The aim of this study is to apply and compare different explanations of legislative decision-making in the European Union (EU). Two features of the research design are particularly important with respect to achieving this aim. First, the selection of cases must cover a sufficient number and variety of cases to count as a test of the explanations. Second, a way of thinking about very different decision situations has to be devised, such that they can be compared, in terms of the applicability of different explanations in any given situation, and in terms of the performance of explanations in different situations. Stating explanations in the form of models is part of the endeavour to facilitate comparison. Another part is the conceptualisation of decision situations spatially. Political controversies are conceptualised as issue continua or scales, with actors placed at different positions on these issues. The Commission proposal on tobacco products will be used to illustrate the data collection process. One of the issues raised by this proposal was the size of the health warning on tobacco products: see the second issue described in Figure 2.1. At one end of this issue continuum, we find the status quo position at that time, consisting of relatively small warnings. At the other end of the continuum, we find the alternative of very large health warnings using very strong language. Intermediate alternatives are placed on positions between these two alternatives. This way of defining issues is essential to the comparison of different explanatory models' performance.

INTRODUCTION

The view that institutions are important to decision-making has led to a large number of game-theoretical models that aim to understand and explain the European Union's legislative process. As these models stress the sequential features of the legislative process as well as the differences in decision-making power of the various actors involved, they are referred to as procedural models. Departing from the ‘older’ legislative procedures, such as the consultation procedure (Steunenberg 1994a; Crombez 1996) and the cooperation procedure (Tsebelis 1994; Moser 1997a), this literature has expanded to include the more recently adopted procedures, including the two different versions of the co-decision procedure (Garrett 1995; Crombez 1997, 2000a; 2006; 2000c; Steunenberg 1997). In this chapter, we focus on the procedural models developed for the European Union and test some of these models empirically.

The procedural models of EU decision-making are related to a broader rational choice literature in which political outcomes are regarded as the combined result of political preferences and institutions (Shepsle 1989; Shepsle and Weingast 1995; Ostrom 1986; Dowding 2002). This literature developed as a response to studies, especially focused on the United States Congress, which approached politics as a simple account of majority rule. The main expectation from these studies was that voting cycles might frequently occur, which would make politics chaotic and arbitrary, and make it almost impossible to predict outcomes.

INTRODUCTION

According to the account of European Union (EU) decision-making proposed in this chapter, this is a bargaining process during which actors shift their policy positions with a view to reaching agreements on controversial issues. Formal institutions, such as the procedural rules explored in Chapter 3, matter in this process. They define the set of actors included in the process and their relative weight or power. The observation that actors shift their positions, and cajole or compel others to shift theirs, is central to our conception of political bargaining. Practitioners of European affairs reported that flexibility in actors' initial policy positions is an important feature of the decision-making process. During one interview an informant was asked why the actors were so polarised in terms of the policy alternatives they ‘favoured most’ at the outset of the discussions. He responded: ‘That's not so unusual. At the start of the negotiations, the positions tend to be more extreme. As the discussions get underway, we realise what is politically feasible, and converge gradually toward those points’. In this chapter, we compare two different models of the bargaining process in which actors shift from the policy positions they favour most at the outset of the discussions.

The models we focus on in this chapter are the position exchange model (Stokman and Van Oosten 1994) and the challenge model (in other studies this model is also referred to as ‘the expected utility model’, Bueno de Mesquita 1994).

International courts (ICs) clearly fit the paradigm of delegation examined in this volume. States operating as a collective principal create ICs through a revocable delegation contract; appoint IC judges; and can write or rewrite the mandate and laws that ICs interpret. Principal-agent (PA) theory expects courts to be among the more independent “agents,” intentionally so. As Giandomenico Majone argues, in delegation to enhance the credibility of a principal the “Fiduciary Agent” is made independent because “an Agent bound to follow the directions of the delegating politician could not possibly enhance the commitment” (Majone 2001: 110). Thus intentionally principals allow judges to be fired only for egregious acts unbecoming to their office, and judicial salaries are protected. Still, PA theorists expect states to have substantial tools of control because international judicial terms are short (4–8 years), because international judges may worry about their professional futures including whether or not their term is renewed, and because states can sanction ICs through rewriting their mandate, legislating to reverse their rulings, or through non-compliance.

While these expectations are shared by most PA theorists, studies employing PA theory to analyze ICs have offered contradictory predictions about whether and when we should expect IC autonomy. Geoffrey Garrett and Barry Weingast have argued that the European Court of Justice (ECJ) has far less autonomy than national courts because the ECJ fears re-contracting. They assert that ECJ decisions mainly select among the range of outcomes the most powerful states implicitly want (Garrett and Weingast 1993: 201).

INTRODUCTION

This book examines how legislation is made in the European Union (EU). Taking decisions in the European Union requires overcoming controversy and disagreement. European decision-makers' ability to resolve controversy has been tested by three developments. First, the number of member states increased from six to 25, with the prospect of further enlargement in the near future. Second, changes to the formal decision-making procedures increased the institutional power of the European Parliament. Third, the European Union expanded its involvement in policy areas from its focus on the internal market and freedom of movement across borders to include economic and monetary union, environmental policy, competition, and social policy among others.

There are numerous recent and high-profile examples of the challenges European decision-makers face in reaching political agreements amid controversy. One such example concerned the question of whether Germany should be given an official warning under the Stability Pact for its excessive budget deficit. Germany was not allowed to vote on the proposal to give such a warning, since the warning was directed against itself. Nonetheless, with the help of the Italian Presidency, it managed to turn unanimous support for the proposed warning into a vote against the proposal. The European Commission opposed this decision, and successfully overturned it in the European Court of Justice. This outcome, and the way it was achieved, challenged the view that important decisions need the support of all member states, even when this is not formally required.

INTRODUCTION

Emerging market crises of the 1990s stimulated new interest in the political motivations that shape International Monetary Fund (IMF or Fund) lending decisions. We take up this topic, analyzing the interests and influence of the IMF's most powerful member, the United States. Instead of specifying an aggregate “national interest” for the United States, we ground our approach in domestic politics. One of our arguments is that American “money-center” banks comprise a key constituency for the IMF and lobby on its behalf. US policy-makers, in turn, use their influence at the Fund to ensure that countries in which American banks are highly exposed fall under the IMF's insurance umbrella. In short, we provide microfoundations for IMF lending and identify a possible source of “moral hazard” in the lobbying activities of US banks.

We are not the first to identify money-center banks as an important constituency for the IMF. A radical “dependencista” version of the argument has been around since the 1960s and a more orthodox variant is currently circulating (Barro 1998; Soros 1998; Stiglitz 2002). One claims the existence of a “Wall Street–Treasury complex” (Bhagwati 2002: 8–9). Other studies (Gould 2003; Oatley and Yackee 2004) examine the extent to which commercial banks exert a systematic influence on IMF lending. Still, some fundamental questions remain: How do bankers and other private actors influence an international organization like the IMF? Why would IMF officials be responsive to the interests of private actors?

INTRODUCTION

States delegate to international organizations (IOs) all of the time. Activities ranging from weapons-inspecting to peacekeeping to monitoring exchange rate practices and free trade arrangements have all been delegated by states to international organizations. International relations scholarship tends to be dominated by two basic interpretations of the outcomes of this delegation. According to one, IOs are perfect handmaidens of state principals and IO activities conform directly to state preferences. According to the other, IOs are independent bureaucracies governed by their own interests or culture; IO activities are not closely related to state preferences at all. However, empirical reality seems to fit neither model. International organizations and specific international organizational activities vary along a continuum of conformity with state instructions. Some IOs and their activities closely reflect state wishes, whereas others seem to be determined by other factors. What explains this variation?

The principal-agent framework (PA) addresses these issues directly and offers an explanation of why certain IOs or particular IO activities conform more closely to state directives, while others do not. This chapter focuses on the delegation of a particular activity to a particular IO – the design of conditional loan arrangements to the International Monetary Fund – and considers how well PA theory explains the variations in IO conformity with state preferences.

In particular, this chapter focuses on the extent to which the PA framework helps us understand the relationship between state preferences and IO activity – or between the principal and the agent – once the initial delegation has taken place.

INTRODUCTION

In mid-1996, the Commission initiated a package of proposals on food products known as the ‘breakfast directives’, proposing regulations on honey, preserved milk, certain sugars, fruit juices and jams. Aiming to facilitate the free movement of these products in the internal market, the breakfast directives were typical examples of regular European Union legislative decision-making. The Commission sought to simplify existing legislation by harmonising the labelling of food products in the EU. Due to three disputed issues, the directive relating to honey was the last one of the package to be the object of political agreement. The final decisions on the three contested issues were taken at the working group level of the Internal Market Council. One of these issues was about the scope of implementing powers to be conferred upon the Commission through the comitology procedure, raising particular concerns by the United Kingdom and the Nordic countries. The other issues referred to the labelling and denomination of low quality honey. In the end, mutual concessions were made to member states on some issues to ensure their agreement on the directive as a whole. For instance, Germany and the UK obtained generous exceptions regarding the labelling of their products, while the other member states attached less importance to this issue because of the progress made on the other parts of the directive.

Similar examples have often been observed by case studies, which reveal two characteristics of EU legislative decision-making:

1. Member states and the Commission link issues within proposals in particular policy areas (Mattila and Lane 2001). […]

The European Union (EU), like other international organizations (IOs), is composed of its member states. The governments of those member states have signed and ratified successive treaties outlining the objectives and institutions of the Union, starting with the European Coal and Steel Community of 1951 and continuing through the creation and institutional elaboration of today's European Union. As in any international organization, the member governments of the EU have assigned to themselves the central role in the governance of the Union. At the same time, however, the EU's member governments have created and allocated increasing powers and discretion to a number of supranational organizations, including the executive Commission, the European Court of Justice (ECJ), the European Central Bank (ECB), the European Parliament (EP), and a growing number of independent agencies which are delegated regulatory and/or informational functions in specific issue-areas. Although clearly the creation, or agents, of the member governments, these supranational organizations possess powers and preferences distinct from those of their member-state principals, and they have frequently been posited by both practitioners and academic observers as the embodiment of the project of European integration, and indeed as the “engines” or “motors” of the integration process.

The delegation of such powers to supranational organizations, the editors of this project point out, raises two fundamental and linked issues. First, why do states choose to delegate certain tasks and responsibilities to IOs, rather than merely acting unilaterally or cooperating directly?

THE TWO STAGES OF POLITICAL DECISION-MAKING

Close studies of governmental decisions in democracies commonly divide the process into two stages. First, the actors bargain. As Arthur Bentley (1967 [1908]: 371) put it nearly a century ago in describing the legislative process, ‘It is compromise … It is trading. It is the adjustment of interests.’ This stage may include information-gathering and exchange, as well as threats and promises. Few rules constrain the actors. The free-form interplay puts a premium on creative interpretations and skilful compromise.

Then, when deals have been struck (or the parties to the conflict are exhausted), the second stage takes place. Here the organisational regulations and legal rules shape the process, and a test of strength is carried out according to constitutional or legal procedures. Explicit voting procedures settle differences of opinion.

The two stages of political decision-making interpenetrate and influence each other. Groups with more votes in the constitutional procedures have more power in the preliminary bargaining. Conversely, skilful bargainers at the initial stage may persuade other actors and build coalitions that control a disproportionate number of votes at the final stage. Manoeuvring at each stage takes account of the contending groups' power at the other stage. A sophisticated recent discussion that emphasises this two-step view of European Union decision-making is Van den Bos (1991, chapter 5). Students of domestic politics have repeatedly discovered the same process at work, particularly in studies of interest groups, ‘iron triangles’, policy networks, and issue coalitions.

This book examines legislative decision-making in the European Union. The analyses reported here use some of the most powerful conceptual tools available to social scientists for this task: a range of competing explanations, formalised as models, of decision-making in the European Union. Some of the explanations are grounded in previous research on legislative choice and focus on the impact of formal decision-making procedures on policy outcomes. Others draw inspiration from research on various types of informal bargaining through which actors exert influence. Most of these explanatory models have not yet been tested in the context of EU decision-making. Some have been tested on very limited data sets and in small pilot studies, while others have been developed during the course of this project.

This is not only, or even primarily, a theoretical exercise. The analyses are performed on a large data set, compiled specifically for this study, containing information on 162 controversial issues raised by recent legislative proposals in the European Union. In the following chapters, the explanatory models are presented and illustrated by applying them to examples from this broad selection of controversial issues. They are then applied to all cases in the data set. After comparing the results of these applications, we formulate insights into the processes through which controversies are resolved and decision outcomes are reached in the legislative arena of the European Union. None of the explanatory models has been tested on as large a data set as the one we have collected in this project.

States delegate authority to international organizations (IOs) for many reasons. Incentives to delegate fall under the general heading of informational concerns, such as monitoring behavior or providing scientific expertise, and distributional concerns, making sure that policies reflect major state interests. This chapter elaborates the informational and distributional logics of delegation, draws observable implications from them, and uses these propositions to examine the development of policies regarding conditionality within the International Monetary Fund (IMF).

Some would argue that the IMF has achieved greater agency or autonomy than IOs in any other sphere of activity. I use the definition of autonomy presented in the introduction to this volume: the range of potential independent action available to the agent (I also sometimes use the term agency to refer to the same concept). Initially, the IMF was merely a set of rules regulating member state behavior rather than an organization with any autonomy. However, it quickly transformed into an active organization. Much of this transformation took place via debates about the use of Fund resources by members, leading to the practice of conditionality.

I begin by setting out two potential sources of variation in the autonomy of IOs: distributional conflict and the demand for information. I develop a number of expectations about how the delegation of authority should vary in response to the concerns. In the IMF, these concerns take the form of divergence of preferences among the executive directors (EDs) and private information held by the staff.