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Interstate Cooperation and the Hidden Face of Power: The Case of European Money

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  • Lloyd Gruber
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    Why do international regimes like the European Union, NAFTA, and the WTO exist? The conventional wisdom says it is because they provide positive-sum benefits, facilitating collectively desirable equilibria that their member states could never hope to obtain -- at least not as efficiently -- on the basis of unstructured intergovernmental bargaining and negotiation. Focusing on the politically turbulent history of the European Monetary System (EMS), this paper points the way toward a more balanced, albeit less sanguine, theoretical perspective on the forces propelling interstate cooperation and institution building. Although most scholars see institutions as efficient, Pareto-improving responses to collective-action problems, this is not, the EMS experience suggests, the only logical possibility. To the contrary, the evidence presented here suggests that two of the EMS regime's largest signatories -- Italy and the United Kingdom -- joined because (and only because) their neighbors -- France and Germany – were in a position to create their own monetary system and “go it alone.” Recognizing that the pre-EMS floating exchange rate status quo was no longer a viable alternative, authorities in Italy and the UK decided they were better off cooperating with their French and German partners, the EMS regime’s ultimate beneficiaries, than not cooperating. But while the prospect of mutual gain is what drove their partners to cooperate, they – the Italians and the British – cooperated simply to avoid being left behind. Although the EMS is widely regarded as a paradigmatic case of states working together to achieve collective gains, the article thus makes a case that at least two EMS entrants would have preferred the original “non-cooperative” status quo, and so would never have joined (at least not voluntarily) had it remained a feasible option. What is needed, the article concludes, is a broader, more nuanced way of thinking about the relationship between state power and voluntary cooperation.

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    Paper provided by Harris School of Public Policy Studies, University of Chicago in its series Working Papers with number 9921.

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    Date of creation: Oct 1999
    Handle: RePEc:har:wpaper:9921
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