Power Transition and the Future of European Union Integration

Transcription

1 Portland State University From the SelectedWorks of Birol A. Yeşilada Spring March 15, 2016 Power Transition and the Future of European Union Integration Birol Ali Yesilada Osman Goktug Tanrikulu Jacek Kugler, Claremont Graduate University Allison Hamlin, Claremont Graduate University Available at:

2 1 Power Transition and the Future of European Union Integration Birol A. Yeşilada, Portland State University & TransResearch Consortium Osman Goktug Tanrikulu, Portland State University Jacek Kugler, Claremont Graduate University & TransResearch Consortium Allison Hamlin, Claremont Graduate University Introduction The future of the European Union (EU) rests on a delicate balance of policy challenges. On the one hand, recent financial crisis exposed EU s failure to match economic and monetary union (EMU) with necessary integration along political union. Once more, it became crystal clear that monetary union cannot be sustained without a serious political union. Additional problems facing the EU on this front is unwillingness of Britain to fully commit itself to a true fiscal/political union, poor relations with Russia, and Turkey which is experiencing the longest accession process in EU history. There are no simple solutions out of these challenges unless EU leaders can reach a consensus on a serious fiscal union (political union) and repair relations with Russia and Turkey. The magnitude of the financial damage the last crisis caused in the EU is so grave that observers and analysts 1 have concluded a big decision must be made regarding fiscal union (thus political union) to save EMU. Failure to formulate a viable fiscal union could derail Monetary Union and possible breakup the Eurozone. Not only does this problem threatens deepening of economic and monetary integration, it spills over to EU s Common Security and Defense Policy (CSDP), part of its overall Common Foreign and Security Policy (CFSP), and makes it difficult to complete EU- NATO partnership and enable Europe to meet challenges posed by rising powers like China and India. The Magnitude of Challenges Facing the EU The European Union provides the most interesting argument in favor of integration. The expectation is that members of such a community will grow faster and become more competitive largely due to economies of scale. In today s competitive economy, societies that do not take advantage of all the opportunities are likely to fall behind and be unable to maintain continuous growth in the face of competitors with much larger markets and investment potential. The second argument is that integration reduces the likelihood of conflict among agents because they provide a modicum of consistent rules, make each component dependent on the others and presumably increase the level of trust among participants. Yet financial crisis, problems pertaining to future enlargement, and relations with Britain, Russia 1 For a detailed discussion of this crisis see proceedings of the conference on Redefining European Economic Governance in College of Europe, Bruges March 1, 2012.

3 2 and Turkey also affect EU s ability to formulate a viable CSDP. Whereas the EU represents the most successful and complex form of regional economic and political integration between sovereign member states, it is faced with the most severe financial crisis of its history. Moreover, the EU s bold leap forward into EMU failed to make it the leader of global economy. Problems facing the EU are product of its unique approach to regional economic integration that span sixty years of intergovernmental and supranational mix of policy making. Throughout its history, the EU has followed a continuing, though irregular, course of integration. It has been on a course that has always found a middle way between integration that is strictly economic in nature and integration that is strongly political, and it has, with each integrative step, brought institutional changes representing compromises between the principles of inter- governmentalism and supranationalism. The outcome of their collective efforts was the completion of the Common Market (Single Market) in 1992 that met the original intent of the Treaty of Rome. At that time, complex internal and external challenges that EU member states faced convinced them to take the next logical step in economic integration Economic and Monetary Union. However, European leaders did not make a similar bold move in establishing a true political union. This shortcoming became the Achilles heal of EMU as seen in recent financial crisis and the inability of the EU to get itself out of the ensuing mess. As Kugler, Fisunoglu, and Yesilada notes (2015:17) reluctance and, in some cases, opposition among some members to deepening political union resulted in a lopsided regional integration characterized by: (1) EMU among 17 member states, (2) Economic Union between all members, and (3) intergovernmentalist political union. Debate over the need of a fiscal, thus deeper political union remained. There are two schools of thought characterized the nature of the debate in the EU. According to one school monetary union could not survive in the long run unless a strong political union accompanied it and cited numerous historical cases to support its position. Going as far back to work of William Riker (1964) in his powerful analysis of the rise of a federated United States argued that confederations couldn t succeed unless there are continuous positive gains for the members. Indeed, he showed that the United States confederation collapsed when taxes were to be imposed on the US population. In a similar manner, this is the type of crisis that the EU faces today. The other school of thought maintains that the present degree of political union in the EU is sufficient for the long run survival of the monetary union and that there is no urgency of creating a federal structure in the Union similar to one found in the US. As De Grauwe (2009) correctly states, debate between these two views about the link between political and monetary union is somewhat difficult by a lack of clarity about the meaning of political union. 2 2 One can look at a monetary union as a union between countries that use the same currency and have a single monetary authority. However, a political union is much more difficult to define because it involves several key policy issue areas and institutions of governance that could cover foreign and security policies, taxation, judiciary and similar policy areas. Political union affects monetary union in several ways. First, it makes it possible to centralize a large part of national budgets at the supranational level and enables significant fiscal transfers between states as insurance against asymmetric shocks. Second, it reduces the risk of asymmetric shocks that are

4 3 The magnitude of the problem is reflected in another asymmetry that is found in the degree of integration between two camps of EU member states thus creating a two- track EU. Moreover, failure to deepen political integration carries with it the danger of weakening collaboration on the CFSP/CSDP front. Kugler et al demonstrated that how two- track EU emerged based on Genna s (2003) Integration Achievement Score. Figure 1 provides a summary of what we mean by two- track EU. The two lines show different levels of integration between the two sets of member states those who are in EMU and others that are outside the Euro zone. Figure 1: Integration in the EU Source: Kugler, Fisunoglu, Yesilada, 2015: 49. Among the non- Eurozone EU countries, the United Kingdom, Sweden and Denmark prefer nothing more than what one might call a loose confederal system of governance for political union. The UK s opposition to further deepening of economic and monetary integration is exemplified by its resistance to fuller fiscal union and by its decision not to join the banking union. On the other hand, a larger number of member states are willing to join the Eurozone as full participants. The recent addition of Eastern European nations following the collapse of the Soviet Union in 1989 added Poland, Hungary, Czech Republic, Romania, Bulgaria, Lithuania to the Union. These nations in general are on a waiting list to join the Euro area. With such diverse commitment of members to future of full economic and monetary integration it is debatable if the EU could meet its ambition to be a global actor. It is fair to say that Britain has always been a dissatisfied partner in the Union, but it has never been as close as it is now to relinquishing its membership. Due to the devastating Euro Crisis, the European member states came to a state where further integration is the only suitable option to prevent any future crisis and save the European Union. For this reason, recently, members under Germany s leadership have taken concrete steps towards some degree of fiscal political in nature. When member states are independent in pursuing their respective fiscal policies, unilateral decision of any member to increase or lower taxes creates an asymmetric shock. A simple Stability and growth Pact that followed EMU was simply insufficient to correct these imbalances as apparent from the current crisis.

5 4 union that is short of full fiscal union with a Treasury and EU level income tax. However, for a country, which has not even become a member of the Monetary Union, due to issues of national sovereignty and lack of European ideals, joining the fiscal union would be almost impossible. As a result, Britain s Prime Minister David Cameron announced the referendum option for British citizens, which stated that they would be able to make the decision whether to stay or leave the European Union. This move clearly annoyed other EU member states that want Britain to make a decision, and refrain from using departing from the EU as a bargaining tool. Under increasing pressure from other big powers in the EU to play ball it is conceivable that UK might chose to leave the EU. Most Britons favor UK leaving the EU according to a survey by Daily Mail (October 20, 2012). The British politicians are divided over the matter and the Economist outlined the benefits and costs of such a move (December 8, 2012). It should be noted, however, that UK s potential departure would not only affect Britain s economic and political relations with the EU but would also affect the Union s aspirations to be a global actor as it competes with other giants on the world scene namely China, India, and the United States (Yesilada et al. 2006). However, no one knows exactly what the benefits and challenges would be for Britain and the EU if Britain leaves the EU, or if it stays. In light of these challenges facing the EU, this paper examines the potential for deepening of integration among the major member states by looking at future power convergence, changing social values, and level of trust in EU institutions by citizens of members states. Power transition theory and Human Development Dynamics Theory (values literature) provide the theoretical basis of our analysis. Theoretical Framework Our analytic framework draws from two distinct theories that capture systemic/regional power shifts and societal level values changes: Power transition theory and Human Development Dynamics. Power Transition theory provides a useful perspective to analyze how the EU would fair in its global competition with other great powers. The theory is based on A. F. K. Organski s (1958) pioneering work that describes a hierarchical global system. According to this theory, the distribution of power in the international system is uneven. Power Transition specifies the relative roles of nations within this hierarchy, the system of governing rules, and then outlines how powerful countries attempt to manage global politics. Power Transition paints a picture of world politics that is integrated horizontally and vertically (Tammen 2000, Kugler and Tammen 2012). Additional application of this theory is found in Lemke (2002) who made a major breakthrough moving Power Transition toward a general theory of world politics by demonstrating the applicability of this perspective to regional hierarchies. His careful empirical analysis shows that the same principles that hold at the global level define interactions within regional hierarchies as shown in Figure 2. Members of regional hierarchies interact with each other. Understanding regional hierarchies adds complexity and generality to the Power Transition perspective. Global powers like the US, EU, Russia and soon China can directly intervene to alter outcomes in a region. They are able to interact, of course, but on matters of strategic importance it is a one- way street. There is more reason and opportunity for global powers to intervene in those other regions (Efird et al. 2003; Yesilada et al. 2006). This interferes with the ability of regional powers to operate under the normal rules. Lemke informs

6 5 us that the rules within regional hierarchies normally match those at the global level but the ability of global powers to intervene does not make this an exact parallel (Lemke 1996, 2002; Lemke and Reed, 1996). Dynamically, the theory stipulates that political interactions among nations are based on the varying commitment among national elites to the existing institutional status quo. This broad acceptance of international rules and norms determines whether a country is satisfied or dissatisfied with its position in the hierarchy and trust that the institutions created advances their interests. The most powerful nations hold a position at the top of the global or regional hierarchy. The dominant nation attempts to manage the regional system with a coalition of stable, satisfied supporters. When agreement is in place, the dominant nation can ease the process of integration. When disagreements emerge among large nations who do not trust the institutions created, integration comes to a standstill or recedes. Power Transitions perspective tells us that currently, the United States is the dominant power in the international power hierarchy. According to the same perspective, at present, the great powers are China, the EU, India, and Russia are also regional powers in their respective geographic regions. Figure 2: Global and regional hierarchies Dissatisfied Satisfied Brazil Argentina Uruguay USA EU China India Pakistan Bangladesh Source: Kugler, Yeşilada, & Fisunoğlu, Consequences of Reversing the EU Integration (2015:7) According to Power Transition theory, power defines the conditions of war and peace in the international system. Power is defined as the ability to make opponents comply with demands. Power is composed of three elements: population, economic productivity (GDP) and the ability of the political system in extracting resources from society. Population is an essential component of the power equation; however, in order to be relatively powerful, population must be more productive than the rivals. High political capacity is the other requirement to be powerful or developed. Politically capable governments can relatively extract more resources

7 6 and utilize them for national goals (Kugler and Tammen 2012). In addition to power and status quo dynamics, power transition theory includes the concept of hierarchal relationships among global and regional powers. An unordered hierarchy is one where most nations hold roughly equal shares of power. This situation presents the most likely conditions for conflict and the least likely conditions for integration. The reason is that nations in uniform hierarchies face few power constraints and are only restrained by the degree of satisfaction with the status quo. In the absence of a regionally dominant country supporting the status quo, competition among two or more contenders is the rule to resolve disputes among parties that vie for control of the region. Thus, conflict is more likely to occur within a uniform hierarchy as each contender with different interests and incentives attempts to impose its influence upon the region. In uniform hierarchies, the larger powers focus on protecting themselves from emerging challengers. In this context even when nations are satisfied with each other, cooperation is less likely. Asymmetric hierarchies are characterized by power concentrated in the hands of a dominant global or regional power that establishes and supports the status quo. In structural environments where the dominant nation is at least twenty percent stronger than any contender, the hierarchy is deemed ordered (Organski and Kugler 1980). The dominant nation can spend more of its resources ensuring the best support possible for the economic and political terms established in the status quo. In an asymmetric environment, war may still be waged, but it is less likely and will result in relatively low casualties as is the case in the ongoing war against terrorism. Efird (2001) and Efird, and Genna (2002) and Efird et.al. (2003) extended the theory and argued that the development of regional integration after a power transition between two satisfied powers improves because the formerly less powerful country has a vital interest in not only maintaining but also furthering and institutionalizing the arrangements that it believes to have contributed to its rise. Another important factor in understanding how governments react to opportunities and challenges associated with regional integration is found in how close their respective societies are toward each other in terms of value systems. That is how do similar value systems of societies affect relations between states. This is not a factor that has been used in international relations literature in explaining probability of conflict or integration (or cooperation) to the extent employed by sociologists and comparative politics scholars when testing the reasons behind emergent norms and how shifts in values can lead to rise of democratic states. We believe that inclusion of values in testing regional integration is a crucial factor that should be considered. Literature in this field is rich and varied. Human Development Theory (HD) addresses how social and political cultures evolve over time and the implications of cultural development for political development. Imbedded in this question one also finds inquiry about how economic progress and religious factors affect changes in values and peoples choice for political system. These are complex issues that have been central to a wide range of social science disciplines, from economics, politics, and sociology to cultural anthropology. How and why human values change and how these changes

8 7 affect the way societies govern themselves has kept scholars busy forever. In the more contemporary era, since late 18 th Century, social scientists have identified causal linkages between economic modernization, cultural change, and political development (Acemoglu and Robinson 2012, Gurr 1970, Huntington 1971, Inglehart 1997, and Levy 1967). Classic studies generally view modernization as a phased process that is progressive, lengthy, and in many ways irreversible. Moreover, modernization tends to have homogenizing effects and represents the westernization of developing nations and viewed in this way it is roughly a linear process that transforms nations from underdeveloped to advanced and industrial. However, there were extensive criticisms of this framework from both within mainstream political science and neo- Marxist and Dependency scholars. Mainstream political science questioned, among other things, whether the process was irreversible and unidirectional, while neo- Marxists and Dependency scholars suggested that the normative bias in early work amounted to the North American emperor s social scientific cloths. The recent advances in HD theory are generally centered on first set of criticisms. That is, the human development perspective provides a theoretical account of the modernization process that is neither inevitable nor unidirectional (Chua 2003 and Sachs 2005). Moreover, recent studies (Barnett 2004) have also linked motivations for international terrorism to economic modernization and instability, measured in terms of increased societal cleavages, associated with globalization while the clash of civilizations thesis of Samuel Huntington (1996) places cultural differences at the forefront in explaining international instabilities. Finally, HD Theory attempts to shed some light on which set of values result in democratic political systems. But, this last point is highly contested, as one needs to be sensitive to differences between institutionalized democracies (i.e., having democratic institutions in place) and genuine democracies (measured in terms of democratic practices and free choice people have in their lives). This is indeed an important distinction because as scholars like Ronald Inglehart and Christian Welzel (2005:48-76) and Merkel (2004) point out, measure of democratization can be problematic if one only pays attention to formal structures of democracy found in such indices like the Freedom House. In their attempt to overcome this dilemma, Inglehart and Welzel suggest looking at the anti- corruption measure of the World Bank while Merkel developed a set of criteria to measure five interdependent partial regimes (electoral, political rights, civil rights, horizontal accountability, and effective power to govern) to distinguish between embedded and defective democracies. A more detailed discussion of democratic values will be provided below. Despite the above divergence of views, the question that remains is: how does economic development interact with basic human needs and facilitate generalizable shifts in cultural predispositions and potentially revolutionary political behavior that moves societies from authoritarian to democratic system? The HD theory provides a plausible framework that expands the breadth of development processes to include cultural, social and political effects to account for modernization across societies. The basic premise of the HD theory is that socioeconomic development results in profound changes in basic human values that shape politics. But how is it that these values lead to change in political system of governance that can be characterized a democratic? In this regard Inglehart and Welzel (2005) provide some direction through their two compound variables that capture more than 78 percent of cross-

9 8 national variance in social change across the world. These variables capture individual s relative religiosity and social values along two dimensions. The first dimension is Religious (traditional)- Secular (autonomy) values, which reflect the contrast between societies over religion and religiosity. The more traditional societies place greater emphasis on religion while more secular- rational ones do not. Inglehart and Welzel also found that a wide range of values is associated with this dimension. For example, societies near the traditional pole emphasize the importance of parent- child ties and deference to authority, along with absolute standards and traditional family values, and reject divorce, abortion, euthanasia, and suicide. They tend to have high levels of religious values and national pride coupled with a nationalistic outlook. Societies with secular- rational values have the opposite preferences in all of these areas. The second key dimension of cross- cultural variation is linked with the transition from industrial society to post- industrial societies- which brings a polarization between Materialist (survival values associated with industrialization phase of development) and Postmaterialist (Self- expression/post- industrial) values (Inglehart 2008). It corresponds to transition to the post- industrial phase of economic development and an advanced welfare system which provide many individuals with an overwhelming sense of existential security (Bell 1973). Factor analysis of the mean national scores reveals that individualism, autonomy, and self- expression (measures of Postmodern value system) all tap a single underlying dimension that accounts for 91 percent of cross- national variance (Inglehart 2007:22). The basic argument maintains that unprecedented accumulation of wealth in advanced societies during the past generation resulted in a greater portion of the population that takes survival for granted. These individuals shift their priorities from an overwhelming emphasis on economic and physical security toward an increasing emphasis on subjective well- being self- expression and quality of life. A related issue that is intensely debated among scholars is over how religion affects the relationship between emergence of post- industrial values and transition to democracy especially when we consider the distinction between institutionalized and genuine (embedded) democracies. As Yilmaz Esmer (2007) explains, modernization does exert an influence on values in a predicted direction but the magnitude and occasionally the direction of the influence depends on cultural heritage a concept that mostly pertains to religious traditions. Put in different terms, it can be argued that religious tradition is the most crucial factor that explains cultural change and that this is why observed differences even in secularized populations, for example Western European countries versus the United States, depends on their respective religious traditions or heritage. This would also explain the exception observed in high income Islamic societies where emancipation values have yet to emerge on a mass scale. These observed differences are at the heart of the debate between secularization theorists and culturalists. Economic development tends to push societies in a common direction but rather than converging, they tend to move on parallel trajectories shaped by their cultural heritages that ware shaped by their respective religions. In examining these relationships, Inglehart and Baker (2000) found that peoples values shifted

10 9 from Traditional to Secular in almost all industrial societies where socio- economic conditions improved. Furthermore, reflecting that modernization is not a linear phenomenon, they found that there is a shift from Materialist to Post- materialist values when these societies move from industrial to post- industrial economies. According to their findings, progress from primary economies to post- industrial economies result in career changes and individuals also become free to emphasize a general need for self- expression, question authority, and demand political participation. Mass tendencies toward self- expression facilitate a political climate conducive to potentially elite- challenging activity and a civic culture consistent with genuine democratic governance. As a result, rising self- expression values lead to the emergence of effective political institutions (Inglehart and Welzel 2005). These findings support Gurr s argument to the extent that there is incongruence between cultural demand for, and political supply of liberal institutions, individuals are more or less prone to elite- challenging activity (Gurr 1973). Moreover, self- expression values support the social acceptance of basic democratic norms such as trust and political participation. The end result is a gradual transition toward democratization in autocratic nations and more effective political representation in democratic nations (Inglehart and Welzel 2005). However, there are important nuances that must be addressed concerning transition to democratic governance. For example, it is important to note that while desire for freedom is a universal human emancipation it does not take top priority when individuals grow up where survival is uncertain. It is where survival is secure that increase emphasis on self- expression values make democracy more possible where it does not yet exist and makes democracy increasingly effective where it already exists. On the flip side, adopting democratic institutions does not necessarily make self- expression values top priority for people. Such values emerge when socioeconomic development gives rise to a subjective sense of existential security. This can occur under either democratic or authoritarian institutions, and, when it does, it generates mass demands for democracy. (Inglehart 2007:29-30) That is, democratic institutions do not automatically produce a culture that emphasizes self- expression values either. Empirical evidence supports the claims of HD theory that economic progress (measured as real GDP per- capita) has positive and statistically significant effects on each value orientation. Empirical studies by Inglehart and other WVS scholars show a relationship between economic prosperity on the one hand and rationalist values and post- materialist values on the other with above- mentioned variations based on cultural effects. Likewise, Welzel (2013) provides robust empirical support for the relationship between economic means, cultural motives, and political rules. Most recently, Mark Abdollahian, Travis Coan, Hana Oh, and Birol Yesilada (2012) tested the HD Theory by an agent- based dynamic model that found support for the sequence of human development. Consistent with qualitative HD theory and empirical reality, their model shows a complex adaptive system perspective on HD theoretical processes: economic progress is a necessary condition for successful secularization and expressive political behavior, which are antecedents for lasting democratic institutions. While modernization is not inevitable, their results support empirical observations for a staged process where increasing existential security via economic development leads to increased emphasis on rational- secular and self- expressive values that results in societal development. Here, they also found that

11 10 rational- secular norms strongly impact economic growth and speed up the pace of development more than self- expressive societal values alone. Based on these theoretical arguments, we analyze how regional integration in the EU is affected by changes in power, regional hierarchy, and values structures of member states. Modelling and Analysis To simplify the analysis, we only focus on major states in the EU. The analysis in this paper focuses on the major EU members. Only countries with high level of GDP are included; Germany, France, Britain, Italy, Spain and Poland as the biggest European countries; Turkey as a candidate country; and Russia as a regional contender. When we look at how relative power of the EU members are shifting over time we see convergence among some of the key states while Germany maintains its dominance as shown in Figure 3. The size of the bubble represents per capita productivity and the position of each bubble is the relative share of the respective country s economy (in terms of purchasing power parity or ppp) in combined value of all economies of these countries in a given year. Figure 3: EU Hierarchy for the Major EU Countries (with Russia and Turkey) Source: IMF World Economic Outlook 2015

12 11 Note that Germany is dominant throughout the period buts its position is on a decline. This dominance extends to the period before the collapse of the USSR then East Germany was a separate entity from West Germany. France, the United Kingdom and Italy maintain parity for the first 15 years under consideration when Italy declines sharply. From the Power Transition perspective, therefore, the preconditions for conflict were present among these three nations during the first 15 years and continue until this day among France and the United Kingdom. Germany, a declining dominant nation since 1991 maintains superiority and is likely to be capable of sustaining the status quo. Figure also shows significance of Russia and Turkey as regional powers. As power transition is important to understand dynamics of EU relations, so are social values and how these change over time. As discussed in the previous section, this is crucial in understanding to what extent a set of similar values might be emerging in the European Union and to see who are coming closer to one another. Figure 4 provides the results from the World Values Survey for the I- W Indicators of materialist- postmaterialist and traditional- secular values over time. We also estimated the measure of values distance between the countries to show degree of convergence between dyads. The arrows indicate the change in direction for each country and each point represents average factor loadings along the two measures. Figure 4: Values Map Source: World Values Survey

13 12 The values map displays not just the type of values countries has but also how much they change over time and how close countries are to each other in terms of these values. The data on the map starts from 1991 and the direction of the arrows demonstrate 1996, 2000, 2005 and 2011 for each country respectively. Accumulated in the upper right quadrant, top European countries exhibit secular and post materialist values. Even though Poland is on the traditional side of the coordinate system, it is moving towards the values of the group: Germany, France, Britain, Italy, and Spain. Turkey is not only far away from the group but also moving towards the traditional end of the spectrum. Another distant actor is Russia. In contrast to Turkey, Russia is on the secular side of the coordinate system; however, Russian values are distant to the top EU group for being highly materialistic (being more concerned with survival rather than postmodern values). In order to examine how these developments are likely to impact deepening of integration in the EU, we considered three plausible models: Model 1: Integration (between EU members - dyadic) as a function of value convergence, relative position to regional leader and power. (1) IAS = α + β ) ValueConv + β 3 RelativePos + β 9 Power + e Model 2: Trust (toward EU by citizens) is a function of value convergence, Hierarchy, and relative power (2) Trust = α + β ) ValueConv + β 3 Hierarchy + β 9 RelativePower + e Model 3: Integration (between leader and each member) as a function of values convergence, hierarchy, and relative power. (3) IAS ABC = α + β ) ValueConv + β 3 Hierarchy + β 9 RelativePower + e For our dependent variable, we use the the integration achievement score (IAS) of Gaspare Genna (Appendix 1). The IAS measures the level of integration among EU countries. The data set is updated until 2011, and Turkey s score is recalculated as 1.16 in order to reflect its Customs Union membership since Russia is also added to the analysis with a score of 0 since it does not have any level of integration with the countries that are included in the model. The distance between value points of countries is called value convergence used in the three models. Value convergence is used as an explanatory variable in terms of analyzing the level of integration. This variable is calculated by using the Euclidean distance formula: d = (X a X b ) 2 + (Y a Y b ) 2

14 13 Value convergence with the regional leader is depicted in Figure 5. According to this figure, among the major EU countries, France is the closest country to the leader in terms of values. After France, Spain and Italy have near values with Germany. Compared to these three, the UK and Poland fall farther away from the leader. Figure 5: Value Convergence with the Regional Leader: Germany 3" 2.5" 2" UK/GMY" 1.5" 1" 0.5" FR/GMY" SP/GMY" ITA/GMY" POL/GMY" 0" Source: Estimated from the World Values Survey. 1990" 1991" 1992" 1993" 1994" 1995" 1996" 1997" 1998" 1999" 2000" 2001" 2002" 2003" 2004" 2005" 2006" 2007" 2008" 2009" 2010" 2011" In addition to value convergence, we employ two other independent variables to explain level of integration. The second independent variable is relative position of a member state to the regional leader (Germany). This is measures the difference between the distances of any two member states to Germany. RelativePosition = Valueconver GMY UK Valueconver GMY FR This is crucial because it shows the degree of similarity of relative distance to the regional leader. The third independent variable is power. We use power to see if the relative capability of a country influences the level of integration with other countries. For example, power calculation for the Germany- UK dyad would be as follows for every year: Power GMY FR = GDP GMY GDP FR

15 14 In the second model we examine whether trust in the EU is a product of values convergence, regional hierarchy, and relative power of member states. Here, the relationship is calculated as aggregate rather than a dyadic measure because we try to capture the relationship of each country with the EU. Therefore, the value convergence is calculated for each country versus the rest of the EU. For this calculation, we estimate the linear fit of the overall EU values. For example, when we look at Germany in 2000 (Figure 6), the rest of the EU values for the year 2000 are projected on a linear line, and the central point of this line is calculated. Then, we measure the distance between this point and Germany s value. This analysis utilizes the Eurobarometer survey data on trust as the dependent variable and focuses on the countries: Germany, France, UK, Italy, Spain, and Poland. Figure 6: Germany vs EU y = x Source: Eurobarometer In the second model, the other two variables are hierarchy and relative power. Measures of Hierarchy and relative power (RP) are: GDP GMY Hierarchy GMY = GDP FR + GDP UK + GDP ITA + GDP POL RP GMY = GDP FR + GDP UK + GDP ITA + GDP POL GDP GMY

16 15 The third model tests if value convergence with Germany, the regional leader, plays a specific role in integration. In this model the unit of analysis is the dyadic relationship of the top EU countries with Germany with the above variables employed. RESULTS Table 1 displays the statistical results of the three models. Since IAS takes only five values, model 1 and model 3 utilizes ordinal regressions. Findings are both important and have significant policy implications. Appendices 1-3 provide the details of these statistical runs. Table 1: Statistical Results of the Models: Model 1 Integration Threshold [IAS =.0000] [IAS = ] [IAS = ] [IAS = ] *** (.366) *** (.346) *** (.344) (.344) Power.935* (.375) Model 2 Trust Model 3 Leadership *** (3.232) *** (3.080) (2.828) Value Convergence *** (.150) -.291*** (.066) *** (1.218) Relative Position *** (.172) Hierarchy ** (.413) Relative Power * (.005) Constant * (0.526) *** (9.022) -.347* (.138) R Pseudo R- Square Cox and Snell Nagelkerke McFadden N Notes: Unstandardized coefficients reported, standard errors in parentheses; one- tailed significance tests: ***p 0.000, **p 0.005, *p

17 16 Results in Model 1 show that values convergence has a greater impact on integration than power. The lower the value distance between countries, the higher the level of integration between them. In other words, the more countries are closer in terms of values, the higher their level of integration will be. Similarly, the difference in their relative value position to that of the regional leader is also predictor of level of integration as indicated by variable RelatPosition ( and 0.000). The closer the value distance between countries in terms of the regional leader, the higher the probability of integration between them. The value similarity of countries compared to the leader has predictable value in terms of integration. The pseudo r- squares indicate that close to 50% of the variation is explained by the model. In other words, values of societies and economic capability account for almost half of the integration among countries. According to the results of the second model, value convergence is a reliable predictor of the level of trust in the EU. The coefficient of value convergence is negative meaning that closer the value distance of a country to the aggregate values of the European countries, the higher the level of trust for the EU. Coefficient for hierarchy is positive, indicating that the higher the position of a country on the EU hierarchy, the higher the level of trust for the EU in that society. Even though relative power has some level of statistical significance, the second model indicates that the economic capability of other countries in the integration do not necessarily affect trust in a society. As a result, among the top countries of the EU, having similar values and a higher position on the hierarchy are more important for trust building than being grouped with strong states. In Model 3, we observe a much larger significant coefficient for values convergence than in Model 1. This means that, value convergence with the leader has a higher weight on integration compared to the value distance between other member states. Hierarchy has a strong negative coefficient in this model meaning that the lower the position of a country on the hierarchy, the higher the probability of it becoming more integrated with the leader. According to these results, we expect to see that when there are strong contenders in the region, countries which are at the lower end of the hierarch would look to integrate with the regional leader. Since this model employs dyadic relationships, power variable (GDP Ger /GDP Challenger ) was also tested. We found it to be insignificant. Therefore, we substituted Relative Power and obtained statistically more reliable results. Still, the place of the country on regional hierarchy is far more important that its relative power vis- à- vis other countries in the group. Conclusions The findings of the paper reveal that societal value convergence is a reliable indicator of integration in the EU and for trust toward the Union. According to these results, value convergence with the regional leader boosts integration process and value convergence of major regional countries vis- à- vis regional leader brings about further deepening of integration. That is, as values of member states converge and move closer to the regional leader, ever closer union is likely to emerge. We also see that position of states on the regional hierarchy

18 17 plays a determining factor in this process. Those members that are at the bottom of the hierarchy are likely to form closer ties with the regional power than they are with the rising challenger(s). For example, from Figure 4, we see that Poland is not in the upper right quadrant (secular, post materialist) of the values map. However, average Polish values are moving towards more post- materialist/post- modern and slightly more secular values. As long as there is value convergence with the leader, the probability of incoherence in the integration process would decrease. Findings also suggest that we also need to take into account the weight of the country in the region. Results indicate that the higher the position of a country on the regional hierarchy, the lower the probability to integrate with the regional leader. Therefore, if one of the major powers has limited value convergence with the leader, the probability of conflict between the two is likely to increase. Consequently, as one of the heavy weights in the EU, Britain s limited value convergence with Germany is likely to put strain on EU integration. If Britain s value convergence continues to be limited with the leader, we should expect disaccord between UK and Germany for the foreseeable future. Even though Germany is comparatively bigger than France, Britain, Italy, and Spain in terms of GDP, the leader is not powerful enough to compensate the collective costs of the integration by itself. This is clear in Figure 3 where Germany s relative power is displays steady and significant decline. Therefore, value convergence with the regional leader is critical in terms of maintaining the coherence of the integration. As for the two regional countries that are crucial for the EU, we see no bright future. Both Russia and Turkey show no values convergence with Germany or any other EU member considered in this study. Their future relationship with EU is likely to be more distant than moving in the direction of deeper integration.

19 18 Appendix 1 Model 1: Integration The model utilizes an ordinal regression. When we look at the scatter box in Figure A1, we see that IAS takes strictly 5 values. Therefore, it is more logical to treat the dependent variable as an ordinal variable. According to the model fitting information, the model improves our ability to predict the outcome. The goodness- of- fit table tells us that our observed data is consistent with the model we fitted to it; the data fits the model. Compared to value convergence and relative position, power s statistical significance is weaker. Lastly, the test of parallel lines table tells us that the odds for each explanatory variable are not consistent across different thresholds of the outcome variable. However, this result is not important for this study. Instead of the categorical fit, we are more concerned with the overall relationship and connection of the explanatory variables with integration. Figure A1: Data distribution between IAS and value convergence PLUM - Ordinal Regression:

20 19 Case Processing Summary Marginal N Percentage IAS % % % % % Valid % Missing 14 Total 616 Model Fitting Information Model - 2 Log Likelihood Chi- Square df Sig. Intercept Only Final Link function: Logit. Goodness- of- Fit Chi- Square df Sig. Pearson Deviance Link function: Logit. The null hypothesis: The model is a good fit Pseudo R- Square Cox and Snell.479 Nagelkerke.509 McFadden.231 Link function: Logit.

21 20 Parameter Estimates 95% Confidence Interval Estimate Std. Error Wald df Sig. Lower Bound Upper Bound Threshold [IAS =.0000] [IAS = ] [IAS = ] [IAS = ] Location power valueconv relativep Link function: Logit. Test of Parallel Lines a - 2 Log Model Likelihood Chi- Square df Sig. Null Hypothesis General b c The null hypothesis states that the location parameters (slope coefficients) are the same across response categories. a. Link function: Logit. b. The log- likelihood value cannot be further increased after maximum number of step- halving. c. The Chi- Square statistic is computed based on the log- likelihood value of the last iteration of the general model. Validity of the test is uncertain.

22 21 Appendix 2 Model 2: Trust Value convergence variable takes the name EUdistX in this model indicating that it is an aggregate level calculation. Linear Regression: Variables Entered/Removed a Model Variables Entered Variables Removed 1 RP, EUdistX, Hierarchy b a. Dependent Variable: trusty b. All requested variables entered.. Enter Method Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate a a. Predictors: (Constant), RP, EUdistX, Hierarchy ANOVA a Model Sum of Squares df Mean Square F Sig. 1 Regression b Residual Total a. Dependent Variable: trusty b. Predictors: (Constant), RP, EUdistX, Hierarchy Coefficients a Standardized Unstandardized Coefficients Coefficients Model B Std. Error Beta t Sig. 1 (Constant) EUdistX Hierarchy RP a. Dependent Variable: trusty

23 22 Appendix 3 Model 3: Leadership Case Processing Summary Marginal N Percentage IAS % % % % Valid % Missing 0 Total 110 Model Fitting Information Model - 2 Log Likelihood Chi- Square df Sig. Intercept Only Final Link function: Logit. Goodness- of- Fit Chi- Square df Sig. Pearson Deviance Link function: Logit. Pseudo R- Square Cox and Snell.617 Nagelkerke.673 McFadden.388 Link function: Logit.

24 23 Threshol d Parameter Estimates 95% Confidence Interval Estimat e Std. Error Wald df Sig. Lower Bound Upper Bound [IAS =.00] [IAS = 2.67] [IAS = 3.17] Location valueconv Hierarchy RPgroup Link function: Logit. Test of Parallel Lines a Model - 2 Log Likelihood Chi- Square df Sig. Null Hypothesis General b. c 6. The null hypothesis states that the location parameters (slope coefficients) are the same across response categories. a a. Link function: Logit. b. The log- likelihood value cannot be further increased after maximum number of step- halving. c. The log- likelihood value of the general model is smaller than that of the null model. This is because convergence cannot be attained or ascertained in estimating the general model. Therefore, the test of parallel lines cannot be performed.

25 24 Appendix 4: Integration Achievement Score Integration Achievement Score (coding system) 1. Trade in Goods and Services 0 = No agreements made to lower tariffs and non-tariff barriers 1 = Preferential Tariff Agreement 2 = Partial Free Trade Area 3 = Full Free Trade Area 4 = Customs Union (Common External Tariffs) 5 = No barriers among member countries 2. Degree of Capital Mobility 0 = No agreements made to promote capital mobility 1 = Foreign Direct Investment allowed in limited form 2 = Capital withdrawal allowed 3 = Full access for foreign investment and capital withdrawal, except for national government procurement 4 = Full capital mobility expect for large scale mergers and acquisitions 5 = Full capital mobility without restriction 3. Degree of Labor Mobility 0 = No agreements made to promote labor mobility 1 = Right of movement granted for select professions 2 = Full right of movement 3 = Transferability of professional qualifications granted 4 = Transferability of pensions and other retirement devices 5 = Full freedom of movement 4. Level of Supranational Institution Importance 0 = No supranational institutions 1 = Establishment of nominal institutions 2 = Information gathering and advisory role 3 = Ability for institutions to amend proposals 4 = Ability for institutions to veto proposals 5 = Supranational institutions operate as primary decision node 5. Degree of Monetary Policy Coordination 0 = No monetary policy coordination 1 = Consultation regarding policy 2 = Commitment to maintain parity 3 = Coordinated interventions 4 = Regional Central Bank establishment 5 = Single currency 6. Degree of Fiscal Policy Coordination 0 = No fiscal policy coordination 1 = Consultation regarding policy 2 = Commitments regarding deficit spending and taxation