National Preferences and International Institutions: Evidence from European Monetary Integration

Abstract

How do states reach agreement on creating or changing international institutions? The dominant theory of international cooperation—institutional theory—specifies how states with shared interests use institutions to realize joint gains and to minimize the possibility of defection. But institutional theory has little to say about when states will hold the shared interests that lead them to create international institutions in the first place. I evaluate two general explanations of national preferences regarding international institutions against the record of attempts to institutionalize monetary cooperation in the European Union since the 1970s. Drawing on central insights of the constructivist tradition, idea diffusion theory holds that national preferences converged on those of German decision-makers by the late 1980s and that European governments willingly accepted German terms for monetary union. Recognition that German institutions and policies produced superior economic outcomes drove this change in preferences. A domestic-politics explanation holds that preferences varied because of differences in the structure of the domestic political economy and the political costs of achieving price stability, which was one of Germany's conditions for monetary integration. Lower inflation in the late 1980s reduced these costs enough for French and Italian governments to pursue a monetary union that included Germany. The evidence indicates that idea diffusion had little influence on the development of European monetary institutions. Governments held and advocated distinctly different preferences regarding such institutions from the late 1970s through the mid-1990s. The finding that domestic politics rather than idea diffusion drives national preferences challenges some of the claims of recent constructivist literature in international politics about the importance of communication and ideas in promoting cooperation. In the conclusion I discuss how the findings of this article might be squared with constructivism by paying more attention to domestic politics.