Today, in 2008, the euro is the common currency of fifteen EU countries with around 320 million inhabitants, and most other member states are aiming to join the euro area in the near or not-so-distant future. With the issuance of euro-denominated banknotes and coins at the beginning of 2002, the former national currencies were taken out of circulation, their names henceforward consigned to the history books. The fact that isolated attacks by populist politicians fail to elicit much support for a return to the national currency only serves to confirm that the common currency has become an irreversible reality, and that going back is not really an option.

Globally, too, the euro has become firmly established as the second most important currency after the US dollar. By some measures, for example in terms of its share of global official reserves, the euro still lags a long way behind; but in other respects, notably in its role as currency of denomination for credit, the euro has more or less drawn level with the American currency. Investors all around the world put their faith in the euro and buy euro-denominated long-term paper. Confidence in the stability of the euro is reflected in inflation expectations that are firmly anchored at low levels, helping explain what are, historically, exceptionally low long-term nominal interest rates.

Orientations in the ECB Governing Council

When the Governing Council of the ECB convened for its first meeting in Frankfurt on 9 June 1998, the assumption of monetary policy responsibility for the euro still seemed such a distant prospect, and yet the calendar showed it to be so close at hand. As was to be expected, and out of sheer necessity, the first few meetings were dominated by organisational and technical matters such as procedural rules, budget issues or the conditions of employment for the ECB's staff.

In developing the policy instruments as part of the monetary policy preparations, consideration also had to be given to their organisational and legal framework. For the difficult task of producing macroeconomic projections for the future euro area, the groundwork had to be laid for efficient cooperation between the ECB and the national central banks.

Inevitably, little time remained to discuss the economic situation. Moreover, a lot of what the national central bank governors had to say was, understandably, still focused on the specific situation in the individual countries. The national institutions, after all, continued to bear responsibility for the national currencies. However, the Governing Council could not possibly wait for the start of monetary union to direct its attention towards the euro area as a whole.

Introduction

The UK constitutes the paradigmatic case of a majoritarian democracy. As we have argued in Chapter 2, such a system discourages the rise of new challengers in the party system. This implies a greater stability of partisan configurations, but it does not mean that party systems are not subject to change. Under conditions of majoritarian democracies, the transformation of the party system is, however, more likely to involve the transformation of mainstream parties. As we have argued in Chapter 2, in majoritarian systems, the number of mainstream parties is more limited and, as a consequence, their internal composition is likely to be more heterogeneous than in proportional systems. New structural cleavages are likely to cut across the mainstream parties and to put them under great tension. The strain is expected to be particularly strong in the mainstream party that finds itself in the opposition. Such a party is likely to expand the scope of conflict on issues linked to the new cleavage, i.e. to adopt a more radical stance with regard to such issues. Therefore, in a majoritarian system such as the UK, shifts of power within mainstream parties are not only more likely to occur than in PR systems, but they also take on a much greater significance.

In the period covered by our project, two decisive shifts have occurred in each one of the major parties – the Conservative Party and the Labour Party – with far-reaching implications for the restructuration of the party system as a whole.

The date 1 January 1999 marks a milestone in monetary history. Eleven national currencies – not least among them the D-Mark, held in such high esteem by the citizens of Germany – ceased to exist. Their place was taken by the euro, as the single currency for over 300 million people. In the meantime, the euro area has grown, and now encompasses a total of fifteen countries.

The birth of the euro is a unique event. Never before had sovereign states ceded their responsibility for monetary policy to a supranational institution. This constellation – on one side, a central bank (the European Central Bank, ECB) and a single monetary policy; on the other, nation states that largely retain their competencies in the areas of economic and fiscal policy – creates a particular kind of tension in the interrelationship. Quite a few observers, with probably the majority of economists to the fore, were more than sceptical as to the outcome of this experiment. To begin with, will the euro get off to a good start? Under the prevailing circumstances, how likely is it, if at all, that the euro can be a stable currency? And then: what about the future? Can European monetary union (EMU) survive in the absence of political union?

The subject has been comprehensively addressed both by economists and in the media. Since well before the start of EMU, and even more so afterwards, there has been a vast output of economic research.

This book is the result of a joint project of two teams of political scientists, one at the University of Zurich, the other at the University of Munich. The origins of this project date back to a hot summer afternoon in 2001, when Hanspeter Kriesi gave a presentation of some of his ideas about the impact of globalization on the transformation of Western European party systems before the special research programme (SFB) on ‘Reflexive modernization’ at the Technical University of Munich. The presentation was well received by the small audience of dedicated colleagues who did bear with the heat. Edgar Grande reacted by proposing to set up a joint comparative research project designed to test these largely speculative ideas. Eventually, the project got going in late 2002, with the joint support of the German Research Foundation (SFB 536 – Project C5), and of the Swiss National Science Foundation (1214-68010.02). Martin Dolezal together with several research assistants joined Edgar Grande to form the Munich team, while Simon Bornschier, Timotheos Frey, Romain Lachat and Hanspeter Kriesi constituted the Zurich team.

The two teams closely collaborated from the start, and evenly divided the challenging task of data collection in six selected countries – Austria, France, Germany, the Netherlands, Switzerland and the UK – between them. We assembled data both for the political supply by the parties, and for the political demand by the voters.

The political consequences of globalization are manifold. On the one hand, the processes covered by this term lead to the establishment of new forms of political authority and of new channels of political representation at the supranational level and open up new opportunities for transnational, international and supranational mobilization (Della Porta et al. 1999). On the other hand, the same processes have profound political implications at the national level. National politics are challenged both ‘from above’ – through new forms of international cooperation and a process of supranational integration – and ‘from below’, at the regional and local level. While the political consequences of globalization have most often been studied at the supra- or transnational level (Zürn 1998; Held et al. 1999; Greven and Pauly 2000; Hall and Biersteker 2002; Grande and Pauly 2005), we shall focus on the effects of globalization on national politics. We assume that, paradoxically, the political reactions to economic and cultural globalization are bound to manifest themselves above all at the national level: given that the democratic political inclusion of citizens is still mainly a national affair, nation-states still constitute the major arenas for political mobilization (Zürn et al. 2000). Our study focuses on Western European countries, where globalization means, first of all, European integration. For the present argument, however, this aspect of the European context is not essential. Europeanization and European integration can also be seen as special cases of the more general phenomenon of globalization (Schmidt 2003).

Globalizing West European politics: dimensions of comparative analysis

Has globalization resulted in a fundamental change of West European politics, its cleavage structures, parties and party systems? Although globalization has been one of the most important topics in social science research over the past decade, this question has thus far been widely neglected. In political science, most attention has been paid to the empirical analysis of the consequences of economic globalization on national state capacities and policies (e.g. Scharpf and Schmidt 2000a, 2000b; Weiss 2003) and to efforts at establishing new transnational institutions and organizations able to regulate effectively a rapidly globalizing capitalism (Zürn 1998; Held et al. 1999; Held 2004; Slaughter 2004; Grande and Pauly 2005). The impact of globalization on politics has received hardly any attention. This holds true in particular for political parties. While there are some studies on the reactions of interest groups to globalization (Zürn and Walter 2005; Streeck et al. 2006) and on the transnational organization of social movements (della Porta, Kriesi and Rucht 1999; Smith and Johnston 2002; Tarrow 2005; della Porta and Tarrow 2005), a systematic comparative analysis of the consequences of globalization on political cleavage structures, political parties and party systems is missing. Conventional wisdom still holds that political parties, their ideological profiles, their organizational capacities and their strategic interactions are all determined by domestic factors.

Without monetary stability, a stable society of free citizens cannot endure. Not for nothing did Lenin hold that the way to destroy bourgeois society is to debauch the currency Within European economic and monetary union (EMU), this may apply with even greater justification than within the boundaries of a nation state. After all, the single currency embodies in a special way a commonality of interest among the participants. Only if the euro is stable can it foster a sense of identification; a lack of confidence in the stability of the common currency would also undermine confidence in a ‘European community’.

Consequently, the central bank that is responsible for the currency occupies an important position in the structure of the nation state, and all the more so in a monetary union of largely sovereign states. Naturally, the central bank is not alone. It does not operate in a policy vacuum; the effects of its monetary policy depend very much on policy in other areas. Chief among these is fiscal policy. The state of labour markets, the behaviour of employers and labour, and the intensity of competition in the markets also play an important role. Finally, an overarching question needs to be answered: that of the relationship between monetary union and political union. Is EMU ultimately viable without political union?

The rocky road to monetary union

The idea of creating a monetary union in Europe can be traced back a long way. Indeed, in the first century AD, a merchant could pay with the same money, the denarius, throughout his long journey from Rome via Colonia Claudia Ara Agrippinensium and Lutetia Parisiorum to Londinium – that is, via Cologne and Paris to London. Sixteen centuries later, however, the same journey involved an unending sequence of money changing and conversion. Trade was heavily hampered by high tariffs between countries and even broke down in the frequent times of war. In Germany alone, if one may call it that, a hundred different territories exercised the right to mint their own coinage. The number of customs borders in this region in 1790 has been estimated at some 1,800. It was only with the establishment of the customs union in 1834 that most trade barriers disappeared in Germany. And it was only following political unification within the German Reich in 1871 that the multiplicity of coinages was fully abolished and the Mark introduced as the common currency.

What lessons might we draw from comparing these epochs of European history?

There were two conditions that characterised the common currency period:

• The stability of the currency was ensured by the natural scarcity of the metal.

• A common currency went hand in hand with political union under the Pax Romana.

Introduction

We conclude our analyses in this chapter by considering the links between parties and voters. After having presented separate analyses of the demand side and of the supply side of electoral competition, in this chapter we seek to relate both levels. Our main argument in this volume has been that globalization leads to the formation of a potential for a new line of conflict, and that the corresponding issues and interests are articulated by political parties. We have presented much evidence for the emergence of such a new division and for the polarizing capacity of the issues associated with globalization. At the level of parties, we have observed substantial changes in the configuration of the main actors. Cultural issues have become more important for explaining the structure of party positions. Furthermore, among these issues, those linked with the process of globalization, such as the questions of immigration and European integration, have become more salient. This is a consequence of the transformation of the character of the cultural line of conflict. Following these developments, electoral competition cannot be summarized by a single line of conflict. Both economic and cultural differences are now equally relevant. In addition, important transformations could be observed among voters. The structure of political attitudes has changed following a similar pattern.

It undoubtedly required political courage to fix the beginning of monetary union definitively for 1 January 1999. To date, the euro's success has proved the confraternity of ‘economic doubters’ wrong. The single currency has brought the member states monetary stability: internally, with a low rate of inflation; and externally, with the protection the common currency affords against the foreign exchange market repercussions of exogenous shocks that were repeatedly experienced in the past.

The political decision did not, however, remove all justification for the reservations entertained by many economists about a premature start to EMU. The economies of the member states still have some way to go to satisfy the conditions necessary for monetary union to function properly. The political courage at the beginning needs to be complemented by the resolve to pursue the necessary reforms.

Fiscal policy has yet to demonstrate convincingly its full compliance with the self-imposed rules of the Stability and Growth Pact. Confidence in stability is certainly not fostered if, over and over again, governments solemnly promise to follow a sound budgetary policy in the future, as they did for instance in Berlin in the spring of 2007, only to see one or the other distancing themselves from such promises a few months later. And how credible are commitments if, many years after accession to EMU, countries still have debt levels of over 100 per cent of GDP – and that despite the ‘gift’ of markedly lower interest rates associated with entry into EMU?