HENNING – Systemic Conflict and Regional Monetary
Integration: The Case of Europe – Reading Notes
•Seeking to theorize and explain the European monetary integration using
its international/systemic context as opposed to most literature, which has
sought to explain it using regional economic interdependence, political
integration, issue linkage and institution, and domestic politics.
Arguing that the disturbances in this international system provided strong
incentives for European governments to cooperate on exchange rate and
monetary matters at numerous critical junctures over the last four decades.
•Dominance of the US feature prominently in Henning’s argument
•This article focuses on the consequences of neglect or coercion on the
part of the dominant state for policy choice within a semi-integrated region
of smaller states
•This international thesis adds to our understanding in three aspects:
oOffers a more complete explanation of European monetary
oProvides a better theoretical basis from which to predict the future
external behavior of the European monetary union
oBetter enables us to analyze the relationship between regional and
multilateral monetary regimes
Literature Survey (exploring other theories)
One common approach treats the integration of markets as the main force
driving European commitments to exchange-rate stabilization and monetary
•Rising economic interdependence in Europe: currency fluctuation
increasing economic disruption and reduce the value of monetary
•Societal actors and states therefore shift political support toward
exchange-rate stabilization and currency union
•Called the market-integration approach
•Focus on effect of integration in the goods market: border and non-
border trade barriers are reduced in the EU, goods market become more
integrated, and a larger number of producers and consumers develop an
interest in stable exchange rate benefits to competing the common
markets and then the single market program. Reduction of internal trade
barriers positive spillover for monetary integration
•Capital mobility constrains the choices of states in monetary policy. In the
face of high capital mobility, assets the famous “unholy trinity/trilemma”
states must choose between monetary autonomy and exchange rate
stability. When goods markets are integrated as well, exchange-rate
stability becomes attractive relative to monetary independence.
Another common approach is domestic politics (issue-linkage).
•One strand focuses on the credibility of each currency’s peg to the
deutsche mark, arguing that the stance of domestic interest groups and
political parties on monetary policy is critical to maintaining the confidence
•Second strand focuses on the changes in domestic politics that produced
a convergence of national preferences among European states on
exchange-rate stabilization. Preference convergence translated into
further integration primarily through intergovernmentalist bargaining.
A final school of through attributes in monetary integration to a convergence of
beliefs among European policymakers regarding the causal links among
monetary policy, inflation and growth.
• Growing consensus that expansionary monetary policy had limited scope
for boosting growth and employment without also creating unacceptable
inflation was a necessary precondition for the establishment of the EMS
and commitment to EMU.
International Conflict and Monetary Regionalism (Henning’s
“International Thesis” theory)
For groups of smaller states that have achieved a certain level of economic
interdependence, macroeconomic conflict with a dominant state and international
monetary instability create several incentives for strengthening regional monetary
•Macroeconomic power and influence – that is, the effect of one state’s
policies on another state’s economy and policy choices, shape these
•Open economy macroeconomics produce economic and political
pressures for policy change abroad, and they are critical to understanding
the politics of macroeconomic conflict and policy adjustment.