of economy outweigh its advantages. The firms and other local actors then seek (1) a means of emerging from the shadow economy (in Italian the process of emersione) and (2) new forms of competitive advantage. The latter is particularly important, since if they simply leave the shadow economy they have no competitive advantages at all. As a first step in the project’s research agenda, the report locates the governance of shadow economies within the general range of forms of economic governance and systems of collective goods provision, and elaborates the concept of emersione within this context.
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Mechanisms for assessing accountability of civil society organisations in the Central and East European member states of the EU
Heiko Pleines
This research papers analyses accountability mechanisms concerning civil society organisations in the post-socialist EU member states. In line with the understanding of the EU Commission the term civil society organisations is meant to encompass all non-state collective actors. In this research paper the focus is on the legal accountability of civil society organisations from the post-socialist member states. As accountability is closely linked to the other eligibility criteria for participation in decision-making processes, this paper also covers the issues of representativeness and transparency of civil society organisations. In a first step the related regulation at the EU level will be examined. In the second part respective national regulations of the post-socialist member states will be analysed. These two parts summarize or reproduce already published accounts, first of all from NEWGOV project 24. Based on about 70 original interviews the final part then assesses how the accountability regulation is perceived by civil society organisations.
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Interest Groups in EU Policy Making – Participatory Opportunities, Accountability and the Challenges of Eastern Enlargement
Daniela Obradovic, Zdenka Mansfeldova, Heiko Pleines with Julia Kusznir and David Lane
This book follows an interdisciplinary and multi-method approach in order to capture the different regulatory and empirical aspects of interest groups in EU policy making. The book is structured around the forms of involvement, i.e. the different channels of influence or the different forums offering participatory opportunities for interest groups at the EU level. These are grouped into the civil dialogue (part II of this book), the social dialogue (part III) and the open method of coordination (part IV). While the parts II to IV thus analyse the forms of involvement, part V in addition looks at the different governance functions of these forms of involvement, ranging along the policy making process from consultation over law making to implementation and also covering coordination as an alternative mode of policy making. The manuscript will be submitted to Oxford University Press.
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Regulating Lobbying in the European Union
Daniela Obradovic
The subject of this paper is to assess the evolution of the rules for regulating lobbying directed towards the Commission and in particular to explore the main features of the recently introduced register for lobbyists. It investigates whether the new rules for lobbyists eventually will restrict the access of interest groups to the Commission. The prospects for establishing a common lobbyists’ register in the European Union are also examined. The article will appear in: Coen, D. and Richardson, J. (2009), eds., Lobbying in the European Union, Institutions, Actors and Policy, Oxford University Press.
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Working Paper: Good Governance Conditions for the Participation of Interest Groups in EU Consultations
Daniela Obradovic and Jose M. Alonso Vizcaino
Informal participation of interest groups in Union decision making has been a constant and distinctive feature of the European Integration process from its very beginning. The European Union (EU) institutions, in particular the Commission, have a long tradition of carrying out consultations with interest groups. Originally, EU accepted the policy of unrestricted access of interest groups to its officials. However, the system of compulsory impact assessment for all of the Commission proposals to be carried out through EU consultations with interested parties places greater responsibility upon civic groups seeking to be involved in Union policy formation. It posits a considerable challenge to the open access policy for interest groups. More structured and formalised involvement of interest groups in EU policy process has been developed by the adoption of Commission’s minimum standards for consultations of civic groups. The European Transparency Initiative also calls for the introduction of eligibility requirements for interest groups whishing to participate in European policy process. The paper examines the impact of structuring of civil society participation in Union governance introduced by numerous Commission decisions upon the open access policy for interest groups traditionally applied by the Commission. (Forthcoming in Common Market Law Review).
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